Navigating Uncertainty – The Impact of The Federal Funding Freeze on Businesses and Investors

January 29, 2025

By: Jeremy Saks

New York, New York – On January 27, 2025, the Office of Management and Budget under the incoming Trump administration ordered a temporary freeze on all federal financial assistance programs administered by federal agencies pending a review of compliance with the President’s executive orders and the priorities of the new administration. The sweeping directive freezes the issuance of all new awards along with the disbursement of federal funds under all open awards by the federal government. It was made effective at 5:00 p.m. on January 28, 2025, and directs all agencies to submit detailed information on impacted activities to the OMB for review by no later than February 10, 2025.

By 6:00 p.m. on January 28, 2025, the OMB directive was temporarily blocked by a federal court, with the situation now rapidly evolving.

The OMB order, which on its face immediately freezes trillions of dollars in federal aid, loans and grants in a wide range of industries and applications, has sown immediate alarm and confusion, with critical services including Medicaid, nonprofit aid and health research disrupted. Appellate review of the multiple legal challenges to the order are likely to be fast-tracked in coming days and weeks. In the meantime, all federal aid, loan and grant programs will face a high degree of uncertainty pending a broad legal or political resolution.

Regardless of the legal status of the order, a near-term cascade effect is likely for the domestic and international business community that relies directly and indirectly on the continuity of these federal programs and commitments. Some potential effects on private investment activities include the following:

  • Adjustments to Pending Deals. Asset and securities purchases and other investment activities may be threatened, retraded or cancelled prior to closings. Those purchasers reliant on federal grants or backing for closing funds may face liquidity issues. Acquisition targets may face more challenging business environments. Representations and warranties by both sellers and acquirors in governing agreements may require reassessment, and the application of force majeure clauses may be implicated. Participants in pending deals would be well advised to review their governing agreements in light of the OMB pronouncement and evolving legal status.
  • Fund Managers. Those responsible for overseeing existing portfolio investments as well as new deal pipelines may be forced to reevaluate the risk profiles of companies that rely directly on federal grant money or operate in environments heavily reliant on federal aid and investment. Industry-specific funds in particular may be impacted. In some instances, the default terms of debt or convertible debt instruments may be triggered by a loss of grant status.
  • Operating Companies. For those operating companies directly reliant on federal grant or aid funding for their business operations, the effects may be (and in some cases, already is) felt most directly. In the worst instances, companies that rely on federal research grants, provide community aid or fund local programs through federal funds may face operational crises.

These and other industry participants are encouraged to review how the OMB order may impact their particular circumstances and carefully monitor the situation.

RPCK will continue to keep track of ongoing developments and will provide further guidance and updates as more information becomes available. As always, our lawyers are available to assist with any questions you may have.

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