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April 15, 2020
The Honorable Jerome H. Powell
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Via email to: regs.comments@federalreserve.gov
Subject:
Main Street Lending Program
Dear Chairman Powell,
The American Academy of Dermatology Association (Academy), which represents nearly 14,000
dermatologists nationwide, appreciates the opportunity to provide comments to the Federal Reserve as it
finalizes its Main Street Lending Program. The Academy applauds this critical initiative "to make sure the
program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer
funds."
Dermatologists diagnose and treat more than 3,000 diseases, including skin cancer, psoriasis, immunologic
diseases and many genetic disorders. One in four Americans suffers from and seeks care for a skin disease
every year. As dermatologists on the front lines fighting skin cancer and treating numerous skin diseases, we
welcome this new loan program option to expand and enhance medical practice business continuity in treating
the American public.
We are pleased to share the following from the perspective of small business medical practice owners with
respect to making the Main Street Lending Program meaningful and impactful to help stabilize the US
economic landscape. We recommend that the Federal Reserve consider the following points when issuing
further instructive guidance to preserve the longer-term health and viability of medical practices treating
patients and serving as community lynchpins by delivering timely quality care:
1. Clarify the full eligibility criteria for smaller businesses seeking all types of Small Business
Administration (SBA) and/or Main Street Lending Program financial relief: We understand that
smaller businesses seeking temporary SBA financial assistance through the Paycheck Protection
Program (PPP) are also eligible to pursue further financial support through the Main Street Lending
Program.
a. We applaud the Federal Reserve for ensuring that smaller businesses are not excluded from this
additional loan program.
Bruce H. Th iers, MD, FAAD
Susan C. Taylor, MD, FAAD
Marta J . Va n Bee k, MD, MPH , FAAD
President
Vice President
Secretary•Treasurer
Kenneth J . Tomecki, MD, FAAD
Nea l Bhat ia, MD, FAAD
Da niel D. Be nnett, MD, FAAD
President-ele ct
Vice President-elect
Assistant Secretary.Treasurer
Elizabeth K. Usher, MBA
Executive Director & CEO
AADA Comments Re: Federal Reserve's Main Street Lending Program
April 15, 2020
Page 2 of 2
b. However, we urge the Federal Reserve, in consultation with the Department of Treasury and the
SBA, to categorically clarify if smaller businesses seeking assistance through the SBA's Economic
Injury Disaster Loan (EIDL) program would also be eligible to apply to the Main Street Lending
Program since many medical practices are pursuing both loan options offered by or through the
SBA-EIDL and PPP.
c. Advanced clarification ensures that small businesses are informed and able to take on reasonable
relief while avoiding crushing debt burdens.
2. As smaller businesses, exercising various loan options, may be saddled by unsustainable debt
obligations, we urge the Federal Reserve to consider relaxing the following Main Street Lending
Program terms and conditions through targeted exemptions for smaller business:
a. Longer repayment schedule: extend repayment beyond the current four years with a one-year
deferral to provide a more affordable time table for smaller businesses.
b. Lower loan rate: reduce Main Street Lending Program's rate of loan from 2.5% - 4.0% for smaller
businesses to align closer with the 1% offered by the SBA's PPP option.
c. Lenders should not discriminate against smaller business: remind lenders to avoid discriminatory
protocols that may involve privileging and preferring mid-sized business clients to the detriment of
smaller businesses.
3. Provide clear, concise and timely instructions and guidance to lenders to guarantee that
prospective loans to smaller business borrowers are not delayed.
a. As smaller businesses face survival decisions, it is urgent that lenders are fully equipped to advise
borrowers on all the applicable terms, conditions, exemptions and exclusions afforded by the Main
Street Lending Program.
b. This will enable small business medical practice owners to continue to contribute to the health of
the national economy.
The Academy appreciates the opportunity to provide comments on this request for feedback. We look forward
to additional opportunities to provide feedback that may help guide future policy developments. Please contact
William Brady, Associate Director of Health Care Policy, at 847.240.1824 or wbrady@aad.org, if you require
clarification or would like more information on the comments in this letter.
Sincerely,
Bruce Harris Thiers, MD, FAAD
President
American Academy of Dermatology Association
CC:
Marta J. Van Beek, MD, MPH, FAAD, Secretary-Treasurer
Elizabeth Usher, MBA, Executive Director & CEO
A.1.
c r•American
' --I ■
Council on
4 Education"'
One Dupont Circle NW
Wash ington, DC 20036
(202) 939-9300
acenet.edu
April 16, 2020
Jerome Powell, Chairman
Board of Governors of the Federal Reserve System
20 th Street and Constitution Avenue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program and Request for
Meeting
Dear Chairman Powell,
On behalf of the American Council on Education (ACE) and the undersigned higher
education associations, we submit the following comments in regards to the Main Street
Lending program. Specifically, we ask that the Federal Reserve update the guidance to
clarify that nonprofit private and public institutions are eligible for the Main Street
Lending program. In addition, we also ask that student workers be exempted for the
purposes of the employee threshold for the eligibility requirements (under 10,000
employees).
Institutions of higher education, often the largest or one of the largest employers in their
local communities, are facing a major cash flow crisis in light of the reduced revenue
and increased expenses imposed by the COVID-19 pandemic. Institutions expect to
refund nearly $8 billion in room and board charges alone. Some schools have also
refunded tuition payments. Anticipated sources of auxiliary revenue have dried up as
campus events have been canceled. Summer programs that provide revenue to many
institutions also have been canceled.
At the same time, institutions are facing additional costs-such as deep cleaning campus
buildings and increased security expenses. Other schools have absorbed increased costs
because they have opened their facilities to help medical personnel and first
responders. One large public university in the Midwest recently told its Board of
Trustees that, as of April 1, it has faced reduced revenue and added costs that total $71
million-not including the considerable financial impact on its medical center. Another
university projects that total revenue losses through the spring semester will exceed
$100 million. A small college serving about 3,000 students is absorbing a hit to its
budget of $4 million. And one university system has estimated that for its campuses the
potential financial losses total a minimum of $340 million, including tuition and
auxiliary activity refunds, additional costs of course delivery and student support, as
well as cleaning and other general costs.
Many of our colleges and universities are seeking low-cost loans to help address the
financial impact of the COVID-19 crisis and are interested in accessing the credit and
1
American Association of Community Colleges
American Association of State Colleges and Universities
American College Health Association
American Council on Education
American Dental Education Association
APPA, "Leadership in Educational Facilities"
Associated Colleges of the Midwest
Association of American Colleges and Universities
Association of American Universities
Association for Biblical Higher Education
Association of Catholic Colleges and Universities
Association of Chiropractic Colleges
Association of Community College Trustees
Association of Governing Boards of Universities and Colleges
Association of Independent Colleges of Art & Design
Association of Jesuit Colleges and Universities
Association of Presbyterian Colleges and Universities
Association of Public and Land-grant Universities
College and University Professional Association for Human Resources
Consortium of Universities of the Washington Metropolitan Area
Council for Advancement and Support of Education
Council for Christian Colleges & Universities
Council for Higher Education Accreditation
Council of Independent Colleges
EDUCAUSE
ETS
Great Lakes Colleges Association
Hispanic Association of Colleges and Universities
NAFSA: Association of International Educators
NASPA - Student Affairs Administrators in Higher Education
National Association for College Admission Counseling
National Association for Equal Opportunity in Higher Education
National Association of College Stores
National Association of Colleges and Employers
National Association of College and University Business Officers
National Association of Independent Colleges and Universities
National Association of Schools and Colleges of the United Methodist Church
Network of Evangelical Lutheran Church in America Colleges and Universities
Phi Beta Kappa Society
State Higher Education Executive Officers Association
UNCF
UPCEA
Work Colleges Consortium
Yes We Must Coalition
3
Mr. Jerome H. Powell, Chair
April 16, 2020
Page Two
Federal Reserve Programs Providing Direct Support to Corporate Borrowers
The Commercial Paper Funding Facility (CPFF), Primary Market Corporate Credit Facility
(PMCCF), Main Street New Loan Facility (MSNLF), and Main Street Expanded Loan Facility
(MSELF) provide direct support for new corporate borrowing. To some extent, the Term Asset
Backed Securities Loan Facility (TALF) will also support corporate borrowing. Eligibility for
each of these programs depends on the issuer's size, pre-existing debt load and the structure of
the offering. The key weakness with each of these facilities is that none of them condition receipt
of government aid on the company's adherence to conditions that they will preserve
employment, maintain workers' rights, and use the proceeds of the facilities to minimize the
spread of the virus, conditions which are present throughout the CARES Act statute which
authorized the Treasury Department to fund these facilities and conditions which ensure that the
purpose of the CARES Act is actually fulfilled.
As a threshold matter we are concerned that the basic terms of the loans are contrary to the
intention of Congress in appropriating funds to support these facilities. It appears that the terms
have been set to result in the full recoupment of the $450 billion appropriation Congress made to
Treasury in the CARES Act. This would defeat Congress' clear purpose in making that
appropriation, which was to provide credit support to businesses damaged by the coronavirus and
the economic shutdown necessary to fight the virus, and by doing so to preserve employment.
While we appreciate the Fed's attempts to structure these programs to preserve taxpayer funds
and earn interest on the loans, we are afraid that the interest rates charged for participants along
with collateral requirements in these facilities will undermine the stimulative impact that could
otherwise be achieved. We are concerned that the interest rates and collateral requirements
reflect a reluctance to expend the funds Congress allocated to these programs through the
Treasury Department. If these programs actually do not constitute a genuine credit subsidy in
these conditions they are unlikely to meaningfully add to employment or prevent a downward
macroeconomic spiral.
The term sheets for these facilities state that they are established in accordance with the authority
provided to the Federal Reserve under Section 13(3) of the Federal Reserve Act. Beyond the
statutory requirements that facilities must be broadly accessible and participants must be solvent,
that section grants the Fed broad authority to establish the policies and procedures for access. It
should use this authority to establish policies and procedures that will maximize achievement of
the Federal Reserve's mandate to promote maximum employment and the top priority, as
acknowledged by Chair Powell, to limit the spread of COVID-19.
Mr. Jerome H. Powell, Chair
April 16, 2020
Page Three
Many of the appropriate principles for the conditions can be drawn from the CARES Act. These
conditions include:
a.
b.
c.
d.
Retention of 90% of the workforce with full compensation and benefits;
Prohibition on dividends or stock buybacks;
No outsourcing or offshoring for two years after the loan is repaid;
Prohibition on abrogation of collective bargaining agreements for two years after
loan is repaid; and
e. Neutrality in union organizing. 4
In addition to the fact that the purpose of the CARES Act's authorization of Treasury
Department support for the Federal Reserve's facilities was to preserve employment, and that the
Federal Reserve's overall mandate is full employment consistent with price stability, there are
likely severe post-crisis consequences of not having these requirements as part of the terms of
the private sector facilities. Firms that do not give a high priority to retaining their work force
during this downturn will lag in the recovery, as they will have to have more time to recruit and
train workers. Those firms are more likely to fall behind on regaining lost market shares. In this
environment that is a risk factor that should not be ignored.
