Locke Lord QuickStudy: What We Know and What is Ahead: COVID-19 Financial Assistance

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    As of the date of this QuickStudy, although it is anticipated that Congress will increase the federal ‎funds allocated to the Paycheck Protection Program (the “PPP”) by the Coronavirus Preparedness ‎and Response Supplemental Appropriations Act (“CARES Act”), the original funds so allocated ‎have been exhausted and it is unclear when additional funds will be allocated to the PPP.  If future ‎additional funds are allocated, they may be accompanied by additional restrictions and regulations.  ‎More information on the PPP can be found in Locke Lord QuickStudy: Saving Our Small ‎Businesses: Congress Reaches Agreement on New Forgivable Paycheck Protection Loans to Small ‎Businesses. ‎

    Although PPP loan applications are no longer being processed, companies negatively impacted by ‎COVID-19 may have other options for financial assistance including (i) the Employee Retention ‎Credit, (ii) the Economic Injury Disaster Loan (assuming there are additional funds allocated by ‎Congress), (iii) the Main Street Lending Program, and (iv) Direct Loans to and Investments in ‎Investment Grade Companies. ‎


    The CARES Act provides for a non-governmental business to receive an Employee Retention ‎Credit (“Retention Credit”). The Retention Credit is a fully refundable payroll tax credit equal to ‎‎50% of qualified wages. Companies that qualify for the Retention Credit may, under certain ‎circumstances, receive an advance under the Retention Credit. ‎
    Eligibility: ‎

    • Companies are eligible for the Retention Credit, if:‎
      • Their operations are fully or partially suspended due to government action as a ‎result of COVID-19; or ‎
      • They have gross receipts for any calendar quarter below 50% of the comparable ‎calendar quarter in 2019. ‎
    • Companies with more than 100 employees may receive the Retention Credit, but only for ‎those wages paid to employees for not providing services due to the Company’s suspension ‎of operations or gross receipts decline during the quarter.  Note, the IRS has not issued ‎guidance at this point regarding: ‎
      • how to calculate the ‎equivalent wage limitation for wages for employees who are ‎‎working on a reduced ‎‎(such as 2 days per week instead of 5 days per week) or ‎‎rotation schedule (such as ‎one week on, one week off) but are paid during the week ‎‎off even though services ‎are not provided.; or
      • how to treat employees who are ‎working a partial day of service schedule (such as 4 ‎‎hours per day, instead of 8 ‎hours per day) but are paid based on the full schedule ‎‎even though services are not ‎provided for part of the time. ‎
    • Companies with less than 100 employees may receive the Retention Credit for all qualified ‎wages paid to employees during a calendar quarter, whether they worked or not, during the ‎quarter.‎

    Affiliation Rules:‎

    Amount of Retention Credit: ‎

    • 50% of the qualified wages paid to an employee during the calendar quarter, up to $10,000, ‎for a maximum Retention Credit of $5,000 per employee. ‎
    • Wages taken into account are not limited to payments made directly to the employee, but ‎also include a ‎portion of the cost of employer provided health care (not including sick-leave ‎or family-leave ‎under FFCRA). ‎
    • The Retention Credit is credited against the employer’s portion of social security taxes ‎‎(“Covered Tax”) under section 3111(a) of the Internal Revenue Code. ‎
    • If the Company does not owe employment taxes in the full amount of the Retention Credit, ‎the Company may get an advance equal to the difference between the amount owed in ‎employment taxes and the amount of the Retention Credit by filling an IRS Form 7200.  ‎
    • Retention Credit is only available for “qualified wages” paid between March 13, 2020 and ‎December 31, 2020. ‎

    Please Note:‎


    If additional funds are allocated, assuming the rules and regulations remain substantially the same, ‎the Economic Injury Disaster Loan (“EIDL”) should once again be available for small businesses ‎from the SBA.  Some of the rules for EIDLs have been relaxed for companies affected by COVID-‎‎19 and allow for a portion of the low-interest EIDL to be forgiven.‎

    Eligibility: ‎

    Amount of Loan:‎

    • Up to $2 million, with the first $10,000 advance turning into a grant if used for covered ‎expenses. ‎

    Please Note: ‎

    There are two new programs yet to be implemented.  Both are lending programs and, unlike the ‎PPP, not forgivable.  Additional information regarding the Main Street Lending program, including a ‎summary of open questions can be found in Locke Lord QuickStudy: Help for Main Street: ‎Treasury Department and Federal Reserve Announce Main Street ‎Lending Facilities for Small and ‎Mid-Sized Businesses (including Nonprofits). ‎

    These two new programs are:‎
    ‎(a) Main Street New Loan Facility (“MSNLF”)‎

    ‎(b) Main Street Expanded Loan Facility (“MSELF”)‎

    Eligibility: ‎

    • A U.S. business with significant operations, and a majority of its employees based, in the ‎United States may choose to participate in either the MSNLF or MSELF if that company has ‎up to
      • 10,000 employees, OR‎
      • $2.5 billion in annual revenues in 2019‎

