Summary of Title IV (Economic Stabilization) of the CARES Act

This summarizes the Title IV provisions (known as the “Coronavirus Economic Stabilization Act of 2020”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
  • The Secretary of Treasury is authorized to make or guarantee loans to “eligible businesses,” states and municipalities that have incurred losses as a result of the coronavirus, in the total aggregate amount of $500 billion; $29 billion is for air carriers and air carrier related businesses, $17 billion to businesses critical to maintaining national security and $454 billion is or other eligible businesses, states and municipalities.
  • “Eligible business” is an air carrier or a U.S. business that has not otherwise received adequate relief in the form of loans or loan guarantees under the CARES Act.
  • For mid-sized businesses with between 500 and 10,000 employees, the Secretary will provide financing to banks to make direct loans at a 2% interest rate per annum where no principal or interest is due for the first 6 months of the loan.  The conditions for such a loan (which are memorialized in a good-faith certification) include that: (A) the loan will support the ongoing operations of the recipient, (B) the funds will be used to retain at least 90% of the recipient’s workforce, at full compensation and benefits, until September 30, 2020, (C) the recipient is domiciled in the U.S and has significant operations and employees located in the U.S., (D) the recipient is not in bankruptcy, (E) the recipient shall not pay dividends or repurchase its equity securities if listed on a national exchange, and (F) the recipient shall not offshore jobs or abrogate an existing collective bargaining agreement.
  • The Secretary of Treasury may make or guarantee loans to air carriers, air carrier related businesses and businesses critical to maintaining national security based on the Secretary’s determination that: (A) the applicant is an eligible business to which credit is not reasonably available, (B) the loan or guarantee is prudently incurred,(C) the loan is sufficiently secured or made at a rate that reflects the risk of the loan or guarantee and that is not less than market rates prior to the outbreak of the coronavirus, (D) the duration is short as practicable but not longer than 5 years, (E) until 12 months after the loan or guarantee is no longer outstanding, neither an eligible business with publicly traded stock nor an affiliate can buy back stock of the eligible business (unless under contract in effect as of the date the CARES Act is enacted), (F) until 12 months after the loan or guarantee is no longer outstanding, the eligible business shall not pay dividends or make other capital distributions; (G) until September 30, 2020, the eligible business shall maintain employment levels as of March 24, 2020 to the extent practicable and not reduce employment levels by more than 10%; and (H) the eligible businesses must have incurred covered losses which the Secretary of Treasury determines jeopardize continued operations and that has not applied for or received loans or loan guarantees under the CARES Act.
  • As part of such loans and guarantees to air carriers, air carrier related businesses and businesses critical to maintaining national security, the Secretary of Treasury shall not make the loan or guarantee unless the eligible business has publicly traded securities and the government receives equity stake in the borrower such as a warrant, equity interest or senior debt instrument, so that the government receives equity appreciation or a reasonable interest rate premium.
  • For the borrowers that are air carriers, air carrier related businesses and businesses critical to maintaining national security must agree that during the term of the loan plus one year, no officer or employee whose compensation exceeded: (A) $425,000 in 2019, will receive annual compensation exceeding the 2019 compensation or severance compensation twice the 2019 compensation; or (B) $3 million in 2019, will receive annual compensation exceeding $3 million plus 50% of the excess of the 2019 compensation over $3 million.
  • For properties with federally backed mortgage loans, during the 120 day period beginning on the date of the passage of the CARES Act, the landlord: (A) may not file or initiate eviction proceedings or charge fees or penalties for the nonpayment of rent; (B) may not require the tenant to vacate the dwelling until 30 days after the date the landlord provides the tenant with a notice to vacate; and (C) may not issue a notice to vacate during the 120 day period beginning on the date of the passage of the CARES Act.
  • The principal amount of any loan or guarantee under the Coronavirus Economic Stabilization Act of 2020 (verses the other provisions of the CARES Act) shall not be reduced through loan forgiveness.
  • The authority of the Secretary of the Treasury to make the loans and guarantees under the Coronavirus Economic Stabilization Act of 2020, terminates on December 31, 2020.
  • Within 10 days of the enactment of the Coronavirus Economic Stabilization Act of 2020, the Secretary of Treasury is to publish procedures for making application for loans and guarantees and minimum requirements under this Coronavirus Economic Stabilization Act of 2020
Frantz Ward has established a Coronavirus Response Team to assist clients in navigating the multitude of issues presented by the current crisis. For assistance in addressing these issues or in developing other strategies to protect your business, please contact Frantz Ward Partners Brian Kelly or Christopher Koehler and they will engage the appropriate members of the response team.

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