In addition, there should be clear requirements on borrowers to take basic steps to prevent the
spread of the virus in their workplaces, including but not limited to adopting rigorous health and
safety practices, providing necessary personal protective equipment, and providing paid sick
days to employees. As we have witnessed the need to shutter meat packing plants in South
Dakota and Nebraska because too many workers were infected, there is a financial risk in
lending to firms that do not practice necessary precautions to prevent the spread of the virus. It
would not be prudent, at this time, to ignore these risk factors. In addition, the failure of firms to
take appropriate steps to prevent the spread of the virus among employees and customers
presents serious macroeconomic risks as it substantially increases the risk of prolonging the
current economic shutdown or igniting future outbreaks of the coronavirus that would necessitate
further shutdowns following an initial restart of the U.S. economy.
The Federal Reserve should also focus on deploying economic assistance to high-road businesses
that adhere to family-supporting wages and benefits. Paying workers adequate wages will
provide economic security for families and have an important multiplier effect for the broader
economy as it will encourage consumer spending. In the construction industry, the Davis-Bacon
federal law sets an important wage floor. Outside of construction, we believe that $15 per hour is
the appropriate minimum wage. Wages can serve as a proxy for firm behavior where other
ratings are not available.
4
4003(c)(3)(D)
Mr. Jerome H. Powell, Chair
April 16, 2020
Page Four
Finally, the Fed should consider paying close attention to which entities actually employ workers
and focus their lending activities on those companies, rather than providing subsidized credit to
shell companies or highly leveraged passive investment vehicles.
All companies that receive financial support from the federal government during the crisis
should be required to adhere to these conditions and the Fed and Treasury should work with the
Special Inspector General for the CARES Act to ensure compliance throughout the relationship
of the borrower with the Fed.
Specific Concerns Related to Access to CPFF by Utility Companies
The Federal Reserve's decisions in March to reopen the CPFF and clarify that it would extend
purchases to Tier 2 issuers downgraded from Tier 1 after March 17 were positive steps in
providing necessary short-term liquidity to American businesses.
Unfortunately, utilities are left out of the CPFF's scope because they are classified as Tier 2
issuers. Utilities are regulated entities and are prohibited from keeping the necessary cash on
hand, in proportion to debt, that credit rating agencies demand in order to assign them a Tier 1
rating. We believe the Tier 2 ratings for utility companies are inappropriate given the likelihood
of default.
The commercial paper (CP) market for Tier 2 issuers has encountered severe disruption in recent
weeks, including declining liquidity and higher costs. These factors could have increasingly
negative consequences for utilities' customers, employees, suppliers, and banks. For example,
electric utilities use CP to fund working capital needs to support payrolls, suppliers and vendors,
and critical infrastructure projects-the costs of which are typically collected from customers. In
addition, with the continued challenges in the CP market, many Tier 2 issuers will need to draw
down their bank revolving credit lines, which puts increased pressure on banks' balance sheets.
With this in mind, we recommend that the Federal Reserve have the CPFF purchases be
extended to commercial paper rated at A2/P2/F2 by at least two of the major credit rating
agencies and issued by companies in sectors designated as critical infrastructure under the
Presidential Policy Directive on Critical Infrastructure Security and Resilience (PPD-21).
Federal Reserve Programs Providing Secondary Market Support
The Fed's Secondary Market Corporate Credit Facility (SMCCF) is designed to support the
secondary market for corporate borrowing. We appreciate that the direct participants in this
facility will not be the issuers but financial market intermediaries. Nonetheless, it is possible that
through this facility the Federal Reserve will become a major owner of the outstanding debt of
many large businesses. To the extent that, through secondary market purchases, the Fed comes
into possession of 20% or more of the outstanding value of any issuance, we believe that the Fed
Mr. Jerome H. Powell, Chair
April 16, 2020
Page Five
should apply the same conditions on borrowers that are outlined above including those drawn
from the CARES Act related to employee retention, workers' rights, and limitations on
dividends, stock buybacks and executive compensation. In addition, the Fed should require
companies to adopt rigorous health and safety practices, provide necessary personal protective
equipment, provide paid sick days to employees, and pay a living wage or prevailing wages
where applicable.
Federal Reserve Program Supporting State and Local Government Borrowing
The Municipal Liquidity Facility (MLF) will directly purchase up to $500 billion in newly
issued bonds from states, cities with one million or more residents, and counties with two million
residents or more. 5 The AFL-CIO has been very concerned by turmoil in the municipal debt
markets and we were pleased by the Fed's announcement that it was opening this facility to help
provide additional short-term liquidity.
More than anything else, state and local governments need federal grants to compensate for an
anticipated $750 billion total budget shortfall resulting from lost revenues and extra expenses
incurred because of COVID-19. While the MLF may help provide state and local governments
with access to short-term bridge loans to help mitigate the immediate impact of the delayed tax
deadline, further improvements are necessary to maximize the utility of the program.
We believe the Fed should expand access to the MLF to all smaller cities and counties and other
subordinate jurisdictions, and then apply appropriate risk based criteria for who can actually
access the facility at any given time. The size requirements currently applicable mean that only
15 U.S. counties and 10 U.S. cities will be able to access the facility. Not only does this standard
unnecessarily privilege larger metropolitan areas, but it also means that cities and counties with
higher African American populations will not have access to the facilities. 6 While these
consequences are likely unintended, they are also unacceptable and must be addressed by
expanding access to the MLF.
The terms currently defined by the Fed provide that eligible notes will typically be issued in
anticipation of near-term tax and other revenue and mature in no more than two years. While we
do not believe this program should be used to support long-term borrowing to fund state and
local government operations, in this extraordinary situation the Fed should be prepared to
intervene in secondary markets for longer term state and municipal government securities should
circumstances require that type of intervention. This should include terms that allow the Fed to
5
6
https :ljwww. fed era Ireserve .gov/newsevents/pressrel eases/fil es/moneta ry20200409a3. pdf
https:ljwww.brookings.edu/research/a-chance-to-improve-the-equity-impact-of-the-feds-municipal-lending
facility/
Mr. Jerome H. Powell, Chair
April 16, 2020
Page Six
help state and local governments restructure their debt to lower interest rates, reducing their debt
burden.
The term sheet for the MLF released on April 9 also stated, generally, that pricing will be based
on the issuer's rating and that the details are still being determined. State and municipal
governments are on the front lines fighting COVID-19 and protecting the American people.
They need to be able to dedicate as many of their resources as possible to the fight. They should
not be forced to spend money on interest payments to the federal government that could be spent
on essential items like respirators and personal protective equipment for essential personnel. As
such, the Fed should not make any money on these loans. We encourage the Fed to charge
interest at the Federal Funds Rate for these loans.
As we look ahead, the drop in revenues for state and local governments may lead to reductions in
their bond ratings that will not reflect the long term credit worthiness of the issuers. So, a rise in
interest rates at that time may well lead to the deferral of needed infrastructure until greater
stability is achieved and state and local governments see their ratings increase. This deferral will
weaken the strength of any recovery, since state and local infrastructure may be too delayed to
help in the economy's rebound.
In the longer term, we urge the Board of Governors to give thought to how it can modify the
MLF or design a new facility to support longer term state and municipal government investment
in infrastructure. Infrastructure investment will be critical to a speedy recovery from the
economic crisis brought on by the coronavirus, and is essential to making our economy more
resilient in the face of possible recurring outbreaks. We urge the Board of Governors to think in
a creative way about how to address this need consistent with overall Federal Reserve policy and
practice.
Conclusion
We applaud the Federal Reserve for taking these extraordinary measures to mitigate the
economic damage resulting from the COVID-19 pandemic. We believe that the improvements
outlined above will help you to better achieve your goals of preserving employment and
mitigating the spread of the virus.
Thank you for the opportunity to comment. If you have any questions or would like to discuss
our views, please email me at wspriggs@aflcio.org.
Sincerely,
William E. Spriggs, PhD
Chief Economist
cc: Richard H. Clarida, Vice Chair
Randal K. Quarles, Vice Chair for Supervision
Michelle W. Bowman
Lael Brainard
II.
Primary Market Corporate Credit Facility (PMCCF)
To be an eligible issuer under the PMCCF, an entity must not have received specific support pursuant to the
CARES Act or any subsequent federal legislation. This prohibition has raised a couple of questions that we hope
the Federal Reserve will answer. We respectfully request that the Federal Reserve clarify that: (1) taking
advantage of the delay in payroll tax payments, or (2) being designated as a Paycheck Protection Program lender
by the Small Business Administration does not disqualify an entity from qualifying as an eligible issuer.
In addition, on April 9, the updated PMCCF Term Sheet excluded depository institutions and depository
institution holding companies (as such terms are defined in the Dodd-Frank Act) from eligibility. We ask that the
Federal Reserve clarify that this revision was not intended to exclude certain savings and loan holding companies
that are substantially engaged in insurance underwriting or commercial activities.
Furthermore, we ask that the Federal Reserve expand the PMCFF to include issuers with a non-investment grade
credit rating, clarify the section 4019 conflict-of-interest provisions (section 4019 takes a broad approach to
defining the term "equity interest," which includes a share in an entity regardless of whether it is transferable or
classified as stock), and clarify whether "maximum amount of outstanding bonds or loans of an eligible issuer"
includes committed but undrawn amounts.
III.
Secondary Market Corporate Credit Facility (SMCCF)
On April 9, the updated SMCCF Term Sheet excluded depository institutions and depository institution holding
companies (as such terms are defined in the Dodd-Frank Act) from eligibility. We request that the Federal Reserve
clarify that this revision was not intended to exclude certain savings and loan holding companies that are
substantially engaged in insurance underwriting or commercial activities.
Furthermore, as with the PMCCF, we ask that the Federal Reserve expand the SMCCF to include issuers with a
non-investment grade credit rating, clarify the section 4019 conflict-of-interest provisions, and clarify whether
"maximum amount of outstanding bonds or loans of an eligible issuer" includes committed but undrawn amounts.
IV.
Paycheck Protection Program Lending Facility (PPPLF)
First, we ask that the Federal Reserve expand eligibility requirements to allow non-bank consumer lenders to
participate as lenders.
Second, we request that the Federal Reserve clarify that an electronic collateral origination process that complies
with the Electronic Signatures in Global and National Commerce Act, the Uniform Electronic Transactions Act,
and Uniform Commercial Code § 9-105 (Control of Electronic Chattel Paper) satisfies the pledging collateral
requirements at each Federal Reserve Bank fore-loans.
V.
Main Street Lending Program (MSLP)
While appropriate for a number of industries, the proposed debt-to-EBITDA metrics mean that many finance
companies will fail to qualify for the MSLP.
2
Many financial services companies raise the majority of their debt via securitization. Issuers can essentially
choose to account for securitizations as on-balance sheet debt or as a sale in which the assets leave the balance
sheet and, therefore, no debt appears on the balance sheet. Finance companies generally ensure that they account
for securitization as debt so as to avoid gain-on-sale accounting.
For finance companies that account for their securitizations as on-balance sheet transactions, debt-to-EBITDA
measures are typically quite high. Lenders are leveraged entities, and the amount of leverage suitable for lenders
is generally higher than the amount of leverage tolerated in other sectors. EBITDA, in fact, is not a metric used
by bankers who cover the lending sector - money is a lender's primary raw material, so talking about earnings
before interest (the cost of that raw material) is rather like talking about a chair manufacturer's earnings before
cost of wood, fabric, and nails.
We ask that the Federal Reserve either: (1) recognize that securitization debt is non-recourse to the issuer and,
therefore, does not need to be counted in the calculation, or (2) require an alternative leverage metric and/or
threshold that is more suitable for the financial services sector.
