USA Trends and Developments Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E Levisohn and Steven D Lear, Holland & Knight LLP
There are several market trends and recent develop - ments that impact US joint ventures. On 21 March 2025, the US Department of the Treas - ury’s Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that significantly narrowed the scope of the Corporate Transparency Act (CTA). Hybrid capitalisation structures such as joint venture preferred equity, co-investment joint ventures (CJVs) and club joint ventures (“club JVs”) have continued to flourish in today’s environment of higher US interest rates and the reduced availability of debt. The use of programmatic joint ventures (PJVs) has also continued to expand because of the need for speed, efficiency and cost effectiveness due to increased competition for investment opportunities. The following is a brief description and analysis of these trends and recent developments. Corporate Transparency Act The CTA requires reporting companies to make certain filings regarding themselves, their company applicant and their beneficial owners with FinCEN, which is a part of the United States Department of the Treasury. Many US joint ventures were previously considered to be reporting companies and were required to make filings with FinCEN. FinCEN issued an interim final rule on 21 March 2025 that limited the CTA’s beneficial ownership informa - tion (BOI) reporting requirements. This interim final rule exempted domestic companies from CTA reporting in an effort to reduce regulatory burdens. Joint venture entities formed under the laws of a US state are now exempt from all BOI reporting obliga - tions. This rule change removed millions of domestic companies from the reporting scope. The interim final rule was issued without prior notice to avoid immediate compliance burdens, while invit - ing public comments within 60 days for a finalised rule later in 2025. The interim final rule has not been finalised as of the date of this article. The rationale given for the rule change was a deter - mination by the Treasury Department Secretary that
domestic company reporting did not serve the public interest sufficiently and that existing bank customer due diligence mitigated illicit finance risks. FinCEN also concluded that the cost savings from reduced reporting requirements outweighed the benefits of broader BOI data collection because of the marginal value of the excluded information. Preferred Equity Investments A typical capital stack for a US joint venture invest - ment is usually comprised of a combination of debt and equity, with the debt portion comprising 40% to 80% of the capital structure and the equity portion making up the balance. High interest rates, increased regulatory restrictions and economic headwinds have resulted in a reduced availability of debt and an increased need for joint venture sponsor equity. Because a joint venture sponsor may be under-capi - talised, and a common equity investment may involve a high degree of risk and an uncertain return, there is often a funding gap that needs to be satisfied. A pre - ferred equity investment (PEI) into a joint venture entity is increasingly being used by joint venture investors and joint venture sponsors to satisfy the funding gap. PEIs can be attractive to investors because they cre - ate an opportunity for the PEI investor to achieve a better risk-adjusted return, with greater governance controls, than a typical debt investment and more security than a typical common equity investment. A PEI investor can achieve a higher return because the PEI is subordinated to the repayment of debt, while reducing risk because the common equity is subor - dinated to the repayment of the PEI. PEIs can also be attractive to joint venture sponsors because they permit greater leverage (and potentially higher returns) than might otherwise be available in today’s economic environment while preserving more of the upside for the joint venture sponsor if the underlying investment is successful. PEIs made through a US joint venture can be struc - tured as an equity investment with features similar to a mezzanine loan, or as an equity investment with features similar to a common equity investment – or somewhere in between.
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