You are reading the undertakings section of your term sheet. One of the conditions is the MAC clause covenant. Here is what it controls, why the bank includes it, and what to check before you sign.
What the bank is measuring
A Material Adverse Change (MAC) or Material Adverse Effect (MAE) clause allows the lender to call a default if a significant negative change occurs in the borrower’s financial condition, business, or prospects. The definition of “material” is typically broad and somewhat subjective.
What this means: Creates ongoing uncertainty — any significant negative event (loss of a major customer, regulatory change, market downturn) could theoretically trigger the clause. In practice, banks rarely invoke MAC in isolation, but it is a powerful negotiation tool in distressed situations.
What to check
Definition of “material”: the broader the definition, the more discretion the bank has
Belgian practice: banks typically use MAC as a backstop, not a first-resort trigger
Carve-outs: check whether general economic downturns or industry-wide events are excluded
How to negotiate
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the MAC clause covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.
What to do next
The fastest way to see whether a MAC clause covenant — and every other condition — is in your term sheet is to let Credia read it for you. Upload the PDF and you get every covenant identified and explained, in plain language, in under two minutes.
Analyse your term sheetFrequently asked questions
What is a MAC clause covenant?
A Material Adverse Change (MAC) or Material Adverse Effect (MAE) clause allows the lender to call a default if a significant negative change occurs in the borrower’s financial condition, business, or prospects. The definition of “material” is typically broad and somewhat subjective.
What does a MAC clause covenant restrict?
Creates ongoing uncertainty — any significant negative event (loss of a major customer, regulatory change, market downturn) could theoretically trigger the clause. In practice, banks rarely invoke MAC in isolation, but it is a powerful negotiation tool in distressed situations.
Can you negotiate a MAC clause covenant?
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the MAC clause covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.