New Developments: Treasury and Federal Reserve Release New Guidance & FAQ for Lending Programs
The Treasury Department and Federal Reserve announced on April 9 initial details of new loans, loan guarantees and other forms of financial assistance to companies and municipalities – including the new Main Street Business Lending Program that will leverage $75 billion of the $454 billion allocated by the CARES Act to provide up to $600 billion in loans to mid-size businesses. Updated guidance was issued on June 8, and the Federal Reserve Bank of Boston updated its FAQ page and program forms on the new programs. You can watch a recorded webinar from the Fed Bank of Boston here. Forms for lenders and borrowers are available here. For more information, visit www.Treasury.gov/CARES. See the association's one pager that includes FAQs about the programs.
Eligibility for the Main Street Lending Program is not restricted based on credit rating (as the recent Primary and Secondary Market Corporate Credit Facilities were). The Association had previously sought this flexibility, sending a letter to Secretary Mnuchin and Chairman Powell and enlisting members of the Aluminum Caucus to weigh in on the issue with the Administration. A few key points about the Main Street Lending Program:
- The Fed will offer five-year loans through banks, with principal and interest deferred for up to one year.
- Eligible businesses are those with 15,000 or fewer employees OR revenues of less than $5 billion. The business must have been created or organized in the United States (or under the laws of the United States) with significant operations in and a majority of its employees based in the United States.
- Firms that have received SBA/PPP loans will be eligible to seek these loans as well, but borrowers may not also participate in the Primary Market Corporate Credit Facility.
- Companies are subject to stock buyback, dividend, and compensation restrictions but not (yet) to workforce retention requirements (but the Fed’s press release specifically states that “firms seeking Main Street loans must commit to make commercially reasonable efforts to maintain payroll and retain workers.”)
- The Fed released three separate term sheets under the program:
- On July 17, the Fed released two new term sheets for a Nonprofit Organization New Loan Facility and a Nonprofit Organization Expanded Loan Facility.
The June 8 press release states the Federal Reserve will be retaining more of the risk on these loans after complaints from the banking industry. As of July 6, the Main Street Lending Program, is fully operational with the Federal Reserve Bank of Boston purchasing loans made to buisnesses from local lenders. You can find a list of lenders by state here.
On April 24, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act, also known as the COVID-3.5 relief package into law. The Act adds $310 billion for SBA’s Paycheck Protection Program with a $60 billion set-aside to ensure that businesses served by community development financial institutions, minority depository institutions, community banks, credit unions and certified development companies can access PPP funds. The Act increased SBA’s Economic Injury Disaster Loan (EIDL) program by $60 billion, including $10 billion in emergency grants for businesses impacted by COVID-19. The Act also includes an additional $75 billion in funding for hospitals and health care providers and $25 billion to expand COVID-19 testing.
New summary documents with resources on implemenation of recent COVID-related legislation:
Jump to: Supplemental I – Coronavirus Preparedness and Response Supplemental Appropriations Act (Enacted March 6)
Jump to: Supplemental II – Families First Coronavirus Response Act (Enacted March 18)
Jump to: Supplemental III - Coronavirus Aid, Relief, and Economic Security Act (Enacted March 27).
Supplemental I – Coronavirus Preparedness and Response Supplemental Appropriations Act (Enacted March 6)
The first supplemental legislation was signed by the President on March 6. This bill provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak, including supplemental appropriations for the Food and Drug Administration, the Centers for Diseases Control and Prevention, the National Institutes of Health and other agencies.
Text is available here, and a summary is available here.
Supplemental II – Families First Coronavirus Response Act (Enacted March 18)
The President signed the second supplemental bill on March 18, after the Senate passed a modified version of the House bill (HR 6201). Text is available here, a factsheet is available here, and a section-by-section is available here. A summary of paid leave provisions, incorporating changes made by technical correction, is here.
In addition to offering free testing for COVID-19, a few highlights of the legislation:
- Mandates Emergency Paid Sick Leave
- Employers with less than 500 employees are required to provide two weeks of paid sick leave to an employee that:
- Has a current diagnosis of COVID–19, or is under quarantine at the instruction of a health care provider, employer, or a local, state or federal official.
