COVID-19 and MAC in Financing Agreements

Source: Vedder Price Originally published on: 25/03/2020

A material adverse change (“MAC”) provision (depending on where or how it is used) typically references a material adverse change in the business, assets, properties, liabilities, operations, condition or prospects of the relevant obligor (referred to as a “Business MAC” provision). MAC provisions may also refer to events that have a material adverse effect on the financial, banking or capital markets as a whole (referred to as a “Market MAC” clause). This discussion will largely focus on Business MAC provisions. MAC provisions are often found as:

- a qualifier to events of default, representations and warranties, covenants and other terms in both loan and lease documents;

- a condition precedent to funding in commitment letters and loan agreements, and in some cases as a stand-alone event of default.

While the COVID-19 global pandemic can already be seen to be sparking events of default (without reference to standalone MAC events of default), a growing discussion point in the aviation finance market is whether the effects of COVID-19 will enable lenders to refuse to fund under a loan agreement or commitment letter on the basis that a MAC has occurred.

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