President Donald Trump on March 27, 2020, signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), providing $2.2 trillion of emergency appropriations. The CARES Act provides a wide range of economic relief for businesses of all sizes, tax relief for individuals and businesses, enhanced unemployment insurance for individuals and other policies that are summarized here.
This Holland & Knight alert outlines the CARES Act's "Coronavirus Economic Stabilization Act" (CESA) found in Title IV. Title IV authorizes $500 billion to the U.S. Department of the Treasury's Economic Stabilization Fund in an effort to provide businesses, states and municipalities access to sources of liquidity in order to maintain solvency during the coronavirus (COVID-19). Title IV also provides significant housing related relief and restrictions, as well as relief to financial institutions, which will be summarized in a future update.
In Section 4003, CESA authorizes the Treasury Secretary to use $500 billion to backstop one or more Federal Reserve programs and lending facilities as well as provide direct loans and facilitate private lending through the strategic use of guarantees to aviation, national defense industries and businesses generally. CESA provides for the following division of these funds:
The $454 billion listed above is for programs or facilities established by the Board of Governors of the Federal Reserve System (the Federal Reserve) to inject liquidity into the financial system to support lending to eligible businesses, states or municipalities. The Treasury Secretary is given broad authority to determine the terms of the transactions subject to several guideposts in the statute regarding limitations and eligibility.
For recipients of funds under both Sections 4003 and 4112, discussed below, there are special rules on employee compensation that apply. These requirements are set forth in Sections 4004 and 4116, and cross-referenced to apply to the $454 billion for other eligible businesses in Section 4003(c)(3)(A)(III).
As noted above, CESA includes $454 billion in funds to establish a program to inject liquidity into the financial system that supports lending to eligible businesses, states and municipalities. Should one of the implementing programs include direct lending to businesses, the recipient businesses must agree to the following terms that will be in effect for the term of the loan plus 12 months:
CESA also provides that the Treasury Secretary "shall endeavor" to implement a program within the $454 billion that provides financing to banks and other lenders that make direct loans to eligible businesses, including nonprofits with between 500 and 10,000 employees, with an annualized rate not higher than 2 percent. For the first six months of financing under this program, no principal or interest shall be due. While it is not yet clear how this program will contrast with the wider loans, loan guarantees and financing generally available to businesses, CESA details the following required good-faith certifications:
It is important to note that, given the discretionary language of the provision, it remains unclear the degree to which the administration will choose to implement these terms.
With regard to support for the aviation industry, the CARES Act includes more direction to the Treasury Department in establishing a program as compared to other sections of the bill. Included in the aviation specific sections of the CESA are grants to cover employee salaries as well as loans and loan guarantees.
These categories of borrowers have a special set of requirements under the new law, which requires the Treasury Secretary to make the following determinations regarding loans and loan guarantees:
Furthermore, all air carriers, cargo air carriers and national security businesses that benefit from the financial assistance under CESA must also do the following, as directed by the Treasury Secretary:
In Section 4112, CESA also provides direct relief for aviation workers in the form of grants, which are available solely for the continuation of payments of employee wages, salaries and benefits, including:
For carriers and contractors accepting funds under the payment of wages, salaries and benefits to aviation workers outlined above, the recipient must comply with the following additional requirements:
The Treasury Secretary is required to publish streamlined and expedited procedures not later than April 1, 2020, and initial payments are to be made by April 6, 2020. The section also requires related audits and clawback of any financial assistance should the recipient fail to honor assurances, and also authorizes the Secretary of Transportation to require that the carrier maintain scheduled air transportation service as deemed necessary through March 1, 2022, with consideration of the needs of remote communities and the healthcare supply chain.
Finally, CESA permits, but does not require, the Board of Governors of the Federal Reserve to establish a "Main Street Lending Program," or other similar program or facility under its own unilateral authorities (without the federal backstop provided by the Treasury Department's Economic Stabilization Fund), to support lending to small and mid-sized businesses.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.
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