We also request that the Federal Reserve issue an FAQ to provide additional clarity. In the FAQ, the Federal
Reserve could clarify the following:
•
•
•
•
•
VI.
Eligibility requirements - The Federal Reserve has not defined how the employee thresholds should be
calculated, or whether the thresholds require prospective borrowers to aggregate their employee or
revenue levels with those of their affiliated entities.
Clarify acceptable uses for the loan proceeds - Currently, the term sheet merely states to refrain from
paying "other loan balances."
Clarify the "reasonable efforts" standard that a borrow must satisfy in its efforts to maintain payroll and
retain workers. The Federal Reserve should consider establishing specific levels.
Further define eligibility and underwriting criteria related to the borrower's financial condition. The term
sheet merely states that the borrow must attest that they require financing due to the exigent circumstances
presented by the COVID-19 pandemic and they are not insolvent.
Clarify the "reasonable efforts" standard that a borrow must satisfy in its efforts to maintain payroll and
retain workers. The Federal Reserve should consider establishing specific levels.
Commercial Paper Funding Facility (CPFF)
By ensuring the smooth functioning of this market, particularly in times of strain, the CPFF will support families,
businesses (particularly small businesses), and jobs across the economy.
In order to do so, though, the CPFF must be expanded. Currently, the SPV will only purchase U.S. dollar
denominated commercial paper (including asset-backed commercial paper) that is rated at least A-1/P-1/F-1 by a
major nationally recognized statistical rating organization (NRSRO) and, if rated by multiple major NRSROs, is
rated at least A-1/P-1/F-1 by two or more major NRSROs, in each case subject to review by the Federal Reserve.
As the CPFF is structured right now, many vehicle finance companies cannot access this line of credit as they do
not qualify under the credit rating limitation. Many vehicle finance companies are Tier II/III issuer (A-2/P-3)
rated company. However, they still have solid credit and may be in the greatest need of assistance.
3
Hon. Jerome H. Powell
April 16, 2020
(EBITDA)-the important denominator in the maximum leverage ratios used by both MS
Facilities-and thus can provide, through appropriate loan covenants, a dedicated source of
revenue from which to repay any MS Facility Loan.
As the Board, in consultation with the Department of the Treasury, ("Treasury"), develops more
granular program rules for the MS Facilities, we request that you consider the unique attributes
of America's gaming companies, including the fact that each company has its own distinct
employee base and ability to repay any Board-backed loan. We encourage you to use flexible
eligibility rules so that AGA's members can access the MS Facilities and continue to support our
workforce during this pandemic. We encourage you to ensure that a stand-alone gaming
company's individual eligibility for the MS Facilities be based on the number of employees it
employs at a particular property and its ability to repay a Board-back loan.
Our members understand that any separate, stand-alone gaming company that receives a loan
may be requested to make appropriate covenants to ensure that any Board-backed loan is not
used to capitalize any parent or affiliate which they themselves may be ineligible, whether
through issuance of a dividend, provision of a guarantee, or otherwise. Our only goal is to ensure
the continued employment of our loyal workers until government stay-home orders are lifted and
customers can safely enjoy our world-class venues.
Finally, as you develop new programs to assist large employers, we urge you to ensure that
additional lending facilities are accessible to the broad array of businesses most in need of
support under these programs, and not limit lending exclusively to investment grade companies.
Providing this flexibility is critical to ensure these emergency lending facilities are as effective as
intended by Congress.
Thank you for your attention to these concerns. We stand ready to work with the Board and
Treasury at your request to provide additional data and information.
Sincerely,
William C. Miller, Jr.
President & CEO
cc:
Hon. Steven T. Mnuchin, Secretary of the Treasury
IF ~ ]
Washington, D.C. Office
American Hospital
Association'"
800 10th Street, N.W .
Tw o CityCenter, Suite 400
Washington , DC 20001-4956
Advancing Health in America
(202) 638-11 00
April 12, 2020
The Honorable Steven Mnuchin
Secretary of the Treasury
Main Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
The Honorable Jerome Powell
Chair of the Board of Governors
The Federal Reserve
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
RE: Guidance needed to support hospitals' ability to access Main Street New Loan
Facility
Dear Secretary Mnuchin and Chairman Powell:
On behalf of our nearly 5,000 member hospitals, health systems and other health
care organizations, our clinician partners — including more than 270,000 affiliated
physicians, 2 million nurses and other caregivers — and the 43,000 health care
leaders who belong to our professional membership groups, the American Hospital
Association (AHA) is writing to supplement its letter dated April 3, 2020 regarding
access by hospitals to financing provided under Section 4003(b)(4) of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including the Main
Street New Loan Facility (the New Loan Facility) described in the term sheet posted
by the Federal Reserve on April 9, 2020. The AHA and our members appreciate the
speedy efforts of the Department of the Treasury and the Federal Reserve to create
and outline new credit facilities to assist numerous business sectors, including the
country’s health care organizations, in surviving the health care and financial crises
instigated by the COVID-19 virus pandemic.
As noted in our April 3 letter, access by health care organizations to the low-cost
loans described under Section 4003(b)(4) of the CARES Act and/or the New Loan
Facility is an essential component of federal support for hospitals. Whether or not
additional loan facilities are developed with Section 4003(b)(4) funds, time is of the
essence for working capital support of the hospitals and other organizations on the
frontline of battling the virus, and the New Loan Facility is the facility most likely to
address federal loan assistance needs for health care organizations ineligible for
Paycheck Protection Program (PPP) loans or for which PPP loan maximums are
insufficient. We urge Treasury and the Federal Reserve to supplement the New Loan
Facility term sheet with prompt guidance on the following points to ensure that
access to this critically-necessary loan facility will be attainable for hospitals without
delay.
The Honorable Steven Mnuchin
The Honorable Jerome Powell
April 12, 2020
Page 2 of 3
Eligibility of Non-profit Organizations. Section 4003(c)(3)(D) of the CARES Act tasks
Treasury and the Federal Reserve with implementing a non-exclusive emergency loan
program under Section 4003(b)(4) that provides assistance to mid-sized businesses,
including non-profit organizations, that have up to 10,000 employees. The New Loan
Facility is, at this time, that loan program. The New Loan Facility term sheet describes
eligible borrowers as “businesses with up to 10,000 employees or up to $2.5 billion in
2019 revenues.” The term sheet does not distinguish between for-profit businesses and
non-profit businesses, or mention nonprofits. Many hospitals are nonprofits. It is AHA’s
understanding, bolstered by congressional intent expressed in Section 4003 of the
CARES Act, that “businesses” include non-profit organizations, and that nonprofits
which otherwise meet the New Loan Facility eligibility requirements are eligible for loans
thereunder. In order to avoid uncertainty or delay with participating lenders under the
program, AHA urges Treasury and the Federal Reserve to make an unequivocal
statement that nonprofits are included.
In addition, guidance should clarify that the eligibility requirements are satisfied if either
the 10,000 employee maximum or the $2.5 billion revenue maximum are satisfied, and
that exceeding one of these two criteria is not disqualifying.
Moreover, the New Loan Facility term sheet is silent on the applicability of affiliation
principles in calculating employees and revenues. In the event further guidance on this
topic is contemplated, we reiterate, as discussed in AHA’s April 3 letter, that a non-profit
applicant should be permitted to establish eligibility for the New Loan Facility program
by reference to the number of employees of that entity, and the revenues of that
organization, without regard to any affiliated entities.
Eligibility of Public Hospitals. Public hospitals operated by states, counties or cities
are involved in the battle against the COVID-19, and are essential to the viability of the
economies of their geographic locations, as are for-profit- and non-profit hospitals. Due
to the size and other requirements of the Municipal Liquidity Facility described in the
applicable term sheet posted by the Federal Reserve on April 9, 2020, it appears that
the Federal Reserve’s municipal liquidity facility will not be directly available to public
hospitals, and indirect availability, much less timely indirect availability, also is doubtful
given the complexities of intermediated financings. These separate enterprises of state,
county or local government should not be permitted to fall into a no-man’s land in which
they are ineligible for assistance under any of the Federal Reserve facilities developed
for this crisis. AHA urges Treasury and the Federal Reserve to either specify that public
hospitals are considered businesses eligible under the New Loan Facility if the
remaining eligibility criteria are satisfied, or to supplement the Municipal Liquidity Facility
to make public hospitals independently and directly eligible under that facility.
Compensation Restrictions. The New Loan Facility term sheet indicates that the
compensation restrictions in Section 4004 will be applicable to loans under that facility
although Section 4004 does not impose such restrictions on Section 4003(b)(4)
The Honorable Steven Mnuchin
The Honorable Jerome Powell
April 12, 2020
Page 3 of 3
assistance. For the reasons stated in its April 3 letter, AHA urges that the Secretary of
the Treasury waive such requirements, as the CARES Act authorizes, in the case of
“employees” providing medical services. As previously noted, given the national
undersupply of medical professionals, hospitals and health systems receiving this type
of federal loan should not be pitted against those that do not receive such loans and are
able to compensate physicians and other medical personnel at market rates. At a
minimum, guidance should clarify that borrowers may honor employment contracts
executed prior to March 1, 2020, just as Section 4004 excludes from its restrictions
compensation determined pursuant to a collective bargaining agreement entered into
prior to March 1, 2020.
EBITDA Test. The New Loan Facility term sheet restricts the loan size to an amount
that, when added to the borrower’s existing outstanding and committed but undrawn
debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes,
depreciation, and amortization (EBITDA). We urge Treasury and the Federal Reserve to
provide an override mechanism for hospitals and/or other borrowers that do not satisfy
this EBITDA test, or cannot obtain adequate loan assistance as a result of this EBITDA
test, as long as other stated provisions, such as partial collateralization, are met which
satisfy the taxpayer protection objective. In addition, guidance should clarify that
undrawn lines of credit are excluded from the leverage ratio calculation.
Once again, we appreciate your leadership on these issues relating to this health,
financial and societal crisis, and we look forward to continuing to work with you during
this critical time to protect the health of our nation.
Sincerely,
Thomas P. Nickels
Executive Vice President
April 16, 2020
VIA ELECTRONIC SUBMISSION
Jerome H. Powell, Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Re:
Steven T. Mnuchin, Secretary
U.S. Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220
Proposed Main Street Expanded Loan Facility and Main Street New Loan Facility
Dear Chairman Powell and Secretary Mnuchin:
The American Investment Council (the “AIC”)1 and its members commend your efforts
to support the economy and employment during these unprecedented times. It is critical to the
U.S. economy and its eventual recovery that the Board of Governors of the Federal Reserve
System (the “Board”) and the Secretary of the Treasury (the “Secretary”) boldly use
section 13(3) of the Federal Reserve Act and the Exchange Stabilization Fund to reach
businesses threatened by the pandemic. Nowhere is this need more evident than in small- and
medium-sized businesses. Main street businesses, along with people they employ and the local
communities they support, have borne the brunt of the economic effects of the pandemic and
need relief. The private equity industry directly employs over 8 million Americans in businesses
of all sizes in every state and every sector of our economy. Main Streets across America are
lined with private equity backed businesses that employ local workers. For example, there are
523,000 private equity-backed employees in Florida, 102,000 employees in Kentucky, and
703,000 employees in Texas.