- Is engaged in caregiving for an individual who has a current diagnosis of COVID–19 or is under quarantine.
- Is engaged in caregiving because of the COVID–19-related closing of a school or other care facility or care program.
- Businesses with under 50 employees will have an opportunity or request an exemption from the Treasury Department if the requirements “would jeopardize the viability of the business as a going concern.” Treasury has yet to clarify how these exemptions will be made. These provisions would expire at the end of calendar year 2020.
- Expands Family and Medical Leave Act (FMLA)
- The Family and Medical Leave Act (FMLA) is expanded to include leave needed to care for an employee’s child whose school or care provider is closed due to COVID-19. This leave can be used by employees who have been employed by their current employer for at least 30 days. This applies to any private sector employer with less than 500 employees.
- The first 10 days of FMLA leave may be unpaid, but beyond that time employers must compensate employees for the remainder of FMLA-leave taken (up to 10 work weeks) at 2/3 of their regular rate of pay.
- FMLA paid leave is capped at $200 per day and $10,000 per employee total.
- Business Tax Credits for Emergency Leave
- The bill creats a refundable tax credit equal to 100 percent of paid family or medical leave wages paid by the small business each quarter. The credit can be used against the employer’s social security taxes and applies to amounts paid to employees who are sick or quarantined. A smaller credit applies to amounts paid to employees caring for a family member or for a child whose school or place of care has been closed.
- Emergency Unemployment Stabilization
- Emergency grants totalling $1 billion available to states for activities related to processing and paying unemployment insurance benefits.
- $500 million would be used to provide immediate additional funding to all states for staffing, technology, systems, and other administrative costs, so long as they met basic requirements about ensuring access to earned benefits for eligible workers.
- $500 million would be reserved for emergency grants to states which experienced at least a 10 percent increase in unemployment.
- States that experience an increase of 10 percent or more in their unemployment rate (over the previous year) and comply with all the beneficiary access provisions will qualify for 100 percent funding for Extended Benefits.
- Extended benefits are triggered when unemployment is high in a state and provide up to an additional 26 weeks after regular unemployment insurance benefits exhausted. This section also suspends the financial penalty for states that waive the usual one-week waiting period for benefits.
Supplemental III - Coronavirus Aid, Relief, and Economic Security Act (Enacted March 27).
The Senate passed an amended version of the CARES Act by a vote of 96-0 on March 25. Text available here (Democratic summary here, Republican section-by-section here). The House passed the CARES Act by voice vote on March 27. The president signed the legistlation later that same day. A few highlights from the legislation:
- Small Business Loans (Title I) – Committee section-by-section here and one pager here (minority one pager here).
- $350 billion for new Paycheck Protection Program, which would provide small businesses eight weeks of cashflow assistance. The portion of the loan used for payroll support (employee salaries, paid sick or medical leave, and other overhead like mortgage interest, rent, and utility payments) would be forgiven if employees (and salaries) are retained.
- Defines eligibility as businesses, nonprofits, veterans’ organizations, and Tribal businesses up to 500 employees and includes self-employed, independent contractors, sole proprietors.
- $17 billion for SBA to cover six months of payments for small businesses with existing SBA loans.
- Business Tax Relief (Title II) – Summary here
- Delays OASDI payroll taxes, payable over two years with half due by 12/31/21 and the remainder due by 12/31/22;
- Provides refundable payroll tac credit for 50% of wages paid to employees during the COVID-19 crisis (no double-dipping allowed with the COVID-II FMLA and emergency leave payroll tax credits);
- Relaxes limitations on net operating losses;
- Increases the amount of interest expense businesses are allowed to deduct (Increases limitation threshold increased from 30% to 50% of EBITDA for tax years beginning in 2019 and 2020);
- Treats corporate AMT credits as refundable for 2018 onward; and
- TCJA technical correction on QIP (confirms repairs and improvements are eligible for a 15-year class life and eligible for bonus depreciation/full expensing)
- Economic Stabilization (Title IV) – Summary here
- The Treasury Department will create a Federal Reserve lending program to provide liquidity for industry in the form of loans, loan guarantees, and other investments. Procedures and regulations due no more than 10 days after enactment.
