394. If a U.S. person entered into a revolving credit facility or long-term loan arrangement for a person determined to be subject to Directives 1, 2, or 3 prior to the sanctions effective date, what are the restrictions on drawdowns from that facility? Do all drawdowns and disbursements pursuant to the parent agreement need to carry repayment terms of shorter than the applicable tenor specified in the relevant Directive?
If a U.S. person entered into a long-term credit facility or loan agreement prior to the sanctions effective date, drawdowns and disbursements with repayment terms of shorter than the applicable tenor specified in the relevant Directive are permitted. In addition, drawdowns and disbursements whose repayment terms exceed the applicable authorized tenor are not prohibited if the terms of such drawdowns and disbursements (including the length of the repayment period, the interest rate applied to the drawdown, and the maximum drawdown amount) were contractually agreed to prior to the sanctions effective date and are not modified on or after the sanctions effective date. U.S. persons may not deal in a drawdown or disbursement initiated after the sanctions effective date with a repayment term that is longer than the applicable tenor specified in the relevant Directive if the terms of the drawdown or disbursement were negotiated on or after the sanctions effective date. Such a newly negotiated drawdown or disbursement would constitute a prohibited extension of credit. [11-28-2017]
1) These FAQs are all substantively similar, with differences described below.
2) Note that FAQ # 371, which "introduces" the Ukraine-/Russia-related debt and equity prohibitions, states that "[a]ll the prohibitions of these Directives extend to rollover of existing debt, if such rollover results in the creation of new debt with a maturity of longer than the applicable tenor specified in the relevant Directive (see FAQ 394)."
That FAQ # 371 points toward FAQ # 394 is notable because FAQ # 394 do not explicitly discuss "rollovers". However, each of them say (using slightly different language) that:
"drawdowns and disbursements whose repayment terms exceed the applicable authorized tenor are not prohibited if the terms of such drawdowns and disbursements (including the length of the repayment period, the interest rate applied to the drawdown, and the maximum drawdown amount) were contractually agreed to prior to the sanctions effective date and are not modified on or after the sanctions effective date..."
In the context of the statement in FAQ # 371 that cross-references FAQ # 394, OFAC appears to take the view that "rollovers" of debt are not "new debt" when they are on terms that were "contractually agreed to prior to the sanctions effective date and are not modified on or after the sanctions effective date".
In any event, this FAQ extremely important as it stands for the proposition, which OFAC has extended to other contexts, that where debt is "created" after the sanctions effective date, it is not "new" debt for the purposes of these prohibitions when it is created pursuant to an underlying contract or agreement that has not been modified on or after the sanctions effective date. See Case No. VENEZUELA-2018-358633-1, extending the logic of this FAQ in the context of invoices for goods and services.
3) See FAQ # 409, also dealing with rollovers, but in the context of "a short-term facility created after the sanctions effective date".
4) FAQ # 394 was initially published on 9-12-2014, when the "new debt" prohibition was in its infancy. It refers to a "a revolving credit facility or long-term loan arrangement for [a sanctions target] prior to the sanctions effective date". See also FAQ # 514 (07-19-2018, Venezuela). The answer in both FAQ # 394 and FAQ # 514 begins with "If a U.S. person entered into a long-term credit facility or loan agreement prior to [the sanctions effective date]."
By contrast, in FAQ # 947 (12-2-21, Belarus) and FAQ # 987 (2-24-22, Russia), the question begins with "If a U.S. person entered into a revolving credit facility or long-term loan agreement," and the answer (FAQ # 947) begins with "If a U.S. person entered into a long-term credit facility or loan agreement..."
The first distinction suggests that OFAC want's to clarify that, for newly created debt issued under a pre-existing facility to escape classification as "new debt," it must relate to an actual "agreement". "Arrangement" was probably scrapped as it may have suggested that informal "arrangements" qualified. In addition, the answer referring to "a revolving credit facility or long-term loan," as opposed to "a long-term credit facility or loan". Query: why is it that the Belarus version of the FAQ begins with "If a U.S. person entered into a revolving credit facility or long-term loan agreement," instead of "[i]f a U.S. person entered into a long-term credit facility or loan agreement..." It may be that the Belarus version was altered vis-vis the previous two to clarify that U.S. persons need not determine what constitute "long-term" (and the Russia version of the FAQ reverted to the 2014/2018 versions because it was templated from those versions and OFAC did not appreciate the modification made in the Belarus version, which was drafted under less-pressing conditions).
* See generally General Note on the Prohibitions on Dealings in “New Debt” of Certain Sanctions Targets (System Ed. Note)