The effect of sanctions on loan agreements

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • The effect of sanctions on loan agreements
  • Sanctions issues on lending transactions
  • The effect of sanctions on facility agreements
  • Sanctions definitions
  • Status representation and funds undertakings
  • Consequences of a breach of a sanctions provision
  • Approach taken by the LMA and LSTA to drafting loan documentation
  • Reliance on sanctions regimes to avoid payments under the facility agreement provisions to avoid payments in breach of sanctions regimes
  • The EU blocking regulation
  • Sanctions—impact of Brexit

The effect of sanctions on loan agreements

This Practice Note looks at:

  1. issues that sanctions can pose on lending transactions

  2. the key provisions of the facility agreement that must be considered in the context of sanctions

  3. the approach to sanctions taken by the Loan Market Association (LMA) and the Loan Syndications and Trading Association (LSTA), and

  4. the implications of the EU Blocking Regulation

For information on the EU and US sanctions regimes, see Practice Note: The EU and US Sanctions Regimes.

Information on financial sanctions is contained in Practice Notes: International sanctions—an introduction, Financial sanctions—offences, Licences and exemptions in financial sanctions and The enforcement of financial sanctions breaches in the UK.

See Practice Note: Development of sanctions regime in the UK during the Brexit transition period [Archived] for information on the sanctions regime in the UK post Brexit.

Sanctions issues on lending transactions

Lenders will want to ensure that any transaction which they enter into complies with all relevant sanctions regimes because:

  1. if the borrower becomes subject to a sanctions regime, its assets may be frozen meaning that it can’t make repayments under the loan agreement

  2. they can become liable for civil and/or criminal penalties, and

  3. a breach of any sanctions regime can lead to serious damage to their reputation

In order to ensure that they are compliant with applicable sanctions regimes, it is vital for lenders to initially carry out

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