We applaud your efforts to support main street businesses through these challenging
times. While acknowledging the numerous strengths in what you have done, our comments
below focus on some important adjustments and clarifications to the main street lending facilities
1
The AIC is an advocacy, communications, and research organization established to advance access to
capital, job creation, retirement security, innovation, and economic growth by promoting responsible
long-term investment. In this effort, the AIC develops, analyzes, and distributes information about the
private equity and private credit industry and its contributions to the U.S. and global economy.
Established in 2007, and formerly known as the Private Equity Growth Capital Council, the AIC is
based in Washington, D.C. The AIC’s members are the world’s leading private equity and private
credit firms, united by their commitment to growing and strengthening the businesses in which they
invest. For further information about the AIC and its members, please visit our website at
http://www.investmentcouncil.org.
that would further improve the effectiveness of the facilities. We urge the Board and Secretary
to ensure that the emergency lending programs directed at main street businesses reach a wide
range of creditworthy businesses that have been affected by the pandemic (“qualifying
businesses”). Targeted adjustments to the proposed facilities should be made to ensure that
certain restrictions—ones that are inconsistent with the current realities of the lending
environment—do not prevent the facilities from having the effects intended by the
Administration and the Congress. The shared policy imperative is for necessary relief and
liquidity to reach all parts of the economy and not unfairly to penalize employees, suppliers,
business people and communities that the Administration and Congress sought to help. In short,
the Board and Secretary must seek to ensure that as many qualifying businesses as possible are
“eligible borrowers” under the main street lending facilities.
I.
The AIC Supports Many Aspects of the Main Street Facilities.
Many aspects of the main street lending facilities would appear to facilitate this goal. In
particular, the AIC and its members support the following aspects of the Main Street New Loan
Facility (the “MSNLF”) and the Main Street Expanded Loan Facility (the “MSELF” and,
together with the MSNLF, the “Main Street Facilities”):
2
The Main Street Facilities would not impose any criterion related to credit ratings. As
most small- to medium-sized businesses either do not have credit ratings or do not have
investment-grade ratings, imposing a credit rating requirement for such businesses would
largely nullify the utility of the Main Street Facilities.
The Main Street Facilities would not require borrowers to post collateral. A requirement
to provide new collateral also would drastically decrease the scope and utility of the
Main Street Facilities.2 Small- and medium-sized businesses have very limited ability to
post collateral, which for these firms generally consists of illiquid assets like inventory,
equipment and their own equity. Moreover, taking such collateral may significantly
increase the administrative burden on lenders and slow the speed at which liquidity is
delivered to the economy.
The Main Street Facilities would not restrict access based on a minimum size or
participation in most other government programs. Investor-owned businesses should be
afforded the same opportunities for financial support and liquidity as other similarlysituated small- and medium-sized businesses, whether or not they have more than 500
employees and whether or not they have access to other relief measures provided under
the CARES Act.
Although the MSELF would require any collateral securing an eligible loan to secure the loan
participation on a pro rata basis, we understand that the facility would not necessarily require new
collateral to receive an upsized tranche of an existing loan.
2
II.
Narrowly Tailored Changes Should Be Made to Allow Creditworthy Borrowers to
Access the Main Street Facilities.
Notwithstanding our support for the principal elements of the Main Street Facilities, we
believe that clarifications and narrowly tailored changes should be made to allow more
creditworthy businesses to be eligible borrowers. Specifically, the following changes and
clarifications are necessary to allow a significant number of investor-owned and other qualifying
businesses to have access to the Main Street Facilities.
A.
EBITDA and related calculations should be determined based on existing loan
documentation or, for new loans, on the criteria normally used by the eligible
lender.
The Main Street Facilities would limit the maximum loan amount to the lesser of (1) a
multiple of the borrower’s 20193 earnings before interest, taxes, depreciation and amortization
(“EBITDA”) and (2) one or more other metrics.4 Although AIC understands the Board’s and
Secretary’s interest in establishing clear and easily administrable standards regarding
creditworthiness for the Main Street Facilities, eligible lenders should retain some discretion in
determining a borrower’s EBITDA. A set, “one size fits all” calculation for EBITDA—one that
would not allow an eligible lender to make appropriate modifications based on the borrower’s
credit condition—would exclude many qualifying businesses.
Lenders, especially those with outstanding loans to a borrower, best understand whether
EBITDA modifications would more accurately reflect the borrower’s cash flow, and most credit
agreements contain detailed calculations to ensure that EBITDA is accurate and appropriate to
the borrower. Moreover, eligible lenders have strong incentives to carefully determine the
appropriate EBITDA calculation, as they would share in any loss under a Main Street Facility
loan and their lending remains subject to the supervision, and potential criticism, of the federal
banking agencies. For example, a Quality of Earnings report prepared by an independent third
party may provide a better understanding of a company’s cash flow and EBITDA. In the
corporate loan market, EBITDA is customarily modified to make it more suitable to the
borrower’s existing credit arrangements or regular financial reporting. A failure to adapt
EBITDA would likely exclude many non-profits, including many hospitals that have been
severely impacted by the crisis.
3
Although basing the EBITDA on 2019 financials may be appropriate for many borrowers, certain
borrowers may have more recent financials that more accurately reflect the borrower’s cash flow and
financial condition. The Board should clarify that eligible lenders may use for EBITDA calculations
either 2019 financials or more financials for a more recent 12-month period.
4
The limit is six times EBITDA for the MSELF and four times EBITDA for the MSNLF.
3
That the Board should permit lenders discretion in calculating EBITDA is particularly
evident for the MSELF. Specifically, lenders and borrowers should be able to rely on the
EBITDA definition in existing loan documents. This definition would be the best measure of the
borrower’s cash flow, as the loan terms were negotiated at arm’s length before the proposal of
the Main Street Facilities, and therefore should reflect the EBITDA measure that the market
believed was the best measure of the company’s cash flow. For the same reasons, the definition
of indebtedness in the existing credit documents should be able to be used for the MSELF, which
would allow lenders to take into account the relative priority of MSELF loans. Moreover, using
the definitions of EBITDA and indebtedness established in the documents should reduce the
potential conflicts between the existing loan documentation and the upsized tranche as well as
increase the speed at which the upsized tranche may be executed.5 Minimizing the
administrative burden of lenders, such as by allowing the use of existing EBITDA definitions,
also should increase the number of loans under the MSELF that may be provided expeditiously.
B.
Additional narrowly tailored modifications should be made to the maximum loan
size.
A few additional modifications to the calculation of the maximum loan size for the
MSELF, or both Main Street Facilities, would more accurately reflect current lending realities
and borrowers’ ability to repay the facilities. The MSELF’s loan limit to 30% of existing “bank
debt” should be based on debt from both bank and nonbank lenders as creditworthy small- and
medium-sized businesses commonly obtain credit from non-bank lenders. Therefore, excluding
non-bank debt from this cap may significantly reduce the amount that many eligible borrowers
would receive from the MSELF and, in certain cases, essentially exclude the borrower from
participating in the facility based on an irrelevant criterion (i.e., whether its primary borrowing
was through a bank).
In addition, items that would be treated as debt for accounting purposes but that would
not typically be taken into account when determining what is treated as debt for lending purposes
(e.g., capital leases, trade payables) should also be excluded as they generally are distinguished
from debt when making lending decisions. Likewise, the Main Street Facilities should allow
netting of cash against existing indebtedness as doing so is a common practice in the lending
markets because it allows for a more accurate depiction of a borrower’s ability to repay.
Similarly, debt that is junior to the Main Street Facility debt should not be counted because the
eligible lender will have priority should the borrower become insolvent. Making these changes
5
As there will be few existing loan facilities that contemplate the precise terms specified in the MSELF
term sheet, the Board should make clear that the “upsize” contemplated by the MSELF may be
provided in the form of a new non-fungible tranche or incremental facility under an existing
arrangement and need not be limited to an increase in loans under an existing facility.
4
will allow many more borrowers to have meaningful access to the Main Street Facility by
increasing the eligible borrowing level.
C.
The MSELF should include syndicated term loans for which an eligible lender is
the agent.
Clarifying that “term loans” under the MSELF include syndicated term loans, such as
those in which nonbank lenders participate, would help ensure that a significant portion of
medium-sized businesses are able to access the facility. Loan syndication involving agent banks
is a primary borrowing method for many medium-sized businesses. For example, the Shared
National Credit (“SNC”) population totaled $4.8 trillion in commitments in 2019, a number
which excludes commitments of less than $100 million.6
Loan syndication is a critical method of preventing the concentration of credit risk within
banking organizations and the U.S. financial system. Moreover, banking organizations originate
and participate in syndicated term loans in a safe and sound manner just as they do for other term
loans. Loan syndication is closely supervised by the federal banking agencies. For example,
large agent banks receive two reviews under the SNC Program each year and most other agent
banks receive one review a year.7 Accordingly, excluding syndicated loans would unnecessarily
exclude an important form of safe and sound lending to medium-sized businesses and
significantly reduce the number of businesses that would be able to access the MSELF.
D.
The MSELF’s requirement that the borrower have a term loan made by an
eligible lender should be modified.
The MSELF’s requirement that the borrower have a term loan made by an eligible lender,
even if clarified as discussed above, could still exclude many qualifying businesses based on
borrowing decisions that have little to do with a borrower’s creditworthiness or need for liquidity.
Two changes should be made to the requirement to ensure that the MSELF is able to provide
relief to a broader range of qualifying businesses. First, an eligible lender should not be required
to have made the initial loan as long as the eligible lender participates in the upsized tranche.8
As noted, small- and medium-sized businesses commonly obtain credit from non-bank lenders,
which may participate in existing loans alongside regulated lenders, or as members of a
syndicate. In fact, traditional banks in many respects have exited the business of lending to
small- and medium-sized companies since the financial crisis.
6
Board, FDIC, OCC, Shared National Credit Program, 1st and 3rd Quarter Reviews (Jan. 2020).
7
Id.
8
In such a case, the eligible lender should be able to rely on existing loan documentation for the
calculation of EBITDA and indebtedness, as described above, to the extent consistent with safe and
sound lending practices.
5
Second, the initial loan should not be required to be a term loan, as the upsized tranche
may be a term loan even though the initial loan is not. Many small- and medium-sized
businesses may choose to maintain existing credit facilities rather than term loans. Such a choice
is not reflective of the borrower’s creditworthiness or current liquidity need, and lenders
carefully underwrite lines of credit as they would term loans. Therefore, the requirement that the
initial loan be a term loan does not appear to further the policy goals of the MSELF and may
arbitrarily exclude many qualifying businesses from eligibility. Revolving lines of credit and
other non-term loans should be included among the loans that may receive an upsized tranche
under the MSELF.
E.
The Main Street Facilities should not require that eligible loans be senior to other
debt and should otherwise permit lenders flexibility in setting maturity and
amortization (as well as other loan terms) to avoid violating existing debt
covenants.
Existing debt of small- and medium-sized businesses often contain restrictions regarding
the incurrence of new debt, including requirements that new debt must be junior to the existing
loan and that the term of any new debt must extend beyond that of the existing debt. Exceptions
to these covenants in the loan agreements are usually limited to relatively small amounts.
Moreover, borrowers may not be able to modify these covenants and, in any event, the length of
such a modification process is likely to be costly and significantly increase risk to the business’s
liquidity.
Therefore, eligible loans should not be required to be senior to all other debt, and eligible
lenders should be permitted discretion to modify eligible loan terms to the extent necessary to
avoid violating existing debt covenants as long as such modifications are consistent with safe and
sound lending practices and as long as the eligible lender documents its determination that the
borrower has the ability to repay the additional credit extended under the Main Street Facility.
