2 min read
What a MAC clause says and does
A material adverse change (MAC) clause — sometimes called a material adverse effect (MAE) clause — appears in two contexts in lending agreements. First, as a condition precedent to drawdown: funds will only be advanced if no MAC has occurred since signing. Second, as an event of default: if a MAC occurs at any point during the facility's life, the lender can accelerate repayment.
The clause typically defines a MAC as a material adverse change in the financial condition, assets, or prospects of the borrower (or the group), or in the borrower's ability to perform its payment and other obligations under the agreement.
The legal threshold for invoking MAC
English courts have consistently held that the threshold for a lender successfully invoking a MAC clause is very high. The change must be significant, not merely temporary, and must genuinely affect the borrower's ability to repay. Routine business volatility, short-term revenue dips, or sector-wide downturns that affect competitors equally are unlikely to satisfy this standard. The landmark English case law in this area — including judgments from the financial crisis — reinforced the view that MAC clauses are difficult to invoke and are rarely used in isolation to accelerate a loan.
This does not mean MAC clauses have no effect: the threat of invocation can significantly affect negotiations and the borrower's practical room for manoeuvre.
Negotiating MAC clause scope
Borrowers should seek to limit the MAC clause by carving out general economic or market conditions, changes in applicable law or regulation, and events that have been disclosed to the lender before signing. Lenders will resist overly broad carve-outs. The final wording is a negotiating point, and what is agreed will depend on the credit quality of the borrower and the competitive tension in the lending process.
- Resist MAC in 'prospects' — this is the widest and most subjective formulation
- Seek a materiality qualifier linked to the borrower's ability to pay, not general business condition
- Ensure disclosed matters are explicitly excluded as potential MAC triggers
Frequently asked questions
Has a UK lender ever successfully terminated a facility on MAC grounds alone?
It is extremely rare. English law sets a demanding standard, and lenders typically prefer to rely on more specific events of default — missed payments, covenant breaches — rather than expose themselves to the litigation risk of a contested MAC invocation.
Does MAC apply to the borrower group or just the parent entity?
This depends on the drafting. Many facilities define the relevant entity as the borrower and its subsidiaries taken as a whole. Where the borrowing vehicle is a holding company, the lender will typically want group-wide coverage. Borrowers may seek to limit this to material subsidiaries.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.