Tag: investment

Modernization at Last: Insight to the Newly Published EB-5 Modernization Rules … Now the Race is On …

On July 23, 2019, United States Citizenship and Immigration Services’ (USCIS) regulations to update the Immigrant Investor Program were published in the Federal Register. The new EB-5 Immigrant Investor Program Modernization rules (New Rules) amend the historic Department of Homeland Security (DHS) regulations governing the employment-based, fifth preference (EB-5) immigrant investor classification and associated regional centers to reflect statutory changes and modernize the EB-5 program. The New Rules are creating quite a buzz in the EB-5 community with good reason. Of particular note, the New Rules modify the EB-5 program by:

  • Increasing the required minimum investment amounts;

  • Providing the long-awaited priority date retention to EB-5 investors in certain cases;

  • Amending targeted employment area (TEA) designation criteria;

  • Centralizing TEA determination;

  • Clarifying USCIS procedures for the removal of conditions on permanent residence fulfilment;

  • Providing for periodic minimum investment increases henceforth; and

  • Implementing a myriad other amendments.

The New Rules are effective 120 days from publication, which is November 21, 2019. The effective date of the New Rules presupposes that Congress will extend the EB-5 Program’s current sunset date of September 30, 2019. USCIS clarified that it will adjudicate investors, who file a Form I-526 petition before November 21, 2019, under the current EB-5 program rules. Now the race is on to initiate and complete investments by the effective date.

The “New” EB-5 Program: A Closer Look at Certain Changes.

Increased Minimum Investment. To account for inflation since the commencement of the EB-5 Program, the New Rules increase the minimum investment amount per investor to participate to $900,000 (from $500,000) if the project is located in a TEA or to $1.8 million (from $1 million) if not in a TEA. This increased amount commences on November 21, 2019. For many this is good news as the minimum investment amount increase is substantially lower than DHS’ initial proposal to increase to $1.35 million. To further adjust for inflation, the New Rules provide for periodic increases henceforth to the minimum investment every five years. USCIS proposes that this fixed schedule will create “predictability and consistency” by allowing EB-5 participants to plan accordingly.

TEA Determination. The amendments to TEA’s determination procedures that commence on and after November 21, 2019, are a hot topic. The biggest change in the New Rules is the abolishment of state sovereignty in the TEA determination process. No longer will the state in which the project is located determine TEA qualification. USCIS, which operates under DHS, will review and determine the designation of high-unemployment TEAs. EB-5 program stakeholders believe this change alone will dramatically limit the number of projects that qualify as a TEA, which could lead to an obsolescence of the EB-5 program. Also of note, the New Rules provide that any city or town with a population of 20,000 or more, whether inside or outside of a metropolitan statistical area, may qualify as a TEA henceforth. The New Rule also provides that a TEA may consist of a census tract or contiguous census tracts in which the new commercial enterprise (NCE) is principally doing business if the NCE is located in more than one census tract, and the weighted average of the unemployment rate for the tract or tracts is at least 150% of the national average. The applicability of TEA status to rural areas remains unchanged. Thus, only projects in metropolitan areas are at risk of no longer qualifying as a TEA under the New Rules after November 20, 2019.

DHS supports these steps with the position that the New Rules will ensure consistency in TEA adjudications by directing investment to areas most in need and increase the consistency of how high-unemployment areas are defined in the program. Of note, the New Rules do not include any preference for rural and urban distressed areas, notwithstanding the proposals for visa set-asides for such project. In addition, the New Rules do not integrate TEA determination with the new qualified opportunity zone designations under the 2017 Tax Cuts and Job Creation Act. These provisions might be addressed legislatively by Congress as part of a reauthorization bill this year. Some EB-5 stakeholders believe that Congress might overrule the New Rules in part (i.e., regarding the minimum investment amount and TEA changes) plus enact additional modernization rules such as authorizing additional visas, etc.

