Private Equity Loans Introduce 'AI Force Majeure' Clauses

Some private equity firms have begun adding new provisions to acquisition financing that would allow borrowers to invoke a "force majeure"-like clause if they fail to meet debt obligations due to the impact of artificial intelligence, giving them more time to address defaults. The arrangement directly limits lenders' remedies under the loan agreement, potentially delaying repayment demands or other enforcement actions.

According to people familiar with the matter, wording of this kind has appeared in at least two leveraged buyout financings since September 2026, drawing pushback from some lenders. H.I.G. Capital successfully included such a clause in a €470 million loan backing its acquisition of a majority stake in Terras Group, a German infrastructure engineering and construction services firm. The provision can pause the running of the default grace period if Terras is hit by an AI disruption. Other trigger events include pandemics, sharp increases in energy or commodity prices, war and terrorism.

The key point of contention is that an AI shock has no clear end date, leaving lenders uncertain how long they may have to wait. In H.I.G.'s deal, the clause allows Terras to defer the consequences of unpaid interest while it considers itself still affected by AI. During that period, interest continues to accrue, but lenders' enforcement rights are suspended.

Some creditors argue that such arrangements undermine a fundamental assumption of lending: even if a borrower's business deteriorates, lenders should still be able to pursue repayment under the contract. Resistance has already worked in at least one deal. Sources said lenders successfully forced the removal of similar language from the financing for Bain Capital's €4.7 billion leveraged loan backing its acquisition of Everllence, the heavy-duty diesel engine business of Volkswagen.

The dispute reflects the dual impact of AI on business models and corporate debt structures. Private equity firms have invested heavily in software-as-a-service companies whose business models now face AI disruption. Strong credit demand over the years has enabled sponsors to gradually weaken lender protections in loan contracts, and the new AI clauses extend that trend into default scenarios.