32.4.1 The Authority may be tempted to seek to limit the ability of Senior Lenders to transfer their rights. This is due in part to a perceived need to have the original Senior Lenders involved who understand the deal negotiated, but is primarily a confidentiality and national security/public policy issue. The Authority may be concerned, for example, about whose hands project information may be in and to whom the Authority may end up owing money. The Authority does not want to become embroiled in national security issues.
32.4.2 The Authority should not attempt to put restrictions on the identity of the Senior Lenders unless exceptional circumstances apply. The appropriate way to deal with confidentiality issues, for example, is to impose confidentiality obligations in either the Contract (as against the Contractor) and the Direct Agreement (as against the Senior Lenders) (see Section 31 (Transparency and Information) and Section 26 (Funders' Direct Agreement)).
32.4.3 To the extent that transfer restrictions against financiers can be justified, however, they should focus on objective categories (e.g. credit ratings or EU/OECD banks) or should prescribe a list of acceptable transferees rather than adopting the clumsy, all encompassing approach of a general right of veto (which, in any event, is unlikely to work). Such a list should be updated as and when appropriate. Restrictions of this type can be dealt with in the Direct Agreement, or in a separate confidential letter if there are particular sensitivities (see Section 26 (Funders' Direct Agreement)).
32.4.4 Restrictions are often more cosmetic than real, as they can usually be circumvented through assignment or sub-participation and so reliance should not be placed on such arrangements being effective or meeting the Authority's concerns. However, structures in which the interests of the Senior Lenders are assigned or transferred to entities in which or with which the shareholders (or Junior Lenders) have an economic interest are likely to be linked to a Refinancing and, if so, may require Authority consent on those grounds (see Section 28 (Refinancing)).
32.4.5 Where projects are financed by bond issues, it is likely to be particularly difficult to identify the bondholders at any one time. The Authority should not seek to impose or rely on any restrictions on such Senior Lenders (this is particularly impractical where bondholders are not registered e.g. holders of bearer bonds or where bonds are cleared through a clearing system, as is commonly the case). Where bonds are privately placed and the Authority can justify imposing restrictions on financiers, a similar approach as under Section 32.4.3 (Restrictions on the Senior Lenders) may be adopted. The Authority should note that Stock Exchange or listing authority rules on bond issues may require details of the Contract and underlying documents to be publicly displayed (although there are some exceptions to such rules (e.g. if display would prejudice national security).