Priority Date Retention. For many years, both Congress and USCIS have recognized the value of a modification to the EB-5 Program to permit EB-5 investors to retain their visa priority date if they are required to amend their EB-5 petition for reasons unrelated to their own doing. The New Rules will allow EB-5 investors to use the priority date of a previously approved EB-5 petition. If and when an investor needs to file a new EB-5 petition, they can now retain the priority date of the previously approved petition, subject to certain exceptions.

An EB-5 immigrant petition’s priority date is normally the date on which the petition was properly filed. In general, when demand exceeds supply for a particular visa category, an earlier priority date is more advantageous. DHS will allow an EB-5 immigrant petitioner to use the priority date for a subsequently filed petition for the same classification for which the petitioner qualifies (unless the petition is revoked for material error, fraud or willful misrepresentation). We note that the New Rules allow an EB-5 petitioner to retain the priority date from an approved Form I-526 petition for a subsequently filed Form I-526 on or after November 21, 2019.

Removal of Conditions on Permanent Residence. The New Rules clarify that derivative family members must file their own Form I-829 to remove conditions on their permanent residence if they are not included in the principal petitioner’s I-829 petition. In addition, the New Rules streamline the adjudication process for removing conditions by providing flexibility in interview locations.

What happens next?

Until November 21, 2019, foreign investors, regional centers, developers and job-creating entities can rely on the existing rules. We urge those considering participation in the EB-5 program who desire to be grandfathered under the current law and the minimum investment amount of $500,000 to invest as soon as possible. As discussed above, if a project’s location in the market no longer qualifies as a TEA, then the minimum investment amount increases to $1.8 million, not just to $900,000. Accordingly, we recommend amending offering documents to include a discussion of the additional risks caused by the New Rules; principal among them is the potential inability to raise funds after November 21.

Regarding future viability of the EB-5 program, the increased investment amount may cause foreign investors to look to other United States programs, such as the L-1 and EB-1, as multinational executive or may look to the immigrant investor programs in other countries with a lower investment amount than the United States.[1]

[1] https://www.eb5investors.com/eb5-basics/international-immigrant-investor-programs

© Polsinelli PC, Polsinelli LLP in California
Article by Debbie A. Klis of Polsinelli PC.
For more on EB-5 immigration developments, see the National Law Review Immigration Law page.

As 2019 Approaches, Private Equity Investment in Health Care Shows No Signs of Slowing Down

As the year draws to a close, it’s clear that 2018 was another record year for private equity investment in health care. In its report on the top health industry issues of 2019, PWC’s Healthcare Research Institute recently highlighted the continued prevalence of private equity in health care transactions, and predicted even more private equity investment in the coming year. Below is an overview of the current and expected trends, as well as a few key considerations for private equity deals in the health care space.

Corporate health care buyers are likely to continue seeing steep competition from private equity firms… 

According to the PWC report, since 2009 the number of health care deals involving private equity buyers or sellers has tripled, and the number of deals is projected to increase further in 2019. Private equity investment in health care remains diversified and frequent, with deals ranging from health care technology to the management of physician practices. Because the health care industry is expected to continue to grow — with CMS projecting national health spending to rise to 20 percent of GDP by 2026 — investment in health care is a relatively safe bet for private equity when compared to more volatile fields like technology. Further, private equity firms tend to be more aggressive in the bid process and more willing to move deals ahead quickly.  As such, traditional health care companies seeking to acquire new lines of business face increased competition from private equity.

…but 2019 may bring additional opportunities for traditional health care companies to partner with private equity in acquisitions.

By partnering with private equity firms, health care companies can diversify their businesses while also mitigating some of the financial and operational risks that come with any deal. Partnerships between private equity and health care companies benefit from the strengths of both parties, enabling further growth while capitalizing on the health care companies’ existing expertise. Private equity firms’ willingness to invest in health care could also mean opportunities for health care companies to divest their non-core assets and refocus on their core business.

Regulatory Considerations for PE Health Care Deals

As with any highly-regulated industry, health care deals present regulatory hurdles for any prospective buyer, some of which may provide additional challenges in the private equity context.