- $500 billion in Treasury-administered loans:
- $25 billion for passenger air carriers,
- $4 billion for cargo air carriers, and
- $17 billion for businesses “critical to maintaining national security,” and
- $454 billion available for all other businesses.
- Terms and Conditions on loan recipients include:
- Worker protections (see here for summary) and limits on executive compensation, stock buybacks, dividends, furloughs, and worker pay cuts.
- The Secretary can make loans to businesses that are “created or organized in the United States or under the laws of the United States and that have significant operations in and a majority of its employees based in the United States.” We understand that this is intended to apply at the level of the legal entity, not the overall group/parent company.
- Entities are prohibited from applying for any stabilization loan or grant relief if a covered person owns, directly, or indirectly, a controlling interest in such applying entity. Covered persons include POTUS, VPOTUS, Cabinet officials, Members of Congress, and their direct family members.
- Congressional Oversight Commission is established to oversee the economic stabilization loan and grant programs.
- Coronavirus Relief Fund (Sec. 5001): $150 billion reserved for payments to state governments, local governments, and tribes, at least $3 billion of which is reserved for DC and $8 billion of which is reserved for tribal governments.
- Air Carrier Worker Support: $32 billion in grants to be used for employee wages, salaries, and benefits.
- Unemployment Insurance (Title II, Subtitle A): Several expansions to UI, including but not limited to:
- Emergency eligibility expansion (Sec. 2102): Expansion during 2020 for UI to cover individuals not otherwise covered by UI under a variety of conditions, including:
- COVID-19 diagnosis of the individual or a family member, family care obligations and school closures, or self-quarantine advice from a health provider;
- Notably, eligibility includes individuals who are unable or unavailable to work (but not actually laid off or unemployed) because their place of employment is closed “as a direct result of the COVID-19 public health emergency”;
- Does not include employees who can telework with pay or who are receiving paid leave benefits.
- Emergency increase (Sec. 2104): For both regularly eligible individuals and those covered by the expansion, weekly UI payments are increased by $600 per week through July 31, 2020 (often described as a “four month” expansion);
- No new obligations for employers as a result of these expansions and increases.
Congress is currently examining a number of issues for the next phase of stabilization – COVID-IV or CARES 2.0 -- ranging from funding for hospitals and health providers to election security and nutrition assistance, a potential expansion of the SBA’s Paycheck Protection Program to businesses with 1,000 or fewer employees, liability protection for employers, guaranteed paychecks for affected workers, hazard pay for front-line workers, childcare assistance and funding for the U.S. Postal Service. The President has called for Congress to pass a bill with infrastructure investment, aid to state and local governments and a payroll tax cut. With prospects for infrastructure spending, the Association is looking for input from members on particular priorities for the aluminum industry.
Defense Production Act
President Trump signed on March 18 an Executive Order to invoke the Defense Production Act (DPA). As background, the law permits the federal government to impose some control over private-sector industry to ensure the production of material that is deemed necessary for national defense, and it was reauthorized last year through 2025. Under DPA, the government canalter the order in which companies fulfill their contractual obligations by telling them to prioritize some existing contracts ahead of others (but it seems unclear if the government could use the law to force a company to accept a new contract for a product that it does not already make). More context for the DPA here.
On March 27, President Trump signed an Executive Order on Delegating Additional Authority Under the DPA with Respect to Health and Medical Resources (HERE) and a Memorandum on Order Under the Defense Production Act Regarding General Motors Company (Text, Statement).
On April 10, using authority from the Defense Production Act, FEMA plans to issue a temporary final rule to require that five types of personal protective equipment only be used domestically. In other words, under the rule, all exports of specified PPE will require explicit approval by FEMA. The rule instructs that exports of such PPE will be detained by Customs and Border Protection (CBP) for FEMA inspection. FEMA will determine whether to return the PPE to domestic use, issue a prioritized order for the goods or allow the shipment to move forward. The rule includes an exemption for U.S. manufacturers with contracts in place before Jan. 1, 2020, if 80% of their domestic production was distributed within the United States in the preceding 12 months. The FEMA administrator will consider additional exemptions as necessary.