Covenants
Material adverse change
A material adverse change clause lets a lender act if your position deteriorates materially, without waiting for a specific covenant to break. Its most consequential position is not the default clause but the drawing conditions.
Also called MAC clause · MAC · material adverse effect · MAE · MAC drawstop
Most borrowers read the default clause. The drawing conditions are where the clause is most likely to matter to them.
| Position | Effect on a borrower |
|---|---|
| Standalone event of default | Rarely reached alone |
| Within the representations | 22–45 on the scale |
| Conditions to first drawdown | 42–68 on the scale |
| Conditions to each further drawing | The drawstop |
Positions a MAC provision commonly occupies in a facility agreement, ranked by how much it affects a borrower in practice. Illustrative of market practice; the guides publish no MAC drafting standard. Not legal advice.
What the clause does
It gives a lender a route to act when your position has deteriorated materially, without having to wait for a specific covenant to break or a payment to be missed.
Every other trigger in a facility agreement is defined against something measurable. A leverage covenant tests a ratio. A payment default tests whether money arrived. A MAC provision tests a judgement about whether something significant has gone wrong, which is exactly why it exists and exactly why it is contentious.
The commercial logic is straightforward from a lender's side. No drafter can anticipate every way a business can deteriorate, and a facility that only responds to enumerated events will occasionally be blind to something serious. The MAC clause is the catch-all for the thing nobody thought to write down.
The two positions it occupies
This is the part most worth understanding, because the two are commonly confused and only one of them is likely to affect you.
The first is as an event of default. A material adverse change occurs, and the lender acquires the rights that follow a default. This is the position borrowers read about and worry about, and it is rare for a lender to accelerate on a MAC alone, partly because the judgement is uncertain enough that acting on it invites a dispute.
The second position is in the drawing conditions, and it is the consequential one. Every drawing is conditional: the agreement repeats its representations each time you draw, so a default, or on some agreements a material adverse change, can block new drawings even where nothing has been accelerated.
Nothing dramatic has to happen for that to matter. There is no notice, no acceleration and no formal step; the drawing simply does not fund.
Why the drawstop matters more
Because of when it operates.
On a performing credit the risk is remote, and it should be described that way rather than inflated. But the mechanism matters, because the committed line is committed subject to conditions, and the moment of maximum need is the moment the conditions get read.
A revolving facility is usually held as liquidity cover for the case where trading disappoints. That is precisely the case in which a lender is most likely to look hard at whether the conditions to drawing are satisfied. The facility is at its least certain in the scenario it was arranged for, which is an uncomfortable property to discover late.
This is not an argument against holding an undrawn revolver. It is an argument for knowing exactly what the drawing conditions say, and for not treating a committed line as equivalent to cash in a stress case.
What makes one clause wider than another
Three questions decide most of it, and they are worth asking in this order.
Whose judgement applies. A clause turning on the lender's opinion is materially wider than one requiring an objective material adverse change, and one requiring the lender's opinion to be reasonably held sits between them.
What the change must affect. A clause pointed at the borrower's ability to perform its payment obligations is narrow and defensible. One pointed at the business, assets, operations, condition or prospects is very wide, and prospects is the widest word in that list because it looks forward rather than back.
And what is excluded. Matters already disclosed to the lender, conditions affecting the whole sector, and general economic conditions are common carve-outs, and their absence is worth noticing. Without them, a downturn everybody in your market is experiencing can in principle be read as a material adverse change in your position.
The same three words cover very different clauses. What narrows one is whose judgement decides and what the change must affect.
| Position | Effect |
|---|---|
| Delete the word prospects | 8–30 on the scale |
| Lender's opinion reasonably held | 28–50 on the scale |
| Objective test, not opinion | 48–72 on the scale |
| Carve out disclosed and known matters | 58–80 on the scale |
| Tie to ability to pay | Narrows it most |
Drafting positions ranked by how far each narrows a MAC provision. Illustrative of market practice, not a published standard, and no position is achievable on every deal. Not legal advice.
Where it arrives in the documents
Frequently after the commercial negotiation is over, which is what makes it hard to catch.
A term sheet is a few pages and it rarely sets out a MAC definition. The facility agreement runs far longer, is drafted by the lender's counsel from the lender's precedent, and settles everything the term sheet left open. MAC is named among the sites where terms drift between the two: a material adverse change clause doing quiet work, alongside an EBITDA definition acquiring add-back caps, default definitions that widen and permitted baskets that shrink.
Quiet work is the right description. The clause reads as boilerplate, it is rarely raised in negotiation, and its width is settled by whichever precedent the document came from rather than by anything either side discussed.
What to negotiate
The definition, and the drawstop position specifically.
Deleting a MAC provision entirely is rarely achievable and rarely the right ask, because a lender has a legitimate interest in a catch-all. Narrowing it is very often achievable, because the wide version usually arrived from a precedent rather than from a view about your credit.
The order that tends to repay effort is: tie the effect to the ability to perform payment obligations rather than to the business at large, remove prospects, require an objective test or at least a reasonably held opinion, and carve out matters already disclosed. Then ask separately whether the clause needs to sit in the conditions to each drawing at all, or whether the conditions to further drawings can be limited to no payment default and no insolvency event.
That last point is the one most worth spending goodwill on, because it is the difference between a committed line you can rely on in a stress case and one you can rely on only while you do not need it.
How lenders use it
Usually as leverage rather than as a weapon, and the distinction matters for how you should think about it.
Invoking a MAC and calling a default is an uncertain step that a lender takes reluctantly, because the judgement is arguable and being wrong about it is expensive. What happens far more often is that the clause shapes a conversation. A lender who believes a MAC argument is available has a stronger position in a waiver or amendment discussion than one who does not, and the terms of that renegotiation reflect it.
A drawstop is different again, because it requires no positive step. Declining to fund a drawing is not an action a lender has to justify in the same way as acceleration, which is one reason the drawstop position deserves more attention than it usually gets.
When a lender raises it
Get counsel involved immediately, and do not treat it as a commercial conversation you can have alone.
A MAC assertion is a legal question about the construction of a specific clause against specific facts, and the answer depends on wording that varies materially between agreements. Nothing general, including this page, will tell you whether a particular assertion is well founded.
Commercially, the useful response is the same as for any covenant problem: get to the lender early with a numbers-backed account of what has happened, what you are doing about it and what the position looks like in three and six months. A lender weighing whether to rely on a MAC is weighing whether the business is deteriorating or recovering, and evidence on that question is more persuasive than argument about the clause.
Common questions
What is a material adverse change clause?
A provision letting a lender act where your position has deteriorated materially, without waiting for a specific covenant to break or a payment to be missed. Every other trigger in a facility agreement is defined against something measurable; a MAC provision tests a judgement, which is why it exists and why it is contentious.
Can a lender use a MAC clause to stop lending to me?
Potentially, and the mechanism people overlook is the drawstop rather than the default. Every drawing is conditional, and the agreement repeats its representations each time you draw, so on some agreements a material adverse change can block new drawings even where nothing has been accelerated. On a performing credit that risk is remote, but the mechanism matters.
Why does the drawstop matter more than the default?
Because of when it operates. A committed line is committed subject to conditions, and the moment of maximum need is the moment the conditions get read. A revolver held as liquidity cover is at its least certain in exactly the scenario it was arranged for, and declining to fund requires no positive step from the lender.
What makes one MAC clause wider than another?
Whose judgement applies, what the change must affect, and what is excluded. A clause turning on the lender's opinion is wider than one requiring an objective test. One pointed at business, assets, operations, condition or prospects is far wider than one pointed at the ability to perform payment obligations. Prospects is the widest word because it looks forward.
Can I get a MAC clause removed?
Rarely, and it is usually not the right ask, since a lender has a legitimate interest in a catch-all. Narrowing it is often achievable, because the wide version typically arrived from a precedent rather than from a view about your credit.
What should I ask for instead?
In rough order of value: tie the effect to the ability to perform payment obligations, remove prospects, require an objective test or a reasonably held opinion, and carve out matters already disclosed. Then ask separately whether the conditions to further drawings can be limited to no payment default and no insolvency event.
How often do lenders invoke MAC?
Neither we nor the guides publish a frequency, and anyone quoting one should be asked for a source. What can be said is that acceleration on a MAC alone is an uncertain step lenders take reluctantly, and that the clause more commonly shapes the terms of a waiver or amendment conversation than produces a formal default.
What do I do if a lender raises MAC?
Involve counsel immediately, because it is a question about the construction of a specific clause against specific facts and no general answer applies. Commercially, get to the lender early with a numbers-backed account of what has happened, what you are doing and where the position lands in three and six months.
The full treatment sits in the guide: debt term sheet negotiation.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.