Material adverse change (MAC) clause

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

A material adverse change clause lets a lender treat a significant deterioration in the borrower's business, assets or prospects as an event of default — or, in its milder forms, as a reason to refuse a further drawing — without any specific covenant having been breached. Because what counts as material is usually left to the lender's opinion, borrowers negotiate to narrow it, and lenders rarely rely on it alone: a MAC is hard to prove and invites a dispute, so it is usually invoked beside harder breaches. Its practical work comes earlier, as the clause that keeps a deteriorating borrower talking.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.