Debt + secret triggers = another Enron.
It's a nightmare scenario that used to keep only bankers awake at night. It's now a plausible scenario that should be keeping energy executives awake at night, as well.
Much the same way that bankers used to worry about a "run on the bank," where there is an overwhelming demand for liquidity that causes a solvent bank to fail, so should energy companies be worried that their use of material adverse change (MAC) clauses might trigger an overwhelming demand for liquidity that causes a once solvent energy company to fail. Of course, the banks now have the Fed to protect the financial system from a liquidity crisis. No such luck for the energy industry.
Some may say that the concept is preposterous, and that other energy companies have a greater asset base and bear no resemblance to Enron because of non-existent off-balance sheet partnerships.
But many energy companies have MAC clauses in credit facilities and backup commercial paper lines that could increase the company's burden in the event of a downgrade, such as by forcing it to pay off debt immediately or pay a higher interest rate. Other MAC clauses could be triggered by a company's falling share price. In fact, it was financial triggers that led Enron to losses when its stock price fell below a certain threshold.