Thomson Reuters Westlaw Publishes Akin Gump Analysis of Material Adverse Effect Clauses in Loan Agreements
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Thomson Reuters Westlaw has published the article “MAE in loan agreements: A framework for lenders and borrowers during the current crisis,” written by Akin Gump corporate partners David D’Urso, Elazar Guttman, Jeffrey Kochian, and Trey Muldrow. The article, which originated as an Akin Gump client alert, notes that, while the overall economic impact of the coronavirus pandemic remains very uncertain, many businesses that have not yet drawn on available borrowing capacity “are facing a growing anxiety about whether their lenders will choose to not fund a borrowing request” by exercising material adverse effect (MAE) clauses in the applicable loan agreements.
The authors write that New York law “is the most common governing law of many commercial agreements (including loan agreements).” That said, “there is not a significant amount of case precedent on interpreting MAE clauses in the context of loan agreements.” With that in mind, they offer several key considerations based on existing case law in Delaware and New York that can assist during this period.
The article concludes with an observation that lenders and borrowers will likely “engage with each other and seek common ground on each party’s contribution to support the applicable business…in order to preserve the value of the business for the expected economic recovery.”
To read the article in its entirety, please click here.