As a broad overview, a sub-provision of the CARES Act governs “middle market” businesses, those between 500 and 10,000 employees. The Federal Reserve will specifically set up a funding program to banks and other lenders who will then make direct loans to such mid-market companies. These loans will carry preferential rates, no more than 2% per annum on the direct loan, with no principal or interest payable for 6 months. As with other provisions under CARES, the business is required to retain 90% of its pre-COVID workforce until at least September 30, 2020.
To clarify this program is not currently available. Rather, under the CARES Act, the Treasury Secretary is authorized to implement financial assistance under Section 4003(b)(4). Note that, as distinguished from PPP loans, loans under the 4003(b)(4) Programs do not include a mechanism for forgiveness.
Below are the certifications that a business must make in order to qualify for a loan under the 4003(b)(4) program:
- Uncertainty of the economic conditions as of the date of application makes the loan necessary for the support of ongoing operations.
- It will retain 90% of its workforce at full compensation and benefits until September 30, 2020.
- Borrower intends to restore not less than 90% of its workforce with all compensation and benefits that existed as of February 1, 2020 no later than 4 months after the termination of the public health emergency declared January 31, 2020.
- Borrower is domiciled in the United States with significant operations and employees in the United States.
- Borrower is not a debtor in a bankruptcy proceeding.
- Borrower is organized under the laws of the United States and has significant operations and the majority of its employees based in the United States.
- Borrower will not pay dividends with respect to its common stock or buyback any equity security listed on a national securities exchange, except to the extent required under a pre-existing contractual obligation.
- Borrower will not outsource or offshore jobs during the term of the loan and for 2 years after repayment.
- Borrower will not abrogate existing collective bargaining agreements during the term of the loan and for 2 years after repayment.
- Borrower will remain neutral in any union organizing effort for the term of the loan.
The 4003(b)(4) Programs for middle market businesses the CARES Act are in addition to the other programs to be develop for businesses with over 500 employees that do not qualify for PPP assistance.
For more information regarding the Paycheck Protection Program or other questions, please contact your regular HLP attorney, or Partners@thehlp.com, or call (212) 734-0128 or (248) 996-8510.