The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Tue, 15 Jun 2021 14:25:54 +0000 en-US hourly 1 https://wordpress.org/?v=5.7.2 COVID-19 as a Material Adverse Effect (MAC) Under M&A and Financing Agreements https://corpgov.law.harvard.edu/2020/04/04/covid-19-as-a-material-adverse-effect-mac-under-ma-and-financing-agreements/ https://corpgov.law.harvard.edu/2020/04/04/covid-19-as-a-material-adverse-effect-mac-under-ma-and-financing-agreements/#respond Sat, 04 Apr 2020 13:43:37 +0000 https://corpgov.law.harvard.edu/?p=128006?d=20200404094337EDT Posted by Gail Weinstein, Warren de Wied, Steward Kagan, Fried, Frank, Harris, Shriver & Jacobson LLP, on Saturday, April 4, 2020
Editor's Note: Gail Weinstein is senior counsel, and Warren S. de Wied and Steward Kagan are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. de Wied, Mr. Kagan, Christian Nahr, Emil Buchman, and Mark Hayek.

A critical legal issue that has arisen in recent days is whether the COVID-19 pandemic may constitute a “Material Adverse Change” (or “Material Adverse Effect”–both referred to here as a “MAC”) under existing agreements. We expect that every party to a merger agreement or financing agreement will be reviewing the agreement to determine whether any party has a right to terminate the agreement or not perform certain obligations based on developments relating to the COVID-19 pandemic. Typically, the non-existence of a target company MAC is a condition to closing under a merger agreement; and the non-existence of a MAC on a borrower or its ability to perform under a credit facility is a condition to funds being drawn down. Even when a MAC (or other) provision does not clearly provide a right to terminate or not perform, the potential that a MAC has occurred may create leverage for a renegotiation of terms.

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