Articles Posted in CFIUS

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TAKEAWAYS

  • A transfer of control of a borrower or its business to non-U.S. lenders who exercise remedies under financing documents could trigger CFIUS issues
  • CFIUS regulations adopted in February 2020 dramatically heighten the risk to non-U.S. lenders and borrowers by sweeping many more businesses and industries within CFIUS’ regulatory reach.
  • Advance planning can limit the need for CFIUS reviews for parties entering into new financings and provides a safety valve for parties to existing financings, whether in distressed, workout or bankruptcy scenarios.

The COVID-19 pandemic has had a drastic and abrupt impact on global commerce, as many businesses have slowed or suspended operations. Despite aggressive U.S. Government efforts to support vulnerable businesses, the sharp economic downtown is compelling lenders and investors to consider restructuring and/or exercising remedies under their financing documents in order to protect their interests. In so doing non-U.S. lenders and investors potentially face an additional hurdle that may not have been accounted for at the time of the original transaction. The Committee on Foreign Investment in the United States (CFIUS) may have jurisdiction to review and potentially disallow certain default remedies, financial restructurings, and equity conversion rights where foreign persons are involved.

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On March 6, 2020, President Trump issued an Executive Order (EO) instructing the Chinese company Beijing Shiji Information Technology Co. Ltd. (Shiji) to divest its acquisition of StayNTouch Inc., a U.S.-based software company providing management systems to hotels. Pursuant to the EO, Shiji is required to fully divest its interest in StayNTouch within 120 days, with the possibility of a 90-day extension. The President determined that there was “credible evidence” that Shiji, through its acquisition of StayNTouch, “might take action that threatens to impair the national security of the United States.” The EO does not specify CFIUS’s particular concerns but it appears that StayNTouch’s platform could provide Shiji with access to a large database of personal and financial information of its users.

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On March 5, 2020, the U.S. Department of the Treasury issued a proposed rule establishing filing fees for parties submitting a voluntary notice to the Committee on Foreign Investment in the United States (CFIUS) for “covered transactions” under Part 800 (which includes covered investments) and “covered real estate” under Part 802. The proposed rule implements the filing fee provision contained in section 1723 of the Foreign Investment Risk Review Modernization Act (FIRRMA).

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On January 13, 2020, the U.S. Department of the Treasury issued two final rules for the Committee on Foreign Investment in the United States (CFIUS) implementing the Foreign Investment Risk Review Modernization Act (FIRRMA), which was enacted on August 13, 2018. The final rules largely adopt the proposed rules published on September 17, 2019, with several key clarifications and modifications. As discussed previously, FIRRMA has resulted in two separate rulemakings that expand CFIUS’ jurisdiction to include (i) certain non-controlling investments in U.S. businesses engaged in critical technology, critical infrastructure, and sensitive personal data, and (ii) certain real estate transactions. The final rules will be published in the Federal Register on January 17, 2020 and will go into effect February 13, 2020 (Effective Date), with one exception described below. We anticipate that the Treasury Department will publish a separate rule concerning filing fees soon.

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