Facility Agreement Material Adverse

September 20, 2021

The borrowers argued that it was axiomatic that in the event of fact at the time of conclusion of the contract, the contract could not constitute a substantial detrimental change, even if it existed at the time of the drawdowns. This referred to the fact that the loan agreement had been sought at a time when developers were in financial difficulty and seeking additional funding to fill a funding gap. The borrowers argued that if the lenders knew the state of play, they had to be considered to have concluded the credit agreement despite their existence. From a debt financing perspective, the next consequence we have on a force majeure provision is the “substantial adverse change” clause. Therefore, to what extent could a lender rely on a “Mac” clause to exercise its typical remedies under a credit agreement following a substantial adverse change in the pandemic? The most important cases regarding MAC clauses in the United States are related to M&As. Unlike Canada, U.S. courts have adopted a very high level of service. Buyers face “an almost insurmountable burden” if they convince the court that a MAC has occurred. [11] Clause MAC of the loan agreement provides that “since the date of this loan agreement [21 December 2007], the financial situation (possibly consolidated) has not been significantly altered”. This representation was automatically repeated during the drawdown. The loan agreement also provided that a default under the BBVA credit agreement constituted a default under the loan agreement. The loan agreement contained a similar provision of mac concerning the guarantor.

A misrepresentation of the financial situation would have been a default in the BBVA credit agreement if it had occurred on a relevant date imposed by the BBVA credit agreement. On 6 June 2008, the developers/borrowers applied for intervention under the loan agreement, but Carey did not pay the advance as the financial situation and prospects of the development companies deteriorated considerably until 6 June 2008. Carey subsequently resérent the loan agreement for non-payment of interest. During the hearing, Carey argued that the financial situation of the borrowers and the guarantor had changed significantly until June 6, 2008. The Tribunal found that there had indeed been a significant change in the guarantor`s financial situation, but that the guarantor had not repeated its presentation of its financial situation on 6 June 2008, since the date on which the representation was considered repetitive was set out in the BBVA credit agreement and was “the first day of each interest period”. which was not June 6, 2008. It would therefore be desirable for lenders to first consider the outcome of negotiations, including waivers or amendments to credit agreements, if only to avoid uncertainty and delays. Even if it is not possible to trade, it may be easier to wait for a more reasonable default event, for example. B the borrower who does not respect his financial obligations.

In view of the following indications concerning the materiality threshold of MAC clauses, it would appear that, in certain cases, such an infringement may occur in good time. MAC clauses are commonly referred to as “last resort” and lenders would be well advised to approach them as such. Reporting a failure event based on the significant adverse change event The concepts of major adverse change (MAC) and significant negative impact (AED) are used in different ways in a typical installation agreement, but in different ways. . . .

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