Private equity deals often need to be structured to accommodate corporate practice of medicine (CPOM) issues. In states with CPOM prohibitions, private equity buyers cannot directly acquire medical practices. Instead, the prospective buyer would need to invest in or create a management company through which they manage the practice for a fee, which in many states is capped at a certain percentage of the practice’s revenue.

Regulatory filing requirements and the need for review and approval of deals by regulatory bodies often drive transaction timelines much longer than those to which private equity firms are accustomed. Some states can require up to 120 days’ notice prior to a change in ownership in certain health care companies. Involving regulatory counsel at the beginning of deal negotiations can help set reasonable expectations for timing while also letting the parties get a head start on the sometimes cumbersome filing requirements.

State licensing boards also often require disclosure of detailed information about the prospective ownership and management of licensed health care entities. This information can range from basic background checks to detailed financial information. While many states only require information about individuals who will be actively involved in the day-to-day operations of the health care business, some states require information about anyone with a five percent or greater ownership in the business, which sometimes requires an examination of ownership held by controlling entities, including parent, grandparent and great grandparent companies. Private equity firms should take this into consideration and consult with regulatory counsel about potential disclosure requirements and the feasibility of providing the required information when structuring deals.

Private equity activity in the health care industry presents many evolving opportunities and challenges, but one thing remains clear as 2018 winds down: growth in health care investment is full speed ahead.

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
This post was written by Cassandra L. Paolillo of Mintz.

New Rules Offer Clarity On China’s Outbound M&A Crackdown

On August 18, 2017, China’s State Council issued guidelines clarifying rules passed a year ago by the State Administration of Foreign Exchange (SAFE) limiting outbound investments as cover-up to move money out of China.

The new guidelines provide different policies for Chinese companies’ investment overseas, broadly dividing overseas investment into three categories:

  • investments in “real estate, hotels, entertainment, sport clubs, [and] outdated industries” are restricted;

  • investments in sectors that could “jeopardize China’s national interest and security, including output of unauthorized core military technology and products” and investments in gambling and pornography are prohibited; and

  • investments in establishing R&D centers abroad and in sectors like high-tech and advanced manufacturing enterprises that could boost China’s Belt and Road Initiative, and investments that would benefit Chinese products and technology will be encouraged by Chinese outbound regulators.

These guidelines are new and we have to wait and see how they will be interpreted and implemented by regulators. Still, there may be reasons to believe they will have a net positive effect on the China-U.S. M&A market. The new guidelines bring about greater certainty to buyers, lenders and targets on whether a deal will get approved by Chinese regulators.

The volume and size of Chinese outbound M&A is already on an upward trajectory in the second quarter of 2017, as buyers are already getting more acclimated to SAFE rules announced at the end of 2016 restricting the outflow of Chinese capital. Chinese buyers completed 94 deals totaling $36 billion in Q2, compared to the 74 deals totaling $12 billion in Q1. The current Chinese outbound M&A trend, coupled with greater certainty under the new guidelines, is likely to result in more Chinese outbound M&A deals during the last quarter of 2017, as well as in 2018.

This post was written by Shang Kong & Zhu Julie Lee of Foley & Lardner LLP © 2017

For more legal analysis go to The National Law Review

The ERISA Fiduciary Advice Rule: What Happens on June 9?

This is an update on the upcoming effective date of the “fiduciary rule” or “fiduciary advice rule” (the “Rule”) that was issued under the US Employee Retirement Income Security Act of 1974 (ERISA). The Rule was published by the US Department of Labor (DOL) in April, 2016. The purpose of the Rule is to cause a person or entity to become a “fiduciary” under ERISA and the US Internal Revenue Code of 1986 (the “Code”) as a result of giving of certain types of advice involving investment of assets of employee benefit plans, such as 401(k) or pension plans, or of individual retirement accounts (IRAs) and receiving compensation for that advice.

calendar hundred daysThe Rule was originally intended to become effective April 10, but in April the DOL extended (the “Extension Notice”) the effective date of the Rule for 60 days (until June 9), and provided for reduced compliance obligations under the Rule from that date through the end of 2017 (the “Transition Period”). The effective date for Prohibited Transaction Exemptions (PTEs), both new and amended, that are related to the Rule also was extended until June 9, and further transitional relief was provided with respect to certain of those PTEs.

