Credit documents in conflict - MAC clauses and drawdown rights in the GCC loan market

MAC Clauses and Drawstop Rights in the GCC Loan Market The escalation of hostilities following US-Israeli strikes on Iran on 28 February 2026 andsubsequent Iranian retaliation across the GCCis forcing lenders and borrowers to reassessthe operation of their finance documentation.The GCC loan market has experienced These developments provide the factual matrix against whichparties must analyse the operation of MAC provisions and 2 – Can Lenders Accelerate Under MAC This note uses the market shorthand “MAC clause” todescribe facility agreement provisions that operate byreference to a “material adverse effect” (MAE) definition, and The current conflict does not automatically justify accelerationunder MAC clauses in most GCC facilities. Whether a MAC The LMA-form documentation contains a broad baselineformulation referring to material adverse effects on aborrower or its group’s business, operations, property,condition (financial or otherwise) or prospects, the ability You can refer to our recent notes on Beyond Force Majeure:When Does a Conflict Actually “Frustrate” a Contract,What Is My Strategy, and What Questions Should I Ask?”,Refusing Transit Through the Strait of Hormuz and Force In practice, however, MAE definitions are frequentlynegotiated along a spectrum ranging from this broadformulation to narrower tests focused only on financial This note considers the operation of material adverse change(MAC) provisions and drawstop mechanics arising in the GCCloan market and examines how lenders and borrowers shouldanalyse them under English law-governed Loan Market Whatever the drafting, English law requires a lender seekingto rely on a MAC breach to demonstrate a borrower-specific 1 – The Disruption and Its Relevance to The English Law Framework On 28 February 2026, coordinated US-Israeli strikes targetedIranian military infrastructure and senior leadership. Iranianretaliation has included attacks across the GCC and warningsthat the Strait of Hormuz may be closed to navigation. War-risk insurance for transits has been withdrawn or materiallyrepriced, and commercial shipping through the strait has The starting point remains the decision of Blair J inGrupoHotelero Urvasco SA v. Carey Value Added SL[2013] EWHC 1039 (Comm) (Grupo Hotelero). The case is the leadingauthority on MAC clause construction in loan agreementsgoverned by English law. The judgment provides theframework against which lenders and borrowers assesswhether an MAE has occurred.The following principles are commonly drawn from thecourt’s reasoning: •MAC provisions are construed according to ordinary For the GCC loan market, the immediate legal significanceof this disruption lies in the borrower sectors mostaffected. Aviation, logistics, energy services, construction,infrastructure and hospitality are all heavily represented in •An assessment of a borrower’s financial condition normallybegins with its financial information. External economic •The assessment is not confined to financial statementsand may take account of other evidence demonstrating a •A change will only be material where it represents asignificant deterioration in the borrower’s financial condition, The Temporariness Issue English courts have historically been reluctant to treat short-term deterioration as a material adverse change. If maritimedisruption in the Strait of Hormuz resolves within weeks, even •A lender cannot rely on circumstances of which itwas aware at the time of contracting unless those The analysis potentially changes if the disruption persists formonths and materially alters the borrower’s ability to generate •The burden of proof rests on the lender seeking to rely on Wrongful Enforcement Risk These principles set a deliberately high threshold for MAC-based acceleration, reflecting the commercial consequencesof accelerating a viable borrower. Although the clause in Grupo Hotelerowas confined to financial condition, and eachcase will turn on the precise drafting of the MAC provisions, If a lender refuses to fund or accelerates a facility on thebasis of a MAC event of default that is not in fact established,it risks being in breach of the facility agreement. An invalidnotice of acceleration will be treated as void by the courts,and subsequent steps taken in reliance on the acceleration It is also worth noting the Privy Council decision in CukarovaFinance International Limited and another v. Alfa Telecom Turkey Ltd[2013] UKPC 2, in which the MAC event of defaultapplied where there had been “any event or circumstancewhich in the opinion of [the lender] has had or is likely to havea material adverse effect on the financial condition, assetsor business of [the borrower]”. The Privy Council upheld the Market practice, particularly since the global financialcrisis, has therefore consistently favoured reliance on clearnonpayment or covenant breaches rather than solely MAC- Reviewing MAC Drafting The scope of the analysis ultimately depends on