In
AB Stable VIII LLC v. Maps Hotel and Resorts One LLC et al., the Delaware Court of Chancery has published its first ruling regarding whether or not the effects of the COVID-19 pandemic constitute a material adverse effect (“MAE”) that would allow a buyer to terminate an acquisition agreement entered into prior to the COVID-19 outbreak in the U.S.
Introduction
In early 2019, AB Stable VIII LLC (“Seller”) initiated a sale process for its portfolio of fifteen luxury hotels located in the U.S. The winning bidder was MAPS Hotels and Resorts LLC (“Buyer”). Buyer and Seller entered into a purchase agreement (the “Agreement”) on September 10, 2019. After entering into the Agreement, but before the scheduled closing date, the COVID-19 pandemic dramatically impacted the business and leisure travel industries, and the hotel industry saw its occupancy and revenues plummet. In response to these changes and to conserve cash, Seller made several changes to its operations including: (a) laying off thousands of employees, (b) eliminating luxury services, such as spa treatments and other recreational activities, (c) shuttering hotel restaurants and lounges, and (d) closing the Four Seasons Hotels in Palo Alto and Jackson Hole.