At a minimum, eligible lenders should have the ability to modify the required maturity
and amortization schedules, as term loans frequently have a tenor of five years or longer. This is
a significant structural aspect of the debt markets for small- and medium-sized businesses and
providing this limited additional flexibility is critical for the effectiveness of the Main Street
Facilities.
F.
A narrowly tailored adjustment and clarification should be made to permit
borrowers to use funds efficiently.
The Main Street Facilities would place a number of restrictions on the borrower’s
business decisions, including restrictions on the use of the loan proceeds, the payment or
cancellation of the borrower’s other debt, and the payment of dividends. Although the AIC
understands the need for certain restrictions on borrowers, a narrowly tailored adjustment and
6
clarification would allow borrowers additional flexibility in managing liquidity when they need it
most. Specifically, the prohibition on repayment of debt of equal or lower priority should not
extend to amounts that can then be re-borrowed under a revolving line of credit.9 This minor
relaxation of the restrictions stated in the term sheets would allow companies to use their limited
liquidity more efficiently by avoiding the need for cash to sit idly on their balance sheets while
incurring interest expense associated with funds already drawn under a revolving line of credit.
Similarly, the Main Street Facilities should clarify that borrowers are allowed to repay
maturing indebtedness. The ability to use funds from the facility to refinance existing senior
debt with a near-term maturity also should allow businesses to use limited liquidity as efficiently
as possible.
G.
Application of SOFR is premature.
Mandated application of Secured Overnight Financing Rate (“SOFR”) is premature given
the ongoing process in the market to transition away from the London Interbank Offered Rate
(“LIBOR”). Borrowers are familiar with LIBOR, but are not yet prepared for SOFR. Requiring
that Main Street Facility loans use SOFR would require borrower education and lender
operational changes and would therefore result in delay. Accordingly, the Main Street Facilities
should permit the use of LIBOR with “fallback” provisions for transitioning to SOFR consistent
with the policy endorsed by the Alternative Reference Rates Committee. This approach would
provide sufficient time for participants to prepare for the transition in a manner that is consistent
with current market capabilities and does not discourage use of the facilities.
*****
9
We understand that this prohibition to refrain from repaying other debt of equal or lower priority
would not apply to mandatory interest payments as well as mandatory principal payments.
7
The AIC appreciates the opportunity to comment on the Main Street Facilities and would
be pleased to answer any questions that you might have concerning our comments.
Respectfully submitted,
Jason Mulvihill
Chief Operating Officer & General Counsel
American Investment Council
cc:
Mark Van Der Weide
Andreas Lehnert
Michael Kiley
Board of Governors of the Federal Reserve System
Eric Froman
Kipp Kranbuhl
Peter Phelan
U.S. Department of the Treasury
8
2
It is vital to provide this access to low-interest loans to nonprofit colleges and universities financially
devastated by the pandemic and struggling to continue to educate and assist students and employ the
millions of faculty and staff who work on campuses around the country. Thank you for the consideration
and we look forward to working with you on this and other important loan programs as the Federal Reserve
responds to the COVI D-19 crisis.
1121 L Street, Suite 802, Sacramento, CA 95814
aiccu.edu
near-term default and needs to be re-financed. We need the Fed and the Treasury to create a
program that allows hotel owners to refinance most or all of our mortgage loans.
In order for us to keep our hotels, re-hire our workers and slowly return to prosperity, we need
the Main Street Lending program, including the facilities designed to help Mid-Sized Businesses,
to provide the following for all hotel loans that were performing prior to the Covid-19 crisis:
•
•
•
•
•
•
•
Government-mandated forbearance for 2 years, or until new financing is in place.
This includes prohibiting lenders and servicers from charging "forbearance," "special
servicing" or other predatory fees.
Loan guarantees from the Fed to FDIC-regulated banks, thus enabling the banks to
make mortgage loans secured by our hotels to replace our existing loans, in an
amount equal to 110% of current indebtedness - this will allow us to pay off our
current lenders at par (thus providing them with much-needed liquidity), replace
depleted reserves and fund capital investment in our properties, resulting in
significant job creation for construction workers, skilled tradesmen, architects and
many more.
The loans need to be for a term of at least 5 years. They need to be interest-free for 3
years and bear interest at 25 to 50 bps thereafter. No origination or other fees.
The loans should provide multi-year extension options to allow for an orderly re
finance over time (rather than hundreds of billions all maturing in 5 years).
They need to be prepayable at any time, without penalty, so we can re-finance when
lodging and capital market conditions stabilize.
We need a measured, flexible approach to any conditions imposed on CARES Act
borrowers. For example, many hotels are owned by REITs that are subject to IRS
regulations governing the return of capital to shareholders. Accordingly, it is not
feasible to prohibit REITs from paying dividends on their common stock or from
buying back their stock when market conditions warrant.
We need relief from the labor union provisions. The surest way to bankrupt hotel
owners is to pass laws that make it easier for workers to unionize. Simply put, we will
not survive both the Covid-19 crisis and higher labor costs on top of each other! Now
is the time to be increasing owners' flexibility, not tying our hands by requiring us to
remain neutral in the face of union organizing efforts.
Many hotel owners, including Ashford, have opened their hotels to Covid-19 patients, healthcare
workers on the frontlines, first responders and many others leading the charge to battle this
pandemic. At our Embassy Suites New York Midtown Manhattan, we house nurses treating
Covid-19 patients at nearby hospitals that are the epicenter ofthe pandemic. We have just
opened the doors of our Marriott in Durham, NC for the county to use as a temporary shelter for
the homeless. And we have proposals out to more than two dozen cities to use our hotels to
house first responders. We believe in hospitality and lending a helping hand. And we ask the
same of our government in times of need.
Our management team has spoken with several regional Federal Reserve Presidents this week,
several of whom have suggested that we reach out directly to Secretary Mnuchin and Chairman
2
Powell to express our concerns and describe the parameters of the assistance we need. I would
welcome the opportunity to speak with each of you directly.
Our situation is dire, and our need for help is urgent.
Best,
Monty J. Bennett
Chairman
Ashford Inc.
Ashford Hospitality Trust, Inc.
Braemar Hotels & Resorts Inc.
3
BakerHostetler
Baker&Hostetler LLP
Washington Square, Suite 1100
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5304
. T 202.861.1500
F 202.861.1783
April 30, 2020
www.bakerlaw.com
The Honorable Jerome H. Powell
Chairman
Board of Governors of the Federal Reserve System
Marriner S. Eccles Federal Reserve Board Building
20th Street and Constitution Avenue, NW
Washington, DC 20418
VIA ELECTRONIC MAIL
Dear Chairman Powell:
American Dream was three days from opening its doors.
Over eight years and $3 billion of expenditures, American Dream combines a
rich blend of global retail, destination dining and upscale arts with the largest
mix of family-friendly indoor activities and leisure facilities in the world.
American Dream was set to revolutionize tourism and must-see entertainment.
Three million square feet. Acres of theme park rides and waterslides. More than
450 retail stores. A projected 40+ million visitors each year - more than who
visit the Mall of America, currently the largest visitor attraction in North
America.
Located in northern New Jersey, with the New York City skyline as a backdrop,
American Dream was scheduled to open March 19, 2020 - three days after the
COVID-19 pandemic shuttered the property and shut down America's economy.
American Dream is owned by Triple Five Worldwide. 1
Five Worldwide Group of Companies has developed, own & operate some of the world's
largest tourism retail and entertainment complexes of its kind: Mall of America® in the United States
and American Dream™ in Metropolitan New York. These and other projects will attract over 112
million visitors annually. as well as an extensive portfolio of diverse and independent divisions that
currently employs over 5,000 professionals and has created over 50,000 jobs. Triple Five's wideranging experience is suited to creating successful mixed-use developments and activities worldwide
1Triple
0
Atlanta
Houston
Chicago
Los Angeles
Cincinnati
Cleveland
Columbus
New York
Orlando
Philadelphia
Costa Mesa
Seattle
Denver
Washington , DC
The Honorable Jerome H. Powell
Page 3
April 30, 2020
Specifically, the term sheets for the Main Street lending facilities include an
EBITDA test that prevents numerous businesses from qualifying. For example,
businesses scheduled to open in 2020 but for which significant capital expenses
were previously dedicated have little or no revenue because of the shuttered
economy. These businesses are unable to meet that current EBITDA threshold.
Even so, pre-COVID-19, the American Dream was profitable, and it is projected
to be Triple Five's most successful and substantially most profitable property.
That is why we are turning to you. Disqualified from existing lending facilities
and unable to secure the necessary and additional private funding, American
Dream is urging the Federal Reserve create a new lending facility that would
allow American Dream and other entities similarly situated to receive a lifeline.
The Federal Reserve has clear statutory and precedential authorities to
construct a lending facility consistent with its long-standing authority under
Section 13(3) of the Federal Reserve Act to implement broad-based lending
programs in "unusual and exigent circumstances." 3 Indeed, while the Federal
Reserve will be lending to entities that heretofore have not been eligible for its
support, the lending facilities funded by the Treasury Department pursuant to
Title IV of the CARES Act, do not alter the Federal Reserve's 13(3) authority. The
13(3) authority is clear and we believe that there are businesses struggling in
the COVID-19 economy that the Federal Reserve Board of Governors may in
"unusual and exigent circumstances" offer discounted notes to any participant
in a "facility with broad-based eligibility[.]" 4 The Federal Reserve bank issuing
the note must assure it is "secured to the satisfaction of the Federal Reserve
bank" 5 and that the participant "is unable to secure adequate credit
accommodations from other banking institutions,"6 and the Federal Reserve
cannot establish a facility for the purpose of "aiding specific companies to avoid
bankruptcy or resolution.'' 7
This new facility would allow entities like American Dream and similarly
situated projects to receive bridge loans from the Federal Reserve until either
Congress authorizes new programs for the Treasury Department to establish
and the Federal Reserve to administer or the capital markets stabilize.
See 12 U.S.C. § 343(3); 12 C.F.R. § 201.4(d).
12 C.F.R. § 201.4(d)( 4)(iv)
5 12 C.F.R. § 201.4(d)(6)
6 12 C.F.R. § 201.4(d)(8)
7 12 C.F.R. § 201.4(d)(4)(ii)
3
4
The Honorable Jerome H. Powell
Page4
April 30, 2020
A new facility would comply with Federal Reserve's Final Rule specifying its
Section 13(3) procedures, which became effective on January 1, 2016. 8 Indeed,
as then-Chairwoman Janet Yellen noted at the time of the adoption of the new
procedures in 2015: "Emergency lending is a critical tool that can be used in
times of crisis to help mitigate extraordinary pressures in financial markets that
would otherwise have severe adverse consequences for households, businesses
and the U.S. economy." 9
In a matter of weeks, the COVID-19 pandemic transformed a thriving economy
into a stagnate economy. The Federal Reserve has the unique opportunity to
lend to creditworthy projects that need temporary financing assistance from the
Federal government until the capital markets return and can provide access to
permanent financing.
If your staff would like to discuss further, I can be reached at
kedgar@bakerlaw.com or (202) 861-1796.