    Summary Terms of the Loans: ‎

    • A loan made under the MSNLF is a new unsecured term loan made to a qualifying ‎company.
    • A loan made under the MSELF is an upsized term loan tranche of a qualifying company’s ‎existing term loan facility (existing prior to April 8, 2020) and may be secured or ‎unsecured, depending on terms of the existing facility.‎
    • Both are limited to terms not to exceed four (4) years;‎
    • Both allow deferral of principal and interest for one (1) year;‎
    • Both provide for adjustable interest rate of SOFR plus 250 to 400 bps;‎
    • Both permit prepayment without penalty;‎
    • Both require a minimum borrowing of $1 million;‎
    • MSELF maximum loan amount is the LOWEST of: ‎
      • $150 million; ‎
      • 30% of the borrower’s existing outstanding and committed but undrawn bank debt; ‎or ‎
      • Six (6) times the borrower’s 2019 earnings before interest taxes depreciation and ‎amortization (EBIDTA), less the borrower’s existing outstanding and committed but ‎undrawn debt.‎
    • MSNLF maximum loan amount is the LESSER of:‎
      • $25 million; or‎
      • Four (4) times the borrower’s 2019 earnings before interest taxes depreciation and ‎amortization (EBIDTA), less the borrower’s existing outstanding and committed but ‎undrawn debt.‎

    Fees: ‎

    • Lender receives, under either the MSELF or the MSNLF, 100 bps on the principal amount ‎of the loan from the Company.‎
    • For the MSELF, Lender pays a facility fee of 100 bps to the common special purpose ‎vehicle (the “SPV”) established by a Federal Reserve Bank for the purpose of purchasing ‎participations in the loans.  This fee may be passed through to the borrower.‎
    • Lenders will receive another 25 bps for loan servicing from the SPV.‎

    Additional Requirements and Restrictions:  Additional requirements of the MSELF and MSNLP ‎include:‎

    • Proceeds from the MSELF or the MSNLP will not be used to repay or refinance a ‎borrower’s pre-existing loans.‎
    • A borrower may not voluntarily repay debt of equal or lower priority, except for mandatory ‎principal payments;‎
    • Neither a lender nor a borrower may cancel or reduce outstanding lines of credit. ‎
    • Financing must be necessary due to exigent circumstances presented by COVID-19.‎
    • The borrower must make reasonable efforts to maintain its payroll and retain its employees ‎during the term of any loan. ‎
    • The borrower must follow restrictions with regard to compensation, stock repurchase and ‎capital distribution requirements, a summary of those restrictions can be found in Locke ‎Lord QuickStudy: Help for Mid-Sized Businesses: Congress Provides for Implementation of ‎New Direct Loan ‎Program to Eligible Mid-Size Borrowers in CARES Act. ‎


    The Board of Governors of the Federal Reserve has also announced several new programs to ‎provide direct loans to U.S. companies headquartered in the United States with material operations ‎in the United States.  Companies that are eligible for these direct loans cannot be expecting relief ‎under other programs and must have investment grade ratings of at least BBB-/Baa3 from two ‎nationally recognized rating agencies.  These new programs include the following:‎

    • Primary Market Corporate Credit Facility (“PMCCF”) which will provide direct loans in ‎amounts based on a company’s credit rating at interest rates that will be “informed by ‎market conditions”;  and
    • Secondary Market Corporate Credit Facility (“SMCCF”) which will purchase corporate ‎bonds and, under certain circumstances, US-listed exchange traded funds.‎
      Concurrently, the Federal Reserve has announced plans for a Term Asset-Back Securities Loan ‎Facility.‎

    While the specific details of these programs are yet to come, the above three programs are ‎anticipated to provide $300 billion in new funds.  For additional insights see Locke Lord Article: ‎Federal Reserve Will Become a Direct Lender to Corporations and as an Investor in Corporate ‎Bond Market.  ‎


    The chart below shows the combinations of the programs highlighted above that can be accessed ‎simultaneously by an eligible company.  A green “check mark” () indicates that an eligible ‎company may access both programs in an intersecting row and column.  A red “X” (X) indicates ‎that a company cannot “double-dip” into the programs listed in that intersection row and column.  ‎Finally, “TBD” indicates that the program requirements have not yet been made available in ‎sufficient detail to determine permitted combinations.  ‎

     PPP  X   ✔       X  X
     MSNLF   TBD       X    X   X
     MSELF   TBD    X     X   X
     PMCCF TBD TBD  ✔  X X  ✔   X
     SMCCF TBD TBD    X  X  X  ✔  

    Your regular Locke Lord contact and any of the authors would be happy to assist you with these ‎matters.‎

    Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of ‎the legal issues related to COVID-19.‎

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