Updated July 2025

Subscription credit facilities (a “Facility”) are a popular form of financing for private equity and similar investment funds (“Funds”). The Facility’s lenders (the “Lenders”) are granted a security interest in the uncalled capital commitments of the Fund’s limited partners (the “Investors”), and the Lenders rely on the Investors’ obligations to fund capital contributions as the primary source of repayment for the Facility. Governmental pension plans, state endowment funds, sovereign wealth funds and other instrumentalities of foreign and domestic governments are frequent Investors and may possess certain sovereign immunity rights against enforcement proceedings rooted in the common law concept that “the King can do no wrong.”¹

Sovereign immunity in its purist form could shield a governmental entity from all liability—including enforcement by a Lender seeking to collect uncalled capital commitments contractually owed by the governmental Investor to the Fund. Thus, as Lenders evaluate the creditworthiness of governmental Investors for inclusion in a Facility’s borrowing base, it is essential for Lenders to understand how sovereign immunity may impact the enforceability of such Investors’ capital commitments.

Governmental Investors must be evaluated on a case-by-case basis to ascertain if any sovereign rights apply and, if so, whether such Investor has effectively waived its immunity (thereby waiving its ability to raise sovereign immunity as a defense in subsequent litigation). This Legal Update sets forth the basic legal framework of sovereign immunity in the United States relevant to a Facility.

BASIS OF IMMUNITY

At its most basic level, the doctrine of sovereign immunity provides that the government cannot be sued in its own courts unless it has consented to waive its sovereign immunity. As it relates to governmental Investors organized under the laws of the United States or a political subdivision thereof (a “US governmental Investor”), the doctrine of sovereign immunity comes...