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Some US companies wait for clarity on Covid-19 aid package
The Trump administration is eager to ensure the terms of the relief package — called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) — were not as lenient as assistance put together by the Obama administration after the 2008 financial crisis.
As the Trump administration on Friday began processing financial aid for small businesses under the $2.2 trillion coronavirus relief legislation that the president signed into law last week, some large businesses and corporation are waiting for more clarity on the conditions attached to these payments.
They are specially anxious about the possibility of the government picking up equity in borrowing firms in exchange. Boeing, which is looking at a substantial assistance package, has already opposed it saying it will explore other options. if forced to part with equity.
The administration is actively weighing, acquiring stake in borrowing companies, the big ones, as compensation. Treasury Secretary Steve Mnuchin said Thursday it was under discussion now in the context of relief for the airlines industry and “I’ll be working very closely with the President, and we’ll make sure that we strike the right balance. This “not a bailout” and taxpayers should “get compensated”, he added.
The Trump administration is eager to ensure the terms of the relief package — called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) — were not as lenient as assistance put together by the Obama administration after the 2008 financial crisis, which has been used by some of the borrowing companies to buy back their own stock to boost them on the exchange and to make hefty payments to top executives.
“We don’t let them buy back the stock; we don’t let that happen,” President Trump had said, when signing the legislation into law. “(with) tough limits on executive compensation.”
The 42.2 trillion package included $300 billion in direct payment to American families; $350 in job retention loans to small business; $250 billion in expanded unemployment benefits; $500 billion in loans for industries hit hard by the virus; and $100 billion for healthcare workers.
The coronavirus outbreak shut down large parts of the country, forcing many businesses to close to lay off workers to survive. Airlines and related sectors are the worst hit, along with small businesses (those employing 500 workers or less). Unemployment has shot up with a record 6.6 million filing for benefits last week, in addition to the 3.3 million the week before.
The amount set aside for industries is a mix of grants and loans and it has been earmarked for airlines, cargo carriers and those deemed essential for national security. Boeing falls in the third category and is looking at $17 billion along with others.
The treasury department announced a set of conditions last week for disbursing loans to these industries. Borrowers are prohibited from buying back their stocks, or of their parent companies, until 12 months from the date when the loan is no longer outstanding.
Borrowers are also banned from paying “dividends or make other capital distributions with respect to the common stock of the borrower” for after the same waiting period of 12 months.
The borrowing company must also “maintain its employment levels as of March 24, 2020, to the extent practicable, and in any case will not reduce its employment levels by more than 10 percent from the levels on such date”.
And, of course, the borrower must be an American company with “significant operations in and a majority of its employees based in the United States”.
There is no indication in the treasury department announcement of “Procedures and Minimum Requirements” of the government acquiring a stake in the borrowing company. As Mnuchin said at a White House briefing earlier this week, the matter is still being considered, and he did not rule it out.
Boeing has opposed it publicly and repeatedly. “I don’t have a need for an equity stake,” Boeing co-CEO Dave Calhoun told Fox Business just days before Trump signed the relief legislation into law. “If they force it, we just look at all the other options and we’ve got plenty of them.” He had then added the company was looking at borrowing from the government and had every intention of repaying the whole amount, with interest.
