Unfortunately, it is difficult to negotiate sanctions. Lenders often argue that the proposed wording for the bank or banks is standard formulation and that it is not possible to make variations. Although this argument is used, negotiation is still possible. It is important to keep in mind that there is no consensus on market sanctions requirements; Each bank has its own sanctions policy and its own preferred formulation in lending contracts. The Bank`s standard sanction text, which acts as a documentation officer, is often used as a starting point for the formulation of sanctions. Other lenders in the syndicated or clubbed transaction may then add additional requirements to comply with their internal procedures. Sanctions clauses may therefore have dual requirements and may be rather restrictive for the borrower. However, if the proposed wording is viable or too cumbersome for the borrower, even companies with limited bargaining power can negotiate the sanction clauses in order to become more feasible. Compliance with sanctions laws is an important issue in credit documentation. In the face of increased sanctions legislation, increased enforcement measures and huge potential fines, lenders are increasingly insisting on strict clauses to ensure that borrowers comply with sanctions legislation. While sanctions were not a problem at all a few years ago, lenders currently include sanctions-related representations, general alliances and information pacts in credit contracts.
Many lenders fear reputational risks when a customer breaches penalties and lenders tend to devise more restrictive and comprehensive sanctions clauses than the sanctions laws that apply to the borrower or even the lender itself. Such comprehensive penalty clauses can impede the borrower`s ordinary activity and significantly increase the risk of default under the loan agreement. A description of sanctions laws and their specific effects on businesses does not go within the scope of this article; This will only be a formulation of sanctions in the loan contracts that a borrower may face. The credit market organization (hereafter referred to as LMA) has not issued any sanction provisions recommended in its facility agreements.