November 21, 2019

November 21, 2019

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November 20, 2019

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November 19, 2019

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The BUILD Act Greenlights Equity Investments, Increasing Need for Legal Involvement

A little over a year ago, the Better Utilization of Investments Leading to Development (BUILD) Act was signed into federal law, aiming to reform and strengthen US development finance capabilities by creating a new federal agency to help address development challenges and foreign policy priorities of the United States.

The US International Development Finance Corporation (DFC) will be a modern, consolidated agency that brings together the capabilities of the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority, while introducing new and innovative financial products to better bring private capital to the developing world.

Most importantly, the BUILD Act will allow this new DFC to make equity investments, which is unprecedented in the United States.

At the Impact Investing Legal Working Group (IILWG) DC Chapter’s September session, panelists Stephanie Bagot (Senior Attorney, FINCA Impact Finance), Amy Bailey (Associate General Counsel, Investment Funds, OPIC), John Beckham (Chief Investment Officer, MicroVest) and Patricia Sulser (Independent Consultant, Former Chief Counsel, IFC) discussed the nuances behind the BUILD Act.

The biggest takeaway is that the DFC’s ability to make equity investments will be game-changing, and legal counsel will be required now that the US government has the authority to be an equity holder for the first time. According to Sulser, “Data analytics underpin a really careful assessment of what the portfolio looks like now, and what we want it to be like. Having all sorts of separate systems like protections, compliance, regulatory and local law will require a lot of careful thought and legal expertise. I think everyone in the room is going to be really busy.”

While the process could become complex, there is also a big opportunity here. “There’s about $106 trillion in private gains currently in market,” Beckham said. “However, there’s no balance sheet of IFC or any government DFI that has that kind of money. So there’s an opportunity to use a combination of guarantees and equity to mobilize some of that $106 trillion; it’s out there.”

So, to where could that $106 trillion potentially be mobilized? Based on the statutes in the BUILD Act, the DFC will be required to focus on lower-income environments while restricting upper-middle investing. According to Bailey, “OPIC has a culture of returning money, and we’re really proud of that. The question for the staff and the board is, how long will it take for us to get comfortable investing in those really risky markets?”

For organizations like FINCA, the news about the Act’s preference for lower-income markets is welcome. “We’d like to see the US’ new agency invest in projects that have an impact on social issues, because we think that can bring a lot of recognition and support,” Bagot said. “Not only investing in large-scale organizations, but also in small projects that have such an effect.”

However, Bagot, and other parties invested in the outcomes of this new agency have to wait a bit longer to see it effect change. Since McDermott’s September roundtable, the DFC has seen a delay in deployment.

Though out of sync with the initial launch date, time may be just what the agency needs to secure necessary congressional funding to expand responsibly. As new DFC CEO Adam Boehler puts the situation, “I think all this does is buy a short period of time to prepare even more and really hit the ground running.”

© 2019 McDermott Will & Emery

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Carl J. Fleming focuses his practice on mergers and acquisitions, project development and project finance, predominately in the renewable energy industry. He leads energy, infrastructure and PPP transactions throughout the US and in more than 40 countries worldwide. Carl represents private equity investors, Fortune 500 companies, foreign governments, and a broad range of leading renewable energy developers and sponsors.

Carl provides legal and commercial advice for the development, construction, operation, purchase and sale, and financing of projects and infrastructure, including...

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