Mod 6 - Joint Venture

Question 1

define Joint venture financing

Answer 1

A contractual agreement between two or more parties to pool resources to undertake project.
Differs from a partnership as usually project specific.
Often used to finance projects where lender can provide additional value beyond capital
Can take for as
- unincorporated JV
-incorporated JV
- hybrid

Question 2

How does JV lender recoup investment

Answer 2

Lender will often provide capital to develop asset of borrower. Lender will provide capital injection in exchange for priority of profits. Once earning are recouped in earning phase the agreement may reallocate interests.

Question 3

JV cost of capital

Answer 3

Varies based on project, industry, and capabilities of parties. JV financing often obtained when equity not an option. Range may be in 20-30% range

Question 4

JV financing concerns

Answer 4

Lenders are concerned with:
• the duration of their “earn-in” phase;
• the circumstances in which they can abandon the project; and
• the level of fiduciary duty (if any) they owe to the other partner(s) in the JV.
A typical JV Financing arrangement allows a lender to earn a majority interest in a project

Borrowers are often concerned with:
• the right to retain some control over the project; and
• the right to specific minority protections.