Below, we provide the latest information on what mid-sized, large businesses, and nonprofits (those with 500 - 10,000 employees) can expect as they seek to access the remaining $454 billion. This information is subject to change as Treasury develops and releases additional guidance.
Who is eligible?
- Mid- to large-sized businesses and nonprofits with between 500 and 10,000 employees that have not “otherwise received adequate economic relief in the form of loans or loan guarantees provided under this Act.”
- For those applying, Treasury will seek to confirm that “the uncertainty of economic conditions as of the date of the application by the borrower makes necessary the loan request to support the ongoing operations of the recipient.”
- The recipient cannot be a debtor in a bankruptcy proceeding.
- Based on market conditions, the recipient must show that it cannot reasonably obtain credit elsewhere.
- “Covered losses” that the borrower has incurred or will incur as a result of COVID-19 include reduced demand, unbudgeted medical expenses and unavailability of credit.
- Subject to further guidance, U.S. companies owned by a foreign parent can apply for loans as long as they can certify that they are a U.S.-domiciled business with significant operations and employees located in the United States. While there is no express prohibition on foreign ownership of an entity receiving the funding, we expect some limitations to be imposed.
- Unlike the SBA program, we do not expect “affiliation” regulations will be applied to this program for purposes of determining how to aggregate employees among business entities that are under common control.
How will the money be delivered?
- Primarily, the loans will be designed to be direct loans—likely made through a third-party financial institution, such as a commercial bank.
- Treasury can also provide loan guarantees or “make other investments,” which could include equity investments.
- Loans are not permitted to be part of a private sector syndicated loan, a loan originated by a financial institution in the ordinary course of business, or a securities or capital markets. transaction.
What are the loan terms?
- Interest rates on direct loans to mid-to large-sized businesses will need to reflect risk and market conditions but should not be higher than 2% per annum. Duration of the loan has not been established.
- No interest or principal payments on the mid-sized business loans will need to be made for at least six months, but this period can be extended at the discretion of the Treasury Department. However, loans cannot be forgiven.
What restriction will be put on the loan?
- The funds received must be used to retain at least 90 percent of the recipient’s workforce at full compensation and benefits until September 30, 2020.
- The recipient must intend to restore not less than 90 percent of its workforce in place on February 1, 2020, and all compensation and benefits to its workers not later than four months after the end of the public health emergency related to COVID-19.
- The recipient will not outsource or offshore jobs until two years after the loan is repaid.
- Recipients may not pay dividends or buy back shares during the course of the loan or for 12 months after the loan has been paid off. At this time, it is unclear if non-public companies will be similarly restricted from making other types of capital distributions.
- Highly paid officers and executives of companies that receive a large business loan are prohibited from increasing the compensation of any employee whose compensation exceeds $425,000 or from offering them significant severance or termination benefits.
- The recipient will not abrogate any collective bargaining agreements during the term of the loan and for a period of two years thereafter and will remain neutral in any union organizing effort during the term of the loan.
What is the process?
The process has not yet been announced yet, but if the process for the aviation industry and businesses “critical to maintaining national security” provides any guide, we expect:
- Treasury to issue a short-form loan application, requesting:
- Basic company information, including ownership.
- The size of the loan needed and the intended purpose for the funds received.
- Multiple certifications reflecting a commitment to the above requirements.
- Applicants will also likely be expected to provide the following information:
- The economic impact of the COVID-19 health crisis on the company and the lack of alternative, non-governmental funding sources.
- A company’s current debt levels and servicing plan.
- Historic employment levels.
- Financial statements.
- If the application is accepted, Treasury will provide a draft agreement to the applicant to govern the terms of the loan. The ability to negotiate terms in the agreement will likely be limited. It is unclear at this time whether Treasury will require collateral or other commitments to secure loans.
Given the broad powers and discretion given to the Treasury Department under these provisions, those wishing to obtain funding will need to also develop sophisticated political engagement strategies with the Trump Administration and Congress to support funding requests in a competitive environment, as well as minimize the risk of future Congressional, Inspector General or DOJ scrutiny.
For more information, please reach out to Elizabeth Vella Moeller or Matthew Oresman, partners in the Government Law & Strategies practice at Pillsbury Winthrop Shaw Pittman LLP.
Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.