UPDATE: Senate passed the CARES Act late last night by a vote of 96-0. The House is expected to vote on the bill on Friday.
Senate Republican and Democratic leaders and the Trump Administration announced on Wednesday, March 25, 2020, that they have reached a deal on the terms of an estimated $2 trillion economic rescue package -- The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) -- in response to the coronavirus disease 2019 (COVID-19) crisis. The legislative package, Phase 3 in the ongoing efforts to provide a federal government response to the health and economic implications of the pandemic, would represent the largest rescue package in US history. The following update is a brief summary of some of the key provisions of the CARES Act, including the establishment of a $550 billion Exchange Stabilization Fund, unemployment insurance, and Small Business loan provisions. The Senate could vote as early as tonight, and the House as early as tomorrow.
Key provisions of the current version of the stimulus agreement:
I. Economic Stabilization and Assistance to Several Distressed Sectors of the Economy (Title IV)
Provides $500 billion to the Treasury’s Exchange Stabilization Fund to provide loans, loan guarantees, and other investments, including:
Direct lending to the following sectors:
- $25 billion for passenger air carriers,
- $4 billion for cargo air carriers, and
- $17 billion for businesses important to maintaining national security.
- It also repeals Federal Excise Taxes on commercial aviation.
$454 billion in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities, meeting certain conditions, including:
- Alternative financing is not reasonably available to the business;
- Loan is sufficiently secured or at interest rates reflecting risk and not less than market conditions; and the duration of the loan may not exceed 5 years;
- Borrowers and their affiliates cannot engage in stock buybacks or pay dividends while the loan is still outstanding;
- Borrowers must maintain employment levels as of March 24, 2020, and retain at least 90 percent of employees through September 30;
- Borrowers must be US-domiciled business with employees predominantly located in the US;
- The loan cannot be forgiven; and
- In the case of borrowers critical to national security, their operations are jeopardized by losses related to the coronavirus pandemic.
For publicly-traded companies, the Government must receive a warrant or an equity interest from the company; for other non-publicly traded companies, the Government must receive a warrant, an equity interest or a senior debt instrument.
Any lending must be broad-based, with verification that participants are not insolvent and are unable to obtain adequate financing elsewhere.
Treasury will seek to target lending through the Federal Reserve facility to nonprofit organizations and businesses with between 500 and 10,000 employees, subject to the following criteria:
- The funds received must be used to retain at least 90 percent of the recipient’s workforce, with full compensation and benefits, through September 30;
- The recipient will not outsource or offshore jobs for the term of the loan, plus an additional two years thereafter; and
- The recipient will not abrogate existing collective bargaining agreements for the term of the loan, plus an additional two years thereafter.
Limitations on Executive Compensation: Prohibits recipients from increasing the compensation of any officer or employee earning more than $425,000, or from offering severance pay or other benefits exceeding twice the maximum total annual compensation until one year after the loan is no longer outstanding. Officers or employees making over $3 million last year would also be prohibited from earning more than $3 million plus 50 percent.
Congressional Oversight Commission is established and charged with oversight of the implementation of this program by the Treasury Department and the Federal Reserve System, consisting of members appointed by the Senate Majority and Minority leaders and the House Speaker and Majority and Minority leaders. The Panel is required to submit reports to Congress every 30 days.
Temporary Moratorium on Eviction Filings for 120 days for rental units where the landlord’s mortgage is insured, guaranteed, supplemented, protected, or assisted by any federal programs.
II. $260 billion for Unemployment Insurance
- Expands eligibility to those not traditionally covered by unemployment, including self-employed, “gig economy” workers, part-time employees and other independent contractors.
- Allows for immediate access to unemployment benefits without the traditional waiting period.
- Increases maximum unemployment benefit by $600/week for four months.
- Includes a refundable retention tax credit for businesses that keep employees on their payroll. (Not available to companies that take a Small Business Interruption loan or have more than 100 employees).
III. $376 billion Small Business Rescue Plan
- $349 billion in loan forgiveness grants to small businesses and non-profits to maintain their existing workforce and help pay for payroll, and other expenses like rent, mortgage, and utilities.
- $10 billion for SBA emergency grants of up to $10,000 to provide immediate relief for small business operating costs.
- $17 billion for SBA to cover 6 months of payments for small businesses with existing SBA loans.
- Waives the affiliation rules for businesses in the hospitality and restaurant industries.
- Waives fees, waiver collateral and personal guarantee requirements.
We will provide more details and any updates in our next Alert.
Please reach out to any members of the Federal Law and Policy team or your DLA Piper relationship attorney if you have any questions.
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