The Sanctioned Lenders Problem

Anyone who has been involved in the negotiation of loan documentation in recent years – not just in the project finance arena but in the wider syndicated debt markets – will be well aware of the greatly increased attention banks place on sanctions clauses in loan agreements. These clauses are there to protect the banks, and entitle them to default the borrower, if a member of the borrower group – and very often its officers, employees, agents and sometimes others connected with the borrower group – become the subject of sanctions.

Following Russia's invasion of Ukraine and the resultant sanctions on Russian banks and also against the backdrop of heightened political tensions between Russia and China, an issue that has not previously been focused on in loan negotiations is starting to attract some attention: what are the consequences for the borrower, the agent bank and the wider syndicate if a lender becomes sanctioned? Historically, loan agreements have been