October brought flurry of PE-related federal policy initiatives, PESP endorsements

Ahead of the 2024 election, the month of October saw a variety of policy developments intended to address the harms created by the private equity industry. Tenant advocates, policymakers and regulators continue to offer solutions to better regulate private markets on the federal level. The emerging groundswell of interest in this area should be encouraging as advocacy organizations anticipate this country’s future political landscape.

FTC Changes to HSR Premerger Notification Form

On October 10, the Federal Trade Commission (FTC) voted unanimously to finalize changes to the premerger notification form and associated instructions, as well as the premerger notification rules implementing the Hart-Scott-Rodino (HSR) Act.

According to the FTC, the final rule implements changes that will improve its and the Antitrust Division of the U.S. Department of Justice’s (DOJ) ability to detect illegal mergers and acquisitions prior to consummation. The final rule requires additional information that is necessary to determine which deals require an in-depth antitrust investigation, including through the issuance of Second Requests. 

The FTC said it is responding to changes in corporate structure and deal-making, as well as market realities in the ways businesses compete, that have created or exposed information gaps that prevent the agencies from conducting a thorough antitrust assessment of transactions subject to mandatory premerger review. 

The final rule also will reduce the current burden on third parties, including small businesses, that the agencies routinely rely upon to fill in existing information gaps.

Citing its usefulness in creating clear standards that will deter would-be investors from exploiting regulatory loopholes, PESP encouraged the FTC to finalize the changes to the HSR pre-merger filing form in its comment letter supporting the agency’s 2023 Draft Merger Guidelines.

Stop Wall Street Looting Act

Also on October 10, US Senators Elizabeth Warren (D-Mass.),Tammy Baldwin (D-Wis.), Jeff Merkley (D-Ore.), Bernie Sanders (I-Vt.), Tina Smith (D-Minn.), and Ed Markey (D-Mass.), along with Representatives Mark Pocan (D-Wis.), Pramila Jayapal (D-Wash.), Raúl Grijalva (D-Ariz.), Rick Larsen (D-Wash.), Barbara Lee (D-Calif.), Delia Ramirez (D-Ill.), Jan Schakowsky (D-Ill.), Alexandria Ocasio-Cortez (D-N.Y.), and Delegate Eleanor Holmes Norton (D-D.C.), reintroduced the Stop Wall Street Looting Act (SWSLA). The provisions of SWSLA provide comprehensive legislation to fundamentally reform the private equity industry and level the playing field by forcing private investment firms to take responsibility for the outcomes of companies they take over, empowering workers and protecting investors. 

This reintroduction comes after private equity firm Cerberus looted Steward Health Care, leaving hospitals, patients, and workers hanging out to dry. As with its 2021 incarnation, PESP was proud to endorse its reintroduction this year.

“Private equity firms, which control nearly $15 trillion in assets, routinely prioritize quick, outsized profits, at the expense of workers, patients, renters, and local economies as part of their business model,” said Chris Noble, Policy Director for the Private Equity Stakeholder Project. “The Stop Wall Street Looting Act provides an essential check on this opaque industry. By addressing the systemic risks tied to debt-laden private equity buyouts, this legislation prioritizes the long-term health of businesses and communities over short-term profits for wealthy private equity executives.” 

Highlights of the bill include:

• Requiring Private Investment Funds to Have Skin in the Game: Private equity firms, the firm’s general partners, and their insiders will all be on the hook for the liabilities of companies under their control—including debt, legal judgments, and pension-related obligations—to better align the incentives of private equity firms and the companies they own. Liability would not extend to the fund’s limited partners, ensuring that only those that control portfolio firms are on the hook. To encourage more responsible use of debt, the bill ends the tax subsidy for excessive leverage and closes the carried interest loophole.
• Ending Looting of Portfolio Companies. To give portfolio companies a shot at success, the bill limits how much money private equity firms can extract from companies and closes the loophole that private equity firms have used to hide certain assets from bankruptcy courts. Every transaction since Steward Health Care was bought by private equity would be subject to review as part of Steward’s bankruptcy to determine whether it can be clawed back as a fraudulent transfer.
• Protecting Workers, Customers and Communities. This proposal prevents private equity firms from walking away when a company fails and protects workers and communities by:
  • Prioritizing workers’ pay in the bankruptcy process and amending the laws to increase the priority claims for unpaid earnings and other benefits from $10,000 to $20,000 per worker.
  • Creating incentives for job retention so that workers can benefit from a company’s second chance.
  • Ending the immunity of private equity firms from legal liability when their portfolio companies break the law, including the WARN Act. When workers at a plant are shortchanged or residents at a nursing home are hurt because private equity firms force portfolio companies to cut corners, the firm should be liable.
  • Expanding protections for striking workers by clarifying unfair labor practices and the employer duty to bargain.
• Empowering Investors by Increasing Transparency. Private equity managers will be required to disclose fees, returns, and other information about their funds and the corporate loans they make so that investors can monitor their investments. This would have required Cerberus to disclose the terms of its investments in Steward Health Care, which Cerberus continues to withhold from Congress.
• Putting Guardrails Around Accessing Public Funds. Firms receiving any funds from a federal or state agency must publicly disclose how the funds are used and will be prohibited from acquiring any company or making a distribution to investors for two years after receipt.
• Driving REITS out of Health Care. Prohibits payments from federal health programs to entities that sell assets or use assets for a loan collateral made to a Real Estate Investment Trust (REIT) d; repeals a rule in the Tax Code that allows taxable REIT subsidiaries to exert influence on the operations of health care entities; and removes the 20 percent pass-through deduction, passed in the 2017 Trump tax cuts, for all REIT investors. Ralph de la Torre executed a sale-leaseback transaction of the Steward properties in exchange for a $1.25B payout from a REIT; this would have banned the hospitals from continuing to receive federal dollars upon executing the property sale—thus likely preventing the sale.

TUF Federal Policy Recommendations

On October 16, the Tenant Union Federation (TUF) released a federal policy agenda outlining what a pro-tenant administration and Congress can do to usher in a new era of tenants rights and housing stability nationwide. This agenda includes both executive actions and legislative steps that would further tenants rights as consumers of rental housing nationwide and increase the supply of truly affordable social housing. 

Executive actions include requiring rent caps as a condition of federally-backed financing and protecting tenants and their right to organize. Currently, two Kansas City-area tenant unions in buildings with federally-backed financing are on rent strike, in addition to their demands for better living conditions they are demanding the FHFA add rent caps as conditions on their loans. Legislative actions include calling on Congress to pass a Tenant Bill of Rights, enact national rent control, and build and preserve 12 million units of permanently affordable, energy-efficient social housing. 

PESP is strongly supportive of tenant protections and organizing efforts and is likewise a proud endorser of TUF’s federal policy agenda.

Stop Wall Street Landlords Act

On October 23, US representatives Ro Khanna (CA-17), Katie Porter (CA-47), and Mark Takano (CA-39) reintroduced the Stop Wall Street Landlords Act to end large institutional investors’ ability to use taxpayer dollars to subsidize the acquisition of single-family residential homes. 

Specifically, the Stop Wall Street Landlords Act intends to: 

• End large institutional investors’ ability to benefit from tax breaks reserved for homeowners – namely mortgage interest, insurance, and depreciation deductions. 
• Direct the Federal Housing Financial Agency (FHFA) and related agencies Fannie Mae, Freddie Mac and Ginnie Mae to (a) prohibit large institutional investors from purchasing mortgages on single-family residential (SFR) homes – or any interest in such a mortgage – and (b) from newly lending on a security or securitizing any SFR mortgage under which the mortgagee meets the bill definition of a specified large investor.
• Legislate a federal real estate transfer tax of 100% of the sale value of each SFR in the possession of a specified large investor if SFRs are not sold within 18 months of bill enactment.
• Promote the use of transfer tax revenue and deduction tax savings to fund the Housing Trust Fund, which enables affordable housing construction and preservation. 

PESP was proud to endorse the Stop Wall Street Landlords Act when it was reintroduced.

If you have any questions about the policy developments mentioned in this blog, please contact PESP’s Policy Director, Chris Noble, at [email protected].