Sincerely yours,
~J f4Counsel
8 See "Federal Reserve Board approves fmal rule specifying its procedures for emergency lending
under Section 13(3) of the Federal Reserve Act," November 30, 2015, available at
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20 l 5 l l 30a.htm
9 Id.
•
•
The Federal Reserve's liquidity facilities should include a broad range of assets, including loans
to businesses, nonprofits, churches, multifamily and single family housing, and others.
We appreciate the timely April 16 release of documents essential to the operation of the PPP
program. Yet, for future releases, CD Fis should have an opportunity to review processes,
underwriting criteria, and loan documentation to ensure the initiatives fit their capabilities and
the types of loans and borrowers they serve. This is vitally important for the success of the
programs.
Paycheck Protection Program (PPP) Facility
Many CDBA members (est. 60+) are already Small Business Administration approved lenders and active
participants in the Payroll Protection Program (PPP) authorized under the CARES Act. Liquidity has
emerged as a key issue. We believe our members and their customers will benefit from the agency's
proposed PPP facility, given simple, clear, and actionable guidelines for participation. We request that
guidance specifically answer the following concerns:
•
•
•
•
•
How will interest accrue (e.g. 365/365)?
What is the form of collateral that will be required for submission? (e.g. is it a subtotal, a data
format, or a submission of supporting documentation?)
After a loan is sold back or forgiven, how quickly will the borrowing base be required to be
updated?
How will the facility address loans that have multiple disbursements? Will there be a mechanism
to simply update the loan amount pledged?
How will the facility ensure the eligibility of loans disbursed following the April 8 guidance
stating the disbursement window is "no later than ten calendar days from the date of loan
approval," rather than the previously published five days?
Main Street Facilities (Main Street New Loan Facility and Main Street Expanded Loan Facility)
Minimum Loan Amount: The Main Street facilities' term sheets include many helpful attributes. The
current Main Street New Loan Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF)
establish a minimum loan size of $1 million. While some of our CDFI banks will be able to utilize MSNLF
and MSELF for a subset of its largest borrowers, a solution is needed for borrowers with credit needs
under $1 million.
The minimum loan amount of $1 million is simply too high. This amount is significantly higher than the
most recently available average business loan amounts reported by Federal Reserve. In the Federal
Reserve's now-discontinued (May 2017) Survey of Terms of Business Lending, the average loan amount
for all Commercial and Industrial loans made by all commercial banks was only $663,000. 1 The average
was even smaller when the population was narrowed to domestic banks ($491,000), and smaller yet
when narrowed to small banks ($146,000).
CDBA strong urges the agency to develop a new Main Street Small Loan Facility (MSSLF) for loans
under $1 million. Such an MSSLF should have either no minimum or a de minimus loan amount -
recognizing the unique needs of the smallest businesses. MSSLF should have special provisions for assets
purchased from CD Fis to cover both pre-April 8 and post-April 8 originations, and offer to pool loans of
1 https ://www. fed era lreserve.gov/releases/e2/current/default.htm
2
diverse asset classes. Underwriting must be more flexible than proposed under MSNLF and MSELF and
the required attestations need to be simplified and tailored to fit the smallest businesses.
Maturity Cap: To facilitate long-term recovery, CDBA urges the Federal Reserve to create liquidity
facilities with varying maturities up to ten (10) years to meet the needs of different borrowers. Both
MSNLF and MSELF have a four-year maturity. We believe economic recovery will take significantly more
time. Over the coming months, anticipated revenue losses for businesses, nonprofits, consumer and
others will be significant and may take many years to recover. Offering longer term and more varied
maturities will enable lenders to structure payments that are affordable, more feasible to manage, and
will promote rebuilding and recovery. Prior recessions and natural disasters have taught us that
economic recovery will be slowest in LMI communities. Even in 2017, a decade after the onset of the
Great Recession, the LMI communities that rely on businesses served by CDFls had not fully recovered:
37 percent of those earning less than $30,000 per year said they would not be able to pay their bills
within one month of being unemployed. 2 We urge such facilitates accommodate the unique needs of
LMI borrowers for those loans purchased from CD Fis, cover both pre-April 8 and post-April 8
originations, and allow loans from diverse asset classes.
Underwriting: As proposed, MSNLF and MSELF will require a full credit underwriting, loan loss provision,
and dedicated problem loan resolution resources. Given this complexity, we anticipate that new loans
will not be deployed quickly. Furthermore, at the end of the term, it will require significant work for
assets to exit the facilities. CDBA urges caution. The agency should not to design facilities, criteria and
processes that are so complex and rigid that they cannot quickly and effectively serve borrowers.
Borrowers served by CDFls are unlikely meet to the same underwriting criteria as borrowers of
traditional banks. Yet, these are the borrowers most affected by the recession. The coming months will
be difficult for sectors across the economy. Flexibility will be important for promoting economic
recovery.
Attestations: The proposed attestations are complex and will be cumbersome for lenders to maintain
compliance. As currently outlined, we believe the requirements will reduce demand for MSNLF and
MSELF. We urge the Federal Reserve to simplify the attestations requirements as much as possible.
Example 1: The requirement that the lenders not reduce credit line amounts could be
problematic, such as excluding loans that reduce revolving lines of credit. Similarly, if the
demand for the line of credit goes down -- or the borrower defaults -- lenders will be keeping
too much credit open to the borrower during the entire term of the junior loan.
Example 2: The requirement that borrowers not repay other loans of equal or lower priority first
may be problematic for operations in the case businesses with complex, capital stacks.
Loan Size Limitations: The rigid calculations of loan maximums could inadvertently disqualify some
businesses that would otherwise be a good fit for the MSNLF and MSELF facilities - or the proposed
MSSLF. For example, in the case of unsecured loans, the loan maximum is four-times the trailing 2019
EBITDA. If a business is already leveraged with some debt, it might not be able to access much from the
unsecured program. Yet, such a borrower may not be in a position to pledge collateral that is already
2
https ://www.cnbc .com/2017 /07 /13/a-decade-after-great-recession-1-in-3-americans-still-havent
recovered .htm I
3
committed to existing senior lenders. New borrowers may be able to benefit - but may qualify for much
more than they need.
Risk Sharing: Greater clarity is needed on risk sharing. In the first paragraph of the MSNLF and MSELF
term sheets, it states that a Reserve Bank will commit on a "recourse basis." Yet, under "Loan
Participations" it states that risk is shared on a pari passu basis. The former suggests that lenders will
retain full recourse on any loan losses, whereas the latter outlines a risk sharing arrangement. Without a
risk share arrangement, few lenders will be able to effectively utilize such facilities.
Clarifying Questions: Prior to launching the facilities, we request guidance on the following technical
aspects of the program:
•
•
•
•
How will interest accrue (e.g. 365/365)?
How will loans amortize (e.g. bullet, straight line or mortgage)?
What constitutes "reasonable efforts" by the borrower to maintain payroll? What is the penalty
to the lender if a borrower fails to maintain its payroll?
Must MSNLF loans be unsecured? Must MSELF loans be collateralized?
Small Borrower Rescue Fund
We urge the agency to design facilities to buy or guarantee pools of performing and pools of troubled
loans originated by CDFls. We propose the loans include both pre- and post-April 8 loans (rather than
restricting post-April 8 liquidity to upsized tranches as with MSELF). The rationale is that these
lenders are serving communities most severely impacted by the COVID health and economic crisis.
Under Section 4003 (b)(4) of the CARES Act and the emergency authority of Section 13(3) of the Federal
Reserve Act, the agency has the authority to make loans, loan guarantees, or other investments
including purchasing obligations or other interests originated by others to facilitate liquidity. Eligible
loans should include a broad range of assets, including business loans, nonprofits, churches, multifamily,
and others.
In the case of performing loans, such a facility can provide a new liquidity tool for lenders. In the case of
troubled loans, we propose the agency buy pools of small loans at par from lenders whose borrowers
are faced with immediate repayment difficulties because of COVID-19 crisis. Borrowers should be
forgiven from paying interest and principle during the COVID-19 crisis or for at least six months
thereafter, or a longer period of time if the Federal Reserve believes that a longer recovery period is
appropriate given the severity of the crisis with respect to the economic sector of the borrower. CD Fis
can collaborate with the Federal Reserve and continue to service the loans and workout troubled loans
at a modest fee set by the agency. Regulated lenders should have no capital impairment from such
sales. This treatment will provide lenders with cash to re-lend to new borrowers without pressure from
regulatory agencies to foreclose or impair the lenders' capital.
We thank you for the opportunity to comment. We sincerely appreciate the agency's leadership in
providing tools to the financial services sector to respond to the economic crisis and to stabilize our local
communities.
4
.ID. cccu
COUNCIL FOR CHRISTIAN COLLEGES & UNIVERSITIES
April 16, 2020
Board of Governors of the Federal Reserve System
20 th Street and Constitution Avenue NW
Washington, DC 20551
Re: Main Street Lending Program
Dear Board of Governors of the Federal Reserve System,
On behalf of the Council for Christian Colleges & Universities (CCCU) and the undersigned
Christian colleges & universities, we submit the following comments in regards to the Federal
Reserve's Main Street Lending program. The CCCU represents over 180 institutions around
the world, including around 145 in the United States that enroll approximately 445,000
students annually. Christian colleges pursue faith and intellect for the common good. Our
institutions require faculty and staff that uphold the institution's religious mission, while at
the same time promoting the common good and seeking to serve the broader public. Our
faith is what inspires us to serve our students and others in our communities.
Thank you for the opportunity to comment on the Main Street Lending program. We
appreciate the Board seeking comments from the public. Specifically, we ask that the Federal
Reserve update the guidance to clarify that nonprofit private and public institutions are
eligible for the Main Street Lending program. In addition, we also ask that student workers be
exempted for the purposes of the employee threshold for eligibility requirements (under
10,000 employees).
First, we ask for clarity that nonprofit private and public institutions are eligible for this
program. Colleges and universities across the country, particularly smaller and mid-sized
institutions, are facing devastating unexpected costs in this unprecedented time. Campuses
have put students first by implementing measures such as closing residence halls and
switching to on line learning. These measures are important to prevent the spread of disease,
but they come at a high cost. Our institutions are going above and beyond to serve their
students, but it comes at a high financial cost. They need access to the Main Street Lending
program to ensure the well-being of their students, staff, and faculty, while ensuring they
remain open and provide jobs for their community. Here are some examples from our
institutions:
•
One CCCU institution in California opened a food pantry and created a benevolence
fund for students who need assistance. However, that much needed assistance is
already being depleted quickly, and the institution needs more dollars to replenish the
fund and take care of students.
ADVANCING FAITH AND INTELLECT FOR THE COMMON GOOD
321 8th Street NE I Washington, D.C. 20002 I www.cccu.org I 202.546.8713
.ID. cccu
COUNCIL FOR CHRISTIAN COLLEGES & UNIVERSITIES
•
A campus in Ohio reported that they have students who have financial hardships,
broken homes, the inability to travel, or have inadequate basic necessities at home.
They are committed to providing safe housing, food, and caring RDs to watch over
them. This school gave an example of a 19-year old freshman transfer student currently
residing off-campus in inadequate housing made available to her by her family. The
house has no central heat and a faulty hot water tank that provides for cold running
water, thus no hot showers or baths. She has also reported that occasionally the
electricity service is "unreliable" and she is left without power for hours at a time.
