Zac Barnett is a Chicago-area attorney and co-founder of Fund Finance Partners, LLC, where he advises private fund sponsors on financing strategies and fund-level debt solutions. With nearly two decades of experience in fund finance, private equity, and commercial lending, Zac Barnett has developed a strong focus on structuring complex subscription credit facilities and related financial products. He previously spent 17 years at Mayer Brown LLP, representing both lenders and borrowers in large and complex transactions. In addition to his advisory work, he contributes to industry discussions through writing and speaking engagements, including co-authoring research on legal and regulatory considerations such as sovereign immunity within fund financing structures.
Navigating Sovereign Immunity in Fund Financing Facilities
Prevalent in private equity, subscription credit facilities (SCF) funnel diverse sources of cash flow into a single financial instrument. They provide a ready way of capitalizing projects in complex alternative investment areas such as real estate, infrastructure, and M&A. Zac Barnett, co-founder of Fund Finance Partners, coauthored a 2025 paper for Mayer/Brown that looks at the impact of investor sovereign immunity on the terms of subscription facilities.
Frequent investors in SCF often enjoy some degree of sovereign immunity. These include state endowment funds, government pension plans, and other government-maintained investment instruments. As a result, they have certain immunity rights during adverse proceedings. Traditional common law states, “the King can do no wrong.” In modern terms, government is not suable in its own courts unless it has consented to waive its sovereign immunity.
If a governmental investor retains sovereign immunity and has not waived it, a lender may face limitations in enforcing capital commitments under a subscription credit facility. This possibility makes it important for lenders to evaluate whether each governmental investor has waived sovereign immunity in its contractual documents before extending credit.
It’s worth noting that sovereign immunity, while prevalent in the United States, has been eroded over time, particularly at the state level, with a majority of states permitting actions against the state, so long as contractual claims are the basis.
US governmental investors may waive sovereign immunity in one of three ways. The first is an express waiver, such as a side letter provision or other writing that clearly and specifically relinquishes immunity rights. The second is a statutory waiver, where a statute (like the Tucker Act) enacted by the applicable legislature waives immunity for certain contract claims in commercial transactions. The third is a judicial waiver, based on controlling case law from a federal or the highest state court, finding that sovereign immunity cannot be used as a defense for contractual claims.
From the lenders’ perspective, express written waivers from investors are ideal because they are specific to the transaction. Implicit written waivers, which might involve affirmative representations that the investor will comply with commercial law and the terms of the partnership and subscription agreements, are less robust because they do not directly address sovereign immunity.
The least strong written formulation involves “mitigating language,” which at least provides a degree of assurance that the government entity agrees to fund its capital contributions. It does not, however, preclude the investor from raising a sovereign immunity defense against a facility.
Written waivers are, in turn, preferable to statutory waivers. However, there are cases where states will not, or are unable to, provide a written waiver.
Many states have enacted statutes waiving sovereign immunity for commercial contract claims filed in the state’s courts. States such as New York and California explicitly recognize waivers of sovereign immunity for contractual claims under specific legislation. Nevertheless, such statutes often impose strict conditions, such as requiring claimants to demonstrate due authorization and execution of the contractual agreement by governmental investors, as well as compliance with procedural requirements relating to venue and statute of limitations.
The bottom line is that no two jurisdictions are alike, and laws are continuously evolving, which makes it imperative that lenders and funds evaluate government investors on a case-by-case basis, staying apprised of sovereign immunity risk.
About Zac Barnett
Zac Barnett is a co-founder of Fund Finance Partners, LLC and an attorney with extensive experience in fund finance, private equity, and commercial lending. He previously worked at Mayer Brown LLP, representing lenders and borrowers in complex transactions. He holds a law degree from Northwestern University School of Law and a marketing degree from Elmhurst College. He contributes to industry dialogue through writing and speaking engagements and participates in professional organizations related to fund finance.