Money and structure
Guaranteed return
Also called guaranty, guarantee of principal, guaranteed rate of return.
A promise that the investor will earn a set return, or will get the principal back, which the EB-5 statute strikes out of the capital that counts, to the extent of the amount guaranteed.
What it decides
A guaranteed return is a promise of a fixed yield or of repayment written into the investment documents, and the guaranteed amount does not count toward the EB-5 minimum investment. For petitions filed on or after 15 March 2022 the exclusion is statutory in two parts. Capital invested with a guaranteed rate of return is not capital, 8 U.S.C. 1153(b)(5)(D)(ii)(III)(cc). Neither is capital subject to an agreement giving the investor a contractual right to repayment, such as a mandatory redemption at a set time or on a set event, or a put or sell-back option held by the investor, 8 U.S.C. 1153(b)(5)(D)(ii)(III)(dd), and that right is fatal even when it is contingent on the enterprise having the cash flow to honour it. For earlier petitions the same ground is held by the definition of invest at 8 CFR 204.6(e), the at risk requirement at 8 CFR 204.6(j)(2), and Matter of Izummi. USCIS states the test this way: if the investor is guaranteed a return, or a rate of return, on all or part of the capital, the guaranteed amount is not at risk, and for capital to be at risk there must be a risk of loss and a chance for gain. The rule reaches guarantees in kind. If the investor is guaranteed eventual ownership or use of a particular asset, such as a unit of real estate, the expected present value of that promise counts against the capital placed at risk. Two things it does not reach: a buy back option exercisable solely at the discretion of the new commercial enterprise, which 8 U.S.C. 1153(b)(5)(D)(ii)(IV) keeps inside the definition of capital where its exercise makes the investor withdraw the petition unless the sustainment period and the other requirements have been met, and an ordinary distribution of profits, so long as the distribution was not guaranteed and does not hand back part of the minimum investment.
Related terms
- Redemption and buy-back optionA redemption or put right is a contract term letting the investor demand that the new commercial enterprise repay or repurchase the investment, and by statute it takes the money out of the definition of capital. A buy back option is the mirror image, exercisable by the enterprise rather than the investor, and it is the one such term the statute allows.
- Preferred returnA claim to be paid first out of an EB-5 project's distributions, ahead of the sponsor, up to a stated rate. Immigration law does not define the term, which EB-5 borrows from private fund practice, and the rate an offering quotes is a priority rather than a promise: capital carrying a guaranteed rate of return is excluded from the statutory meaning of capital. Rates quoted in EB-5 offerings typically sit far below what a commercial lender or ordinary equity investor in the same project would require.
- Secured indebtednessDebt that the investor is personally and primarily liable for and that is secured by the investor's own assets, which counts toward the EB-5 capital requirement only when the debt instrument itself is what goes into the enterprise, not when the investor contributes cash borrowed against those assets.
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