USA Trends and Developments Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E Levisohn and Steven D Lear, Holland & Knight LLP
In a holding company PJV structure (“HoldCo PJV”), the PJV investor and PJV sponsor will frequently enter into a single joint venture formed for the purpose of making and holding multiple investments. The PJV investor typically makes a commitment to provide the required equity, and the PJV sponsor agrees to provide the HoldCo PJV with priority access to the PJV sponsor’s applicable investment opportunities. A HoldCo PJV may be the sole equity investor in each underlying investment, or it might invest in multiple underlying investments through joint ventures with other capital partners. In a platform PJV structure, the PJV investor and PJV will often form a co-general partner PJV (“co-GP PJV”), or an operating company JPV (“OpCo PJV”). In the case of a co-GP PJV, the PJV investor pro - vides most or all of the co-investment equity that a PJV sponsor will invest into joint ventures on behalf of the co-GP PJV with other capital partners. A co-GP investor will frequently have the right to participate in carried interest distributions paid to the co-GP PJV. In the case of an OpCo PJV, the PJV investor provides the PJV sponsor with the capital required to expand the PJV sponsor’s organisation or investment platform so that the PJV sponsor will have the resources to hire new employees, expand into new markets, pur - sue additional investment opportunities or manage a larger investment portfolio. An OpCo PJV investor will frequently have the right to participate in the fees paid to the OpCo PJV, as well as carried interest. There are a number of differences between a tradition - al joint venture and a PJV. In a PJV, the PJV investor is frequently motivated by the desire to have priority (or exclusive) access to the PJV sponsor’s investment opportunities. Many PJV sponsors are unwilling to restrict their access to other investors without appro - priate compensation in the form of additional fees or access to pursuit cost capital.
The PJV investor and PJV sponsor will frequently agree upon a business plan that describes the types of investment opportunities that will be pursued for a defined investment period, the required equity capi - tal amounts that will be invested, and the investment returns that will be targeted. Additional negotiating points frequently include the right of the PJV sponsor to pursue investment opportunities outside of the PJV, the scope of the PJV sponsor’s investment discretion, the aggregation (ie, a single distribution waterfall for the whole PJV) or non-aggregation (ie, an individual distribution waterfall for each investment) of invest - ment returns for multiple investments and the calcu - lation of the PJV sponsor’s “promote”, the provision of guarantees and other credit enhancements, and the timing of the liquidation of the PJV’s underlying investments. Because the anticipated term of a PJV may be sig - nificantly longer than that of a traditional joint venture, the documentation of a PJV often requires additional terms and provisions that seek to align the interests of the PJV investor and PJV sponsor during the life of the PJV. Examples of such additional terms and provi - sions include promote crossing provisions when dis - tributions are made on an investment-by-investment basis, expanded key person provisions that address changes in the PJV sponsor’s organisation, additional transfer and liquidity provisions that provide both the PJV investor and the PJV sponsor with expanded transfer and liquidity rights, and termination provisions that will allow the PJV investor or the PJV sponsor to terminate the PJV if the relationship is not working.
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