I’ve previously blogged about navigating the consent requirements applicable to M&A transactions involving PPP borrower targets. Last Friday, the SBA issued guidance clarifying whether SBA consent is required for a proposed change in ownership of a PPP borrower. A McGuireWoods memo reviews the guidance, and this excerpt summarizes what transactions involve a “change in ownership”:
One of the uncertainties causing difficulty in administering change in ownership requests to date has been ascertaining what sort of transactions require SBA consent. As a first step, the procedural notice establishes that a “change of ownership” under the PPP would arise upon the occurrence of any the following circumstances:
– Equity acquisitions: A change of ownership would occur upon the sale or transfer of 20 percent or more of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity), including sales and transfers to existing owners or affiliates, as determined by aggregating all such sales or transfers that have taken place since the PPP loan was approved by SBA; provided that, with respect to public companies that are PPP borrowers, “only sales or other transfers that result in one person or entity holding or owning at least 20 [percent] of the common stock or other ownership interest of the borrower must be aggregated”;
– Asset sales: A change of ownership would occur upon the sale or other transfer of at least 50 percent of a PPP borrower’s assets (measured by fair market value), whether in one or more transactions; or
– Merger: A change of ownership would occur if a PPP borrower is merged with or into another entity.
Any transaction that does not satisfy one of the change of ownership descriptions above does not constitute a change in ownership subject to determination of whether SBA consent is required under the procedural notice. The SBA’s guidance does not address questions relating to whether certain indirect changes in ownership, such as a change in control of a parent entity, require SBA consent.
The memo also points out that even if a transaction does not require SBA consent, there are certain general notice requirements that apply “for all sales or other transfers of common stock or other ownership interest or mergers, whether or not the sale requires SBA’s prior approval.”
The guidance also enumerates certain changes in ownership transactions that won’t require SBA consent. As discussed in more detail in the memo, these include certain transactions in which the PPP loan will be paid off in full prior to closing, transactions involving a sale or transfer of 50% or less of the borrower’s common equity or other ownership interests, and other dispositions or mergers pending forgiveness that are accompanied by an escrow for the outstanding balance of the PPP loan.
-John Jenkins, DealLawyers.com October 8, 2020