The definition of ”material adverse change” may be one of the most negotiated parts of a credit agreement, but usually includes events that have a material adverse impact: (i) the borrower`s business, operation, condition (financial or otherwise) or prospects; and/or (ii) its ability to meet its obligations under the Agreement. Standard MAC deployment. A standard MAC settlement in an acquisition contract consists of three parts. First, a MAC is generally defined as any event, development or condition that has had or would reasonably expect to have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries (as a whole). Second, the provision generally excludes certain events such as force majeure, weather events, floods, earthquakes, natural disasters, terrorism or military actions, general economic slowdowns, general conditions existing in the business industry and other broad categories of market or credit conditions. Some provisions explicitly exclude ”pandemics”, ”epidemics”, ”diseases” or ”health emergencies” – and more recently (for example. B in the Morgan Stanley-E* TRADE merger agreement), others explicitly ruled out ”the COVID-19 pandemic”. Thirdly, the provision generally states that they are not excluded in respect of all or part of the above exclusions to the extent that they have had a disproportionate negative effect on the company and its subsidiaries (as a whole) compared to others in the same sector. In an acquisition financing agreement, the conclusion is generally subject to the absence of a target company MAC and that there is a cross-reference to the definition of MAC in the merger agreement. The definitions often found in M&A agreements are similar to those described above with respect to credit agreements. The most urgent interpretation of the EAW provision would be for any person who is currently under contract to acquire a company but has not yet concluded.

If this is the case, a buyer may attempt to terminate the purchase agreement and refuse to enter into it by claiming that the COVID-19 pandemic has caused an EMT. But if an EAW is no longer a standard event, how does the concept exist and work now? As mentioned earlier, it is one of the main modifiers of insurance, guarantees and restrictive covenants – including exceptions to restrictive covenants – in most loan agreements. Delaware courts, if they do not have a clear treaty direction or a clear and easy-to-apply quantitative rule, have come to the following wording to determine materiality: There are several aspects to consider when drafting and negotiating a ”COVID-19 reservation.” First, is the COVID-19 pandemic really the driving force behind the event? An interesting piece of this puzzle is whether a particular borrower is more affected by COVID-19 than its competitors, perhaps because management has been weaker. This possibility is clearly a division of risk between the lender and its client. If the COVID-19 pandemic has hit a particular borrower harder than their competitors at the potential expense of the lender, why should the borrower`s lower business acumen give them the right to retain flexibility in their loan documents when other borrowers with stronger management teams are not in such a dire situation? With this in mind, lenders can distinguish between the pervasive and pervasive effects of those that can rightfully be placed at the door of a particular borrower. To this end, lenders should obtain as much financial information as possible from the borrower, including (if necessary) through their information rights under the loan agreement. You should also try to understand the source of financing from which the borrower wants to repay the loan, as a borrower who depends solely on business profits is more likely to have experienced a significant adverse change than a borrower with large cash reserves. Finally, it is important for lenders to keep an eye on the financial support the government is providing to businesses struggling with COVID-19, as this may be enough to have a detrimental effect that would otherwise be significant and insignificant. The concept of MFA in financing agreements has evolved considerably since its inception as a stand-alone default event. As lenders` reluctance to rely on an EAW as a singular default has grown, its use in such a context has fallen out of favor, but its appearance as a modifier of restrictive covenants, insurance, and collateral has increased. As a result, the MFA CONCEPT remains more important than ever for documentation and negotiations.

As the COVID-19 pandemic continued to rage, the definition of EMM was adjusted to address emerging concerns. Changes to the term can be substantial and sometimes even detrimental (depending on your point of view), but as long as the sales teams and their consultants understand the issues, we hope that any concerns can be resolved in a mutually acceptable way. Finally, lenders must assess whether the change has had a significant and lasting impact on the borrower`s ability to execute the agreement (or will or may do so depending on the language of the clause), in relation to its financial situation (and/or prospects or other factors permitted by the clause). Given that the UK government`s measures have forced many companies to cease operations or fundamentally change their business models, it`s easy to see how they could make it harder for these companies to repay loans. However, in any case, it will be necessary to investigate the extent of the difficulties caused and whether they are likely to be more than temporary. .