Application of the New UK National Security and Investment Regime to Lending Arrangements

On 29 April 2021 the National Security and Investment (NSI) Bill received Royal Assent. The NSI Act 2021 introduces significant legislative reforms which will overhaul the ability of the UK Government to review transactions on national security grounds, and potentially prohibit their completion or require remedies to allow them to proceed. This is against a backdrop of tightening of foreign direct investment regimes globally.

Once fully implemented (expected by the end of 2021), the NSI regime will introduce a new notification and review process, including mandatory notification (and a corresponding prohibition on completion prior to clearance) for the acquisition of shares/voting rights in entities carrying on specified activities in the UK in 17 sectors (including energy, transport, communications, defence, artificial intelligence and other tech-related sectors). This is combined with an extensive call-in power enabling the Government to intervene in qualifying transactions in any sector, with no materiality thresholds. This represents an important new execution risk factor in M&A, with a similar risk profile to merger control rules.

Whilst the majority of commercial lending arrangements are not expected to raise national security concerns, the Government has made clear that loans are not exempt from scrutiny under the new regime. There is currently a lack of detailed guidance on how the regime will apply to financing arrangements, but it is likely that it will be relevant in the following two scenarios:

• where acquisition financing is provided to an underlying transaction to which the NSI regime applies; and
• where lenders acquire control over applicable shares or assets on or prior to enforcement of security.

Please click here to read our detailed briefing in which we consider each of these scenarios, focussing on the key considerations for lenders and practical guidance on how to address potential risks.