•
One institution on the West Coast is expecting to lose at least $7.5 million from room
and board. They are also expecting a loss in revenue from summer events to be around
$2 million. If the pandemic continues into the fall, they will be down an additional $22
million. They have some students who are unable to return home or who have no safe
home to which to return. They are providing travel funds and some housing funds for
students in dire need. They are spending a few hundred thousand dollars on these
students alone.
These are just a few examples from our institutions that demonstrate the vital need for
additional dollars to care for students.
In addition, many of these campuses are economic engines for their areas. They are often a
large, if not the largest, employer in the area, and they desire to keep their faculty and staff
employed. Most of our institutions have small endowments and are tuition dependent. Many
of our campuses report expected losses of $3-9 million dollars. They need access to loan
programs like the Main Street Lending program to partially offset some of these losses and to
continue to employ their staff.
Secondly, we also ask that student workers be exempted for the purposes of the employee
threshold for eligibility (businesses with under 10,000 employees). We hope that future
guidance from the Federal Reserve will make it clear that our institutions can exempt student
workers from the employee count. Many of our institutions of higher education employ student
workers across campus as a part of their overall financial support to help pay for college. With
the majority of our campuses closed for the spring semester and transitioned to on line
learning, all or most of these student employees have left campuses, and therefore should not
be included for the purposes of the employee threshold.
There is precedent for excluding student workers in employee counts. For example, Treasury
issued this guidance related to the Affordable Care Act that excluded student workers under a
federal or state work-study program. Also, campuses do not pay FICA taxes on student workers
who are at least half-time students.
ADVANCING FAITH AND INTELLECT FOR THE COMMON GOOD
321 8th Street NE I Washington, D.C. 20002 I www.cccu.org I 202.546.8713
.ID. cccu
COUNCIL FOR CHRISTIAN COLLEGES & UNIVERSITIES
We share the Reserve's goal of providing low-interest loans to those financially devastated
by the pandemic to bolster the economy and care for workers. We believe that by
including nonprofit private and public institutions and excluding student workers, our
institutions will be better positioned to continue employment and start strong in the fall to
educate our nation's young people. We stand ready to assist the Board however we can in
furthering this goal, and we appreciate the opportunity to provide comments.
Sincerely,
Shirley V. Hoogstra, J.D.
President
Council for Christian Colleges & Universities
On behalf of:
Abilene Christian University
Asbury University
Belhaven University
Bethany Lutheran College
Bethel University - IN
Bethel University - MN
Campbell University
Charleston Southern University
Concordia University, Nebraska
Cornerstone University
Crown College
Dordt University
Eastern Nazarene College
Eastern University
Faulkner University
George Fox University
Grace College & Seminary
Hardin-Simmons University
Hope International University
Houghton College
ADVANCING FAITH AND INTELLECT FOR THE COMMON GOOD
321 8th Street NE I Washington, D.C. 20002 I www.cccu.org I 202.546.8713
.ID. cccu
COUNCIL FOR CHRISTIAN COLLEGES & UNIVERSITIES
Houston Baptist University
John Brown University
Judson College
King University
Kuyper College
Life Pacific University
Lipscomb University
MidAmerica Nazarene University
Mid-Atlantic Christian University
Milligan College
Missouri Baptist University
Montreat College
Mount Vernon Nazarene University
North Park University
Northwest Nazarene University
Oklahoma Baptist University
Olivet Nazarene University
Palm Beach Atlantic University
Providence Christian College
Samford University
San Diego Christian College
Southern Nazarene University
Southwest Baptist University
Spring Arbor University
Tabor College
Taylor University
The King's College
Trinity Christian College
University of Mary Hardin - Baylor
University of Northwestern - St. Paul
University of the Southwest
Vanguard University
Westmont College
Whitworth University
William Jessup University
ADVANCING FAITH AND INTELLECT FOR THE COMMON GOOD
321 8th Street NE I Washington, D.C. 20002 I www.cccu.org I 202.546.8713
Convenience
Distribution
11250 ROGER BACON DRIVE #8 • RESTON, VA 20190
800.482.2962 • P 703.208.3358 • F 703.573.5738
WWW.CDAWEB.NET
ASSOCIATION
April 16, 2020
Federal Reserve Board
20th Street and Constitution A venue, N.W.
Washington, D.C. 20551
Re: Main Street Lending
Dear Board Members:
I write today on behalf of Convenience Distribution Association (CDA), the trade organization working on
behalf of convenience products distributors in the United States. CDA members play a critical role in the
continuity of American life and CDA members directly employ nearly 59,000 people. The necessity that
convenience stores, like grocery stores, remain open during the current Covid-19 crisis is well
established. Our distributor members supply these convenience stores with products on a daily basis. As a
result, convenience product wholesale distributors are and have been determined by the nation's Governors
to be essential businesses. Without CDA members the supply of food, medicines and cleaning products the
American public require would be seriously and negatively affected.
There is a provision in the Main Street New and Expanded Loan Facility term sheets that requires a
borrower to calculate and deduct from its maximum loan the amount of its "committed but undrawn debt."
While the apparent intent of this provision is to require a business to use its available debt/credit before
taking advantage of MSLP loans, the provision will have the unintended consequences of making many
companies ineligible for the MSLP program.
It is a common practice in the wholesale distribution industry for companies to use asset-based lending as a
form of secured borrowing to fund their inventory needs. In many cases a large portion of the revolving
credit - often 20-30 percent - is considered to be cushion by the banks and is only accessible to the
company with the addition of fees, penalties, restrictions or limitations on its operations.
Dominion control of bank accounts by the lenders is not uncommon when the company draws debt below
the bank-mandated cushion. Realistically, the amount of "committed but undrawn debt" that should be used
in calculating the amount of requested loan under the MSLP should not include debt that is not actually
available to the borrower without untenable restrictions being imposed by the banks.
The wholesale distribution industry may be uniquely impacted by the "committed but undrawn debt"
restriction because use of that credit method is widely used to finance inventory, and we would therefore
ask that you consider removing that condition in its entirety from the term sheets.
Absent that, we urge the Federal Reserve to consider modifying the Loan Facility Term sheets to allow
borrowers to calculate their loan amounts using only the amount of "committed but undrawn debt" that is
available to them without punitive bank responses.
To that end, we propose the following modification options for your consideration:
Option 1:
• Substitute "available" for "committed" in item 5. (Both terms are universally understood terms in asset
based lending, but they mean two very different things).
• Add the following clarifying language: "For purposes of determining the eligible loan amount (or, for
purposes of this provision), an eligible borrower's existing outstanding and available but undrawn bank debt
does not include any amount that, if drawn, would cause the Borrower to suffer fees, penalties, restrictions,
or limitations on its operations. Lease financing obligations are also excluded."
Option 2:
• No change to the term committed in item 5.
• Add the following clarifying language: "For purposes of determining the eligible loan amount (or, for
purposes of this provision), an eligible borrower's existing outstanding and committed but undrawn bank
debt does not include any amount that is not currently available under the terms of the facility, nor does it
include any amount that, if drawn, would cause the Borrower to suffer fees, penalties, restrictions, or
limitations on its operations. Lease financing obligations are also excluded."
Thank you for your consideration.
Sincerely,
Kimberly Bolin
President & CEO
Hon. Jerome H. Powell
Hon. Steven T. Mnuchin
April 16, 2020
Page2
2. Eligibility in the MSELF. Between the two MS Facilities, the MSELF is the more attractive
program for many borrowers, including C21, because it enables more borrowing. The MSELF,
however, is available only to borrowers that have an existing term loan in place as of April 8,
2020. C21 does not presently use a term loan to finance the business. Instead, like many
retailers, C21 uses an asset-backed loan (ABL). The ABL is secured by our inventory.
Request: We respectfully request that ABLs be eligible for expansion under the MSELF.
3. MS Facility Leverage and Loan Terms. Whether a new term loan or an expansion of our
existing ABL, the leverage ratios of 4:1 or 6:1 under the MS Facilities are likely too low to
permit C21 to borrow under these facilities-a circumstance we believe will be the case for
many retail establishments. Moreover, given the likelihood that shoppers will be slow to return
to retail stores even after the government's stay-home orders are lifted due to fear of contracting
an illness, a four-year loan maturity is likely too short for C21. Request: We respectfully
request the Board permit a pro forma leverage ratio of 8: 1 for one or both of the MS Facilities
and that loan terms of 7-10 years be permitted for use by MS Facility loan originators.
4. Insolvency. While we believe the Board is aware of the likely consequences of the
application of the current regulatory definition of "insolvency" for purposes of section 13(3) of
the Federal Reserve Act, we remain concerned that C21 and thousands of other businesses will
be ineligible to borrow from the MS Facilities at all if that definition remains operable.
Request: We respectfully request the Board reconsider the inclusion of "generally not paying
undisputed debts as they become due within the 90 days prior to borrowing" as a regulatory
definition of insolvency.
Thank you for your attention to our concerns. While we are proud of the business we have built,
the reality is that C21 is more than a store. C21 is an anchor of the cultural fabric of America,
where free and diverse individuals use fashion choices as a primary means of self-expression. In
stark but not unrealistic terms, the choices government makes on program eligibility will make
the difference between bright, vibrant city streets and boarded up stores for the 2020 holiday
shopping season.
Please do not hesitate to contact us directly if we can be of assistance or provide any additional
information to you.
Sincerely,
~k)-,
Raymond Gindi
Co-Chief Executive Officer
<L-21IG Gindi
Co-Chief Executive Officer
Cohen&CQ
April 15, 2020
Chairman Jerome H. Powell
Board of Governors of the Federal Reserve System
20 th Street and Constitution Avenue N.W.,
Washington, DC 20551
Re: Main Street Lending Program
Chairman Powell,
Thank you for the opportunity to comment on the Main Street Lending Program. As a brief introduction,
Cohen & Company, Ltd. is a CPA firm that has had a strong emphasis on tax expertise since the firm's
inception in 1977. We provide tax, assurance and consulting services to a significant number of
businesses.
Regarding the Main Street Lending Program, we commend the Federal Reserve and the Department of
Treasury with the speed at which this program was introduced. Businesses desperately need this aid to
facilitate maintaining employees' pay while weathering the financial effects of COVID-19. As the Federal
Reserve and the Department of Treasury finalize the rules, we request you consider the following:
Maximum Loan Size
The maximum loan size is defined as the lesser of (i) $25 million or (ii) an amount that, when added to
the Eligible Borrower's existing outstanding and committed but undrawn debt, does not exceed four
times the Eligible Borrower's 2019 earnings before interest, taxes, depreciation, and amortization
("EBITDA").
Comments:
1.) Using a calculation only taking into account 2019 could hurt businesses with one-time events
that decreased EBITDA. We received comments from clients with pertinent examples, such as
the United Auto Workers Union and General Motors strike and its impact on manufacturers in
the supply chain, natural disasters, product recalls and one-time litigation.
We recommend that the calculation be changed to a three-year average of EBITDA to alleviate
such anomalies. We also recommend that eligible lenders are given authority to accept
adjustments to EBITDA for one-time, nonrecurring expenses and non-cash charges such as
impairment losses.
2.) We recommend that eligible lenders and borrowers are provided clear definitions as to how to
calculate EBITDA. Lenders struggled with the Paycheck Protection Program because a number of
items in determining the maximum loan size were not clearly defined. As such, we recommend
the following definitions be used in the EBITDA calculation:
Basis of accounting: Accrual basis
Method of accounting: Accounting principles generally accepted in the United States of America
(GAAP)
COHEN & COMPANY, LTD.
