The underwriters have priced the deal. The underwriting agreement has been signed. The issuer has returned its focus to running its business and the underwriters have moved on to the next deal. All that is left is for the lawyers to document the terms and to ensure that the underwriters are in a position to move money at closing. Then, a day or two after pricing, the plant unexpectedly blows up. What happens if an unforeseeable and materially adverse event1 (“MAC event”) occurs after the pricing of the securities but before closing?

In such a situation, a standard underwriting agreement would allow the underwriters to terminate the deal and all parties could walk away. That said, in certain circumstances, issuers, underwriters and investors may forgo the termination option and opt to stay in the deal.

Navigating an alternative to termination in a “plant blows up”-after-pricing scenario is particularly challenging because U.S. Securities and Exchange Commission rules and guidance are not always helpful and, given the infrequency with which these events occur, rarely do participants have a set of “best practices” to guide them.

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