COVID-19: CFIUS Considerations for Distressed M&A and Lending Transactions

The COVID-19 pandemic has created market conditions ripe for increased cross border investment as businesses scramble for capital and investors target distressed assets.

In response, countries are using existing or new foreign direct investment (FDI) review tools to protect sensitive domestic industries and other interests.  For example, the European Commission recently called upon its member states to use (or implement) FDI screening tools to protect European strategic assets and Australia’s Foreign Investment Review Board lowered the monetary threshold for FDI review to zero, thereby subjecting all foreign investments into Australia to review by the FIRB.

The Committee on Foreign Investment in the United States (CFIUS) is no exception.  Senior Department of Defense officials have recently and repeatedly stressed the need for the active use of CFIUS reviews to protect against “adversarial capital coming into our markets for nefarious means” during the current economic crisis, stating “we simply cannot afford this period of economic uncertainty to lead to loss of American know-how on critical technologies.”

Against this backdrop, U.S. businesses and foreign investors must be mindful of the CFIUS implications of acquisitions and financing transactions.

In this memorandum, we summarize key CFIUS considerations for M&A activity and the exercise of creditors’ rights—including under pre-existing agreements—in the current environment and under CFIUS’s recently revamped rules.