In a May 23 Op Ed in the Wall Street Journal, Labor Secretary Acosta announced that the Rule would go into effect on June 9, as provided for in the Extension Notice, and that the DOL would seek additional public comment on possible revisions to the Rule.  He indicated that the DOL “found no principled legal basis to change the June 9 date while we seek public input.”  The DOL also published, on May 23, FAQs on implementation of the Rule and an update of its previously-issued enforcement policy for the Transition Period. Therefore, it is important to review the rules that will go into effect on June 9.

Under the Rule, fiduciary status is triggered by investment “recommendations.” It provides, in general, that if a person (1) provides certain types of recommendations to a plan or its participants and/or beneficiaries, or to an IRA owner (collectively, “Protected Investors”); and (2) as a result, receives a fee or other compensation (direct or indirect), then that person is providing “investment advice for a fee” and therefore, in giving such advice, is a fiduciary to the Protected Investor. Receipt of compensation tied to such recommendations by a person or entity that is a fiduciary could result in prohibited transactions under ERISA and the Code. Under the Extension Notice, the DOL provided simplified compliance requirements under the Rule for the Transition Period.

This post was written by Gary W. Howell, Austin S. Lilling, Gabriel S. Marinaro, Richard D. Marshall, Andrew R. Skowronski, Robert A. Stone of Katten Muchin Rosenman LLP.

New Transportation Investment Center Boosts P3 (Public-Private Partnerships) Projects: “P3 or Not P3?” That is the Question. Obama Says: “P3.”

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President Obama last week formally embraced the expansion of Public-Private Partnerships (P3s) as a means to fill the gap in public sector transportation financing. Infrastructure developers and project sponsors should look to a planned September 9 summit on infrastructure investment hosted by the U.S. Treasury Department to learn more about how they may gain access to/benefit from expanded resources for P3s.

In an announcement culminating after a series of events aimed at cajoling Congress into addressing the looming deficit in the Highway Trust Fund, the President established the “Build America Transportation Investment Center,” a new office in the U.S. Department of Transportation (DOT) focused on encouraging P3s. Citing the potential for domestic and foreign investment in American infrastructure, the President moved to create this resource center within DOT to assist states and local governments find ways to expand the use of innovative financing to build needed projects.

For many years, the Office of Innovative Program Delivery Finance was housed within theFederal Highway Administration (FHWA). This latest move will centralize P3 resources at DOT for highway, transit and other crucial projects, particularly those considered to be of regional and national significance and “those that cross state boundaries,” according to the White House statement.

If those sorts of projects are truly the focus of this initiative, perhaps there could be new life (or added momentum) for long-planned, but delayed projects like the Columbia River Crossing in Washington State/Oregon or the New International Trade Crossing between Detroit and Windsor, Ontario or even a variety of high-speed rail proposals that fell victim to budgetary politics during President Obama’s first term.

The President’s announcement offers the promise of additional access to existing DOT credit programs, including the highly successful Transportation Infrastructure Finance and Innovation Act (TIFIA) program. According to government estimates, each dollar of TIFIA loans leverages an additional $10 in private loans, guarantees, and lines of credit. The new Investment Center will also offer technical assistance to states that wish to expand private infrastructure investment and the 20 states that have not yet entered the P3 market at all. The Center may offer case studies of successful projects, examples of deal structures, and analytical toolkits.

The White House also announced that the Treasury Department will host a summit on infrastructure investment in the U.S. on September 9, 2014 for state and local officials to meet with their federal counterparts.

Article By:

James M. Auslander
Brian C. Levey
Fred R. Wagner
Of:
Beveridge & Diamond PC

10 Insights You Want to Gain from Your Social Media Monitoring

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If you are participating in social media for your law firm, you should also be monitoring whether or not your time investment is paying dividends.

