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Copyright (c) 2009 The Columbia Business Law Review
Columbia Business Law Review

SURVEY: INTERPRETATION OF MATERIAL ADVERSE CHANGE CLAUSES IN AN ADVERSE ECONOMY

2009

Columbia Business Law Review

2009 COLUM. BUS. L. REV. 564

Author

David Cheng*

Excerpt



I. INTRODUCTION

By all accounts, 2008 was an awful year for the financial markets, and deal-making activity has plummeted. 1 Sellers in particular have had a tough time, and their negotiating power has been quite weak due to current market conditions. 2 Over the last year, credit has been increasingly difficult to obtain, and markets have been full of uncertainty. 3 Some sellers have even resorted to "reverse auctions," where several sellers compete over one buyer. 4 Meanwhile, buyers have found it easier to walk away from deals. 5 Often, buyers who try to renege on previously agreed to deals will argue that the seller has experienced a material adverse change ("MAC"), sometimes also referred to as a material adverse effect ("MAE"). 6

Seller plaintiffs in recent cases have contended that the real reason for assertion of MAC clauses by buyers is the increased difficulty in obtaining financing and enforcing commitments from lenders during these credit-scarce times. 7 In the Sallie Mae litigation for instance, buyers that included J.C. Flowers, J.P.Morgan, and Bank of America tried to invoke a MAE clause to avoid paying a $ 900 million breakup fee for dropping the $ 25 billion deal. 8 The buyers argued that Sallie Mae suffered a MAE due to the subprime mortgage crisis and the September 2007 passage of the federal College Cost Reduction and Access Act that reduced government subsidies to lenders such as Sallie Mae by $ 19 billion. 9 In seeking to recover the termination ...
 
 
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