Private equity seeks 'act of AI' escape clause in €470M buyout loan
What's the deal? Private equity firms are inserting force majeure-style clauses into new buyout debt that would let companies pause the clock on defaults they blame on AI disruption, Bloomberg reports. H.I.G. CapitalDealroom has a profile for this one. Try Dealroom → secured such language in the €470 million ($524 million) loan backing its majority stake in TERRAS Group, a German-headquartered infrastructure engineering and construction provider — letting the company stop the clock on defaults it says were caused by AI disruption, for as long as it feels the impact.
How does it work? Force majeure clauses traditionally waive contractual obligations during catastrophes — hurricanes, earthquakes, the Covid pandemic or 9/11. H.I.G. is adapting that language to halt a default if TERRAS is hit by AI, alongside pandemics, sharp rises in energy or resource prices, war, and terrorism. The company still owes the interest, but lenders' remedies are suspended for as long as it feels the impact of AI; normally a missed interest payment triggers a grace period of around 30 days before a default can be called. The documents also reportedly let H.I.G. adjust earnings metrics for AI and other factors, so adjusted EBITDA could strip out losses or add back revenue in those cases.
The deal behind it: The term loan is part of a €570 million financing package, alongside a €100 million revolving credit facility, for H.I.G.'s purchase of a majority stake in TERRAS, according to facility agent GLAS. Founded in 2014 and based in Montabaur, TERRAS works on rail, energy, digital infrastructure, water and urban development projects across the DACH region.
Why now? AI threatens to upend business models and the debt built around them. Buyout firms are especially exposed after years of betting heavily on software-as-a-service companies now vulnerable to disruption.
What could go wrong? Some creditors say the provisions undermine the basic premise of lending: that you expect your money back even when things go wrong. Lenders pushed back and got similar language struck from the financing for Bain CapitalDealroom has a profile for this one. Try Dealroom →'s €4.7B buyout of Everllence (formerly MAN Energy Solutions, the VW-linked diesel-engine maker).
The language has appeared in at least two leveraged buyout financings since September, and several creditors said it goes further than usual. "Lenders and investors are closely reviewing language proposed by sponsors that seeks to permit event of default flexibility in connection with AI," said Jeremy Duffy, chair of European leveraged finance at Cahill Gordon & Reindel. He called it "a fast-moving piece of the leveraged finance documentation pie."
The signal: This is less about a wave of AI-driven defaults than about sponsors trying to shift uncertain business risk onto creditors through loan contracts. It lands amid a broader repricing of AI credit risk. If the clause spreads, the open question is how "AI impact" gets defined and who decides when the pause ends.
Read more: Bloomberg, livemint.com, GLAS, X
Image credit: TERRAS (signing of H.I.G. Capital's majority stake, July 2026)