800.229.1099
I 866.818.4538 fax I cohencpa.com
Registered with the Public Company Accounting Oversight Board
Earnings: Net income/net earnings in accordance with GAAP (i.e. sales minus cost of goods sold,
selling, general and administrative expenses, operating expenses, depreciation, interest, taxes,
and other expenses)
Taxes: Federal, state, and local taxes that the eligible borrower is subject to, including both
current and deferred taxes
Eligible Borrowers
Eligible borrowers are defined as businesses with up to 10,000 employees or up to $2.5 billion in 2019
annual revenues. Each Eligible Borrower must be a business that is created or organized in the United
States or under the laws of the United States with significant operations in and a majority of its
employees based in the United States. Eligible Borrowers that participate in the Facility may not also
participate in the MSELF or the Primary Market Corporate Credit Facility.
Comments:
1.) We recommend that 2019 annual revenues are clearly defined as all sources of income on the
accrual basis in accordance with GAAP.
2.) Significant operations should be clearly defined. We recommend this is measured by full-time
equivalent employees (FTE) located in the U.S. versus total FTEs. A business will meet this test if
they have at least 51% FTEs in the U.S.
3.) There was significant confusion for the Paycheck Protection Program around how to apply the
SBA's affiliation rules. The affiliation rules were put in place to require companies with parent
subsidiary or brother sister relationships to aggregate sales and employee numbers to
determine if the business was an eligible borrower. Both lenders and borrowers struggled in
applying these rules for the Paycheck Protection Program, which led to certain businesses who
were eligible being denied loans. The term sheet is silent on whether similar rules would apply.
We recommend to not include affiliation rules or similar provisions to this program.
Attestations
There are a number of attestations included in the term sheet that may be problematic for lenders and
borrowers.
1.) The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit
outstanding to the Eligible Borrower.
Comment: We are concerned this could cause lenders not to loan funds if they perceive they can't
take corrective action if a customer's business goes south.
2.) The Eligible Borrower must attest that it will not seek to cancel or reduce any of its outstanding
lines of credit with the Eligible Lender or any other lender.
Comment: We feel this language should be clarified to say: The Eligible Borrower must attest that it
will not use proceeds of the MSL to cancel or reduce any of its outstanding lines of credit with the
Eligible Lender or any other lender.
3.) The Eligible Borrower must attest that it requires financing due to the exigent circumstances
presented by the coronavirus disease 2019 ("COVID-19") pandemic, and that, using the proceeds of
the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees
during the term of the Eligible Loan.
While the absolute maximum loan sizes under the Program provide meaningful relief, the overall
leverage limitations should be recalibrated in recognition that prudent debt management practices can
vary across sectors. The commercial and multifamily real estate industry represents a good example as
loan-to-value (LTV) ratios, debt yield, and debt service coverage ratios (DSCRs) are the core credit
metrics to measure prudent lending and borrowing practices. Such measures govern commercial and
multifamily lending in general and that is certainly true for commercial mortgage-backed securities
(CMBS).
Below we provide two examples of why EBITDA is not the appropriate measure:
•
Example 1: The Mall of America (MOA), an iconic super-regional mall located in Minneapolis, MN,
with a 27-year operating history and solid pre-COVID stable cash flows, is financed via a CMBS loan
(CSMC Trust 2014-USA) with a 65% LTV and 7% debt yield (based on 2019 data). If the owner of
MOA was to borrow from the Program at the maximum $150 million level for a MSELF loan, the LTV
and debt yield readings would adjust only modestly to a 72% LTV and 6.3% debt yield. However,
despite these conservative leverage metrics, MOA (and most, if not all, commercial real estate
borrowers) would be ineligible for relief under the Program's current EBITDA limits given that the
maximum total debt (including the CARES loan) cannot exceed six times EBITDA, which would be the
equivalent of a 27% LTV and a 16.7% debt yield.
•
Example 2: The EBITDA limitation also constrains a small property owner. For example, a low-rise
multifamily property in Oakland, CA financed via a $5.4 million CMBS loan (CSAIL 2020-C19) had an
underwritten LTV of 58.7%, a debt yield of 8.4%, and a DSCR of 2.88x. With an underwritten net cash
flow of around $500,000, this property also would not qualify for any assistance under the current
leverage limitations.
An EBITDA multiple is not a useful metric for measuring conservative leverage in the CRE market, where
debt is backed by hard underlying assets. Please consider incorporating other appropriately tailored
leverage metrics beyond EBITDA, such as LTV and DSCR, into MSNLF and MSEFL to ensure that
commercial real estate businesses can obtain relief while maintaining an industry-appropriate prudent
debt profile.
Any program restrictions should protect taxpayers and provide flexibility for
businesses to pay workers and other essential obligations.
CREFC recognizes the importance of ensuring that taxpayer funds are used judiciously and within policy
parameters set forth by Congress. To the extent Program rules ultimately restrict the manner in which
loan proceeds may be spent, those rules and/or guidelines should allow for some flexibility in a
company's structure so it can obtain a Program loan and use that loan for the intended purposes.
While payroll expenses are a clear priority, businesses also should be able to direct loan proceeds to
other critical operating expenses, including rent and mortgage payments. Doing so ensures the ability of
the property owner to continue to operate the property and, in turn, continue to employ its workers on
a long-term basis. As we know, many property owners are not receiving rent payments from tenants,
which leaves them with fewer and fewer resources to pay their own employees, other operating
expenses, and debt service on their outstanding loans.
2
Relief and Emergency Assistance Act. (See §5189e, defmition of"Essential SeIVic e
Provide rs" w hie h inc lud e s radio o rte le visio n bro ad c a sting, c ab le se IVic e , o rd ire c t
broadcast satellite seIVice). Moreover, as drafted, the programs could also further
jeopardize access fo rmillio ns of listeners who depend on radio fo rlo cal info rma tio n.
•
•
•
•
•
Bothprogramshave a leverage limit.Fornewloansunderthe MSNIF,a
borrowerwould be limited to no more thanfourtimesleverage including the
amount of the new loan and underthe MSElFprogram, a borrowermay be
limited to up to six times leverage. In otherwords, the companiesthatmaybe
in the mostneed are the ones unable to get the necessary funding. Indeed, by
these measures, Cumulus would itselfbe precluded from accessing capital
underthe MSNIFand ourcapacityto do so would be limited,ifitexistsatall,
underthe MSElF. We believe these leverage ratios should be raised
significantly, at least fore ssential seIVic e providers, allowing the pro grams to
fulfilltheirintended missions. Additionally, we believe that the leverage
calculationsunderthe programs should be based on net leverage, allowing
borrowers to reduce debt by cash on hand, as is consistent debt capital
ma Ike ts industry practice.
Bo th pro grams use the term EBIIDA in their leverage de fmitio n. 'Ihe re can be
varying c ale ula tions and defmitions ofEBIIDA, withe ac h defmition specific to a
particularcompany. We recommend thatEBIIDA be based upon existing
credit facility de fmitio ns specific to the p artic ularpro gram p artic ip ant.
'Ihe MSElFc o ntains a limit on the maximum amount o fb o no wing that could be
confusing in its interpretation. Under5(ii), we believe the language should be
clarified to re ad "30% of the Eligible Bo no we :r1 s existing total debt (outstanding
plus committed butundrawn)." 'Ihischange willmake itclearthata borrower
has the ability to up size an existing facility by an amount equal to 30% of its
total outstanding debt, including bond debt.
Given that companies already have existing credit packages, it could be
co mp lie ate d if not impossible to grant security as co Ila te ral fo rthe se lo ans. We
recommend that lo ans underboth pro grams could be provided on an
unse c ure d b a sis.
We a re c o nc e me d the limita tio n o n c o mp e nsa tio n fo r the d ura tio n o f the lo an
plus one ye arc ould ca use us to be uncompetitive in the maiketplac e. As an
example, we offerc ompensa tion in excess of $425,000 to on-airtalent and
certainsalesexecutiveswho would be disadvantaged and disincentivized by
such caps. We could lose ourpopularhostsand skilled managers in a highly
competitive maiketplace ifwe are unable to offerincreasesconsistentwith
tho se o ffe re d b y dire c t and ind ire c t c o mp e tito rs who do no t fa c e
c omp e nsa tio n re stric tio ns. As a result, we propose limiting the d ura tio n of this
measure to onlythe time when the loanisoutstanding,withexpresscaIVe-outs
fo rtale nt and sales e mplo ye es.
While this letter is focused on ourc one ems with the "Main Street lo an Pro gram", we
b e lie ve it is b e ne fie ia 1to tum o ur a tte ntio n to the a ssista nc e fo r mid-size d b usine sse s as
outlined in Section 4003(c )(3)(D) of the CAREBAc t (the "Act"), and we encourage
3280 Peachtree Rd. NW Suite 2200 Atlanta, GA. 30305
I
P: (404) 949-0700 F. (404) 949-0740
I
www.cumulusmedia.com
you to put forth a pro gram unde rtho se guide lines as soon as is practical We believe
this could be an excellent source ofcapitalforcompaniesstruggling due to the
fmanc ialimpac t from COVID-19 with terms that could be more viable foressential
businesses, sue has oms. Flom what is outlined in the Act, the lo ans are to be at an
annualized interest rate no higherthan2%and there would be no principalorinterest
payments required forthe fnstsixmonths.
We are very appreciative of the response from the FederalGovemment and the
'Ile asury Department in supporting businesses in our time ofne ed. We remain
optimistic that we, as an industry, will be able to accessthe capital we need and
continue being able to provide quality programming throughourFCC licensesforthe
pub lie interest.
Re sp e c tfully,
Mary Bemer
Pre side nt & Chief Executive Officer
Cumulus Media Inc.
3280 Peachtree Rd. NW Suite 2200 Atlanta, GA. 30305
I
P: (404) 949-0700 F. (404) 949-0740
I
www.cumulusmedia.com
:: LFA
EQUIPMENT LEASING AND FINANCE ASSOCIATION
1625 Eye Street NW
Suite 850
Wash ington, DC 20006
P 202.238.3400
F 202.238.3401
www.e lfaonline.org
April 16, 2020
The Honorable Jerome H. Powell
Chair
Board of Governors of the Federal Reserve
Washington, DC 20551
Transmitted Electronically
Dear Chairman Powell:
On behalf of the nearly $1 trillion equipment leasing and finance industry, I am writing to
submit comments regarding the recently announced Main Street Lending program. A short
background about the Equipment Leasing and Finance Association (ELF A) follows the signature
block.
Small equipment finance companies provide a critical service to the U.S. economy.
Whether it is a grocery store financing freezers, a restaurant financing ovens, a small business
financing a copier, a fitness center financing treadmills, or a golf course financing golf carts,
many times these leases or financings are carried out by small (well under 500 employees)
equipment finance companies. These deals are made by small finance companies because
oftentimes these transactions are of a size that is not attractive or economical for banks to pursue.
Oftentimes, a small equipment finance company has developed an expertise in a specific
equipment vertical; expertise in the asset class underlying the transaction allows them to
underwrite transactions that a lender with a broader focus might not be comfortable pursuing.
Lastly, small equipment finance companies can often process these transactions in a matter of
hours whereas a larger institution might take several days.
Small equipment finance companies oftentimes sell portions of these portfolios to banks
or larger equipment finance companies. Additionally, some small equipment finance companies
securitize significant portions of the leases and loