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Material adverse change MAC
Also called MAC clause, material adverse effect, MAE.
A clause letting a lender suspend funding, demand more collateral or call the facility when the borrower's condition worsens significantly, on a test the lender largely applies itself.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
## What the clause does
Most committed facilities are committed only while the borrower stays roughly as described at closing. A material adverse change clause is the exit: if the lender determines that a material adverse change has occurred in the borrower's business, financial condition, operations or prospects, it can suspend further advances, refuse renewal, require additional collateral, or declare an event of default.
The clause rarely defines "material" with numbers. That vagueness favours the drafter, and narrowing it - tying the test to specified measurable events rather than the lender's judgment - is one of the few genuinely negotiable points in a credit agreement.
## Where it bites
It matters most on revolving facilities and in the gap between commitment and closing. A borrower who has planned around an approved line can find the line frozen at exactly the moment it is needed, because the same downturn that created the need is the event the clause describes.
Courts in several states have been reluctant to let lenders invoke a MAC on thin evidence, particularly where the condition was known at closing or the lender kept funding after learning of it. Outcomes turn on the specific wording and the governing law, so whether a given invocation holds up is a fact question rather than a rule.
Where this one catches people
Committed does not mean irrevocable. An approved line with an undrawn balance is a promise conditioned on the borrower's continuing health, and the health test is written by the lender. Undrawn availability is not the same as money.
Where you will meet this term
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Material adverse change — common questions
What does material adverse change mean?
A clause letting a lender suspend funding, demand more collateral or call the facility when the borrower's condition worsens significantly, on a test the lender largely applies itself.
Where does material adverse change catch people out?
Committed does not mean irrevocable. An approved line with an undrawn balance is a promise conditioned on the borrower's continuing health, and the health test is written by the lender. Undrawn availability is not the same as money.
Is material adverse change the same as an interest rate?
Material adverse change is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does material adverse change apply to?
Working Capital, Term Loan, Business Line of Credit, Asset-Based Lending.
Is there a worked example of material adverse change?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside material adverse change?
Acceleration clause, Covenant, Event of default, Line of credit, Notice of default.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.