Social Media Insight

You should be creating Google Alerts or searching on Social Mention for the name of your law firm and the names of your attorneys at least once a month.  Create alerts for the areas of law you practice as well.  The social media blog site Buffer recommends you keep these 10 insights in mind when reviewing your results:

Sentiment — Are mentions generally position, neutral or negative?

Questions — Look for questions people may have that you can provide the answers to in your social media posts or blogs.

Feedback — If you see feedback on Avvo or Yelp or some other site that directly affects your firm, you need to listen and respond appropriately.

Links — keep track of who is retweeting or reposting your content and keep track of who is linking back to you.

Pain points — absorb what people are talking about online that is of concern to them and use that information to inform your future posts.

Content — this is where your alerts for your practice area come in handy.  Use these to mine for topics of interest to your target market.

Trends — recent court decisions or trending news in your practice area should be included in your posts so it is clear you are on top of all the trends.

Media — journalists spend a lot of time online so pay attention to the areas they are covering that might provide you with an opportunity to reach out as a spokesperson on those subjects.

Influencers — are there certain individuals who keep popping up in your feeds?  They may be someone it would be advantageous for you to know as an industry influencer.

Advocates — monitoring is a great way to find and recognize those people who are talking positively about you online.

Article By:

Stephen Fairley
Of:
The Rainmaker Institute

EB-5 Visas: A Source of Funding for US Businesses But Not Without Risk

Poyner Spruill

China’s wealthy investors are known for seeking secure havens for their money overseas.  In addition to being considered a secure environment for their money, the US offers the EB-5 program providing the investor and his or her immediate family with permanent US residence, known as getting “green cards” in return for making an investment.

Basically, in return for an investment of either $500,000 or $1,000,000, which can be shown to the satisfaction of the US Citizenship and Immigration Services to create 10 US jobs per investment over a two year period, the investor and his family get green cards.  Since it started in 1990, the EB-5 visa program has brought approximately $6.7 billion to the US and has created 95,000 jobs.  In fact, the EB-5 visa program was not very popular until the 2008 financial crisis when traditional sources of financing became more difficult to obtain.  Since then, numerous businesses have attempted to use the EB-5 program to raise money.  For example, Vermont’s Trapp Family Lodge of “Sound of Music” fame advertises that it seeks EB-5 investors to open a beer hall and renovate its existing resort facilities.

There are two distinct EB-5 routes — the Basic Program and the Regional Center Pilot Program. Both programs require that the immigrant make a capital investment of either $500,000 or $1,000,000 (depending on whether the investment is in a Targeted Employment Area [TEA]) in a new commercial enterprise located within the United States.  A TEA is defined by law as “a rural area or an area that has experienced high unemployment of at least 150% of the national average.”  The new commercial enterprise must create or preserve 10 full-time jobs for qualifying US workers within two years (or under certain circumstances, within a reasonable time after the two year period) of the immigrant investor’s admission to the US as a Conditional Permanent Resident.

Entrepreneurs across the nation have set up regional centers for foreign investment to market local EB-5 projects to investors.  There are over 230 such regional centers, some of which are state-run  like Vermont’s Jay Peak. The flexibility offered by a regional center is attractive to both the investor and developer since the investor does not have to play a role in the company. With a direct EB-5 investment, the investor must have some sort of “managerial” function.  Seeing a lucrative opportunity when connecting an investor with regional centers, an industry has sprung up, particularly in China, to connect US businesses with potential investors. These go-betweens charge the regional center as much as $175,000 per investor for making the introduction.

Some projects have not produced the requisite number of jobs that would prompt US immigration authorities to withhold green cards – resulting in exposure to lawsuits from the investor against the developer or regional center that has solicited the investment.  Approximately 31 investors, 15 from China, filed a federal lawsuit alleging the only thing they had to show for a $15.5 million investment was an undeveloped plot of land across the Mississippi River from New Orleans.  In San Bruno, California, three Chinese investors alleged in a lawsuit filed last year that they lost $3 million when an EB-5 developer disappeared with his associates concocted a story about his death.

In contrast, the Marriot and Hilton hotel chains have successfully solicited and obtained EB-5 investment funds to build new hotels; Sony Pictures Entertainment and Warner Brothers have used the EB-5 program to raise funds for film projects; and the new home of the NBA’s Brooklyn Nets, Barclay Center, was funded through EB-5 investment.

Even if successful, EB-5 visa approval has become much slower due to suspicion of fraud and developers’ inaccurate estimate of creating 10 jobs per investor.  With the economic downturn, the USCIS has hired economists and securities lawyers to review EB-5 applications. Now showing it that it means business, the Securities Exchange Commission has filed its first lawsuit against an EB-5 project alleging that the promoters of a Chicago hotel and convention center project fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from over 250 Chinese investors.

The Canadian government has decided recently to halt its immigrant investor program due to the number of Chinese applications.  This has left Chinese investors potentially turning their attention to the US equivalent as they seek a financially and politically stable haven for themselves and their families.

Article By:

Jennifer G. Parser
Of:
Poyner Spruill LLP

A Giant Leap: EU-China Bilateral Investment Treaty Negotiations to Be Launched Formally

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Negotiations for a bilateral investment treaty between the European Union and China are expected to be formally launched during the EU-China Summit next week. Though the launch would be just the first step in a long negotiation process, it would also be a giant leap for upgrading the investment relationship between the EU and China.

On 24 October 2013, the fourth meeting of the EU-China High Level Economic and Trade Dialogue was held in Brussels.  Among other points, the most recent talk between the world’s two biggest traders reaffirmed the willingness to formally launch negotiations for a bilateral investment treaty (BIT) during the EU-China Summit to be held in Beijing later this month.

This move is significant for several reasons.

  • There is huge potential for investment flow between the European Union and China.

According to provisional Eurostat data, in 2012 Chinese investments into the EU(27) amounted to €3.5 billion, and only accounted for 2.2 per cent of total foreign direct investment (FDI) flowing into the EU. By contrast, in the same year EU firms invested €9.9 billion in China, accounting for approximately 11.4 per cent of all China’s inward FDI. It is worth noting that the EU’s outward FDI to China only accounted for 2.4 per cent of total outbound investment flowing from the EU to the rest of world in 2012. By contrast, bilateral trade in goods and services is more than €1 billion per day.

  • The existing BITs between China and EU Member States are to be upgraded.

China signed its first BIT with Sweden in 1982, and currently has similar arrangements with each and every EU Member State (except Ireland).  However, these BITs were negotiated and executed in the past 30 years, during which China went through substantial changes in all aspects of society, including a significant increase in outbound investment.  Some of the BITs were updated to reflect such changes, e.g., the China-Netherlands BIT was amended to include national treatment in 2001.

Overall, the EU-China BIT will not be a simple compilation of the existing BITs between China and EU Member States, but an upgrade of the investment relationship between them.

  • The negotiation of a EU-China BIT is likely to be a long process.

The negotiation of a BIT between two giant economic entities is likely to be a long process.  For example, the China-US BIT negotiation is still in its preliminary stage more than 30 years after both parties opened the dialogue in 1980.  The China-Canada agreement took 18 years and went through 22 rounds of formal negotiations.

The difficulties of these negotiations must not be underestimated.  The EU-China BIT will go further than the existing bilateral agreements with individual Member States.  The EU negotiators are keen to include provisions on market access, including access to services, and on intellectual property.  The negotiation process is likely to be complicated by calls from the European Parliament to include provisions on fundamental rights and values (social, environmental, consumer, etc.).

From a procedural point of view, this will be the first trade agreement negotiated by the EU since the assignment of trade and investment agreements to the exclusive competence of the EU under the Lisbon Treaty.  This gives the European Parliament a key role to play in approving any final agreement.

In sum, if both parties formally launch the negotiations in November, it will be a small step in the negotiation process, but a giant leap for upgrading the investment relationship between EU and China.

If EU industry has concerns about obstacles to FDI in China, including discrimination and absence of mutual treatment, it is not too late to raise them with the Directorate General for Trade of the European Commission.

Article by:

Philip Bentley, QC

Frank Schoneveld

Bryan Fu

Of:

McDermott Will & Emery