It came together quickly; Some might say not fast enough, but last Friday, the Coronavirus Aid, Relief and Economic Security (CARES) Act became law. It is believed to be the largest emergency stimulus package in U.S. history, and it will have a significant impact on businesses and employees. There’s a lot in it (the bill is 880 pages). For those looking for a shorter version, here’s a section-by-section summary and a Skadden memo provides an overview. A Cleary memo summarizes 10 key aspects to the bill:
- Assistance for affected industries – $500 billion in loans, loan guarantees and other investments for industries affected by COVID-19, $454 billion for eligible businesses, states and municipalities and $46 billion for aviation businesses and national security-critical businesses
For aviation businesses and national security-critical businesses, Treasury must receive warrants, equity or senior debt from the borrower. Restrictions on share repurchases, capital distributions on common stock, executive compensation and workforce reductions apply. Airlines can be required to continue service of existing routes to the extent reasonable and practicable.
– See John’s blog from Friday for a nuance of the stock buybacks provision relating to airline companies.
For borrowers receiving relief from the $454 billion bucket, the Federal Reserve may make loans or purchase obligations or other interests directly from issuers or in the secondary market. Restrictions on share repurchases, capital distributions on common stock and executive compensation apply to direct loans to eligible businesses, unless waived by Treasury, and workforce reduction restrictions apply with respect to the mid-sized business program.
- Airline grants to support aviation workers – $32 billion, Treasury may make direct grants to the aviation industry that must be exclusively used for wages, salaries and benefits
Again, Treasury has authority to require warrants, equity or debt. Restrictions on share repurchases, capital distributions on common stock, executive compensation and workforce reductions, and airline service requirements, apply.
- SBA assistance for small businesses – $349 billion Paycheck Protection Program – SBA will provide guarantees for loans to small businesses generally less than 500 employees, aimed at covering payroll and necessities like rent and utilities and include loan forgiveness provisions that are available if certain conditions are met
- Financial sector liability guarantees – among other things, this includes a guarantee program for the U.S. money market mutual fund industry and bank debt guarantee authority
- Financial institution regulatory relief – among other things, this includes lending limit waivers, community bank relief, regulatory capital relief for SBA lending and accounting relief for financial institutions
- Tax relief – among other things, this includes an employee retention tax credit, deferral of certain employer payroll taxes, increased ability to deduct net operating losses, an increase in the business interest allowable deduction from 30% of adjusted taxable income to up to 50%
– Also tucked in this section is a waiver of the federal excise tax on any distilled spirits used for making hand sanitizer – doubtful we’ll hear complaints about this business tax break.
- Mortgage & real estate related relief – among other things, this includes foreclosure moratorium and forbearance of multifamily residential mortgage loan payments on federally backed loans
- Potential relief for the hotel & restaurant industry
- Employee benefits & tax-qualified retirement savings plans – among other things, this includes ability for individual withdrawals on a tax favorable basis from eligible retirement plans and an increase in dollar cap on loans from qualified employer plans
- Family & medical leave – revisions to the Families First Coronavirus Response Act
The CARES Act also includes targeted funding for the health care system and other important provisions like unemployment. This McDermott memo delves into provisions related to the health care sector.
With the COVID-19 crisis unfolding daily, the measures taken by Congress, albeit imperfect, will hopefully stem some of the economic effects. There will likely be several rounds of “fix-it” sessions as constituents representing both sides of the aisle have particular wish lists that can be taken up moving forward because as many have noted, if the crisis persists for even longer, there may be calls for additional economic relief.
To help you find resources addressing various CARES Act provisions, we’re posting memos specifically related to the CARES Act in our “COVID-19” Practice Area.
-Lynn Jokela, TheCorporateCounsel.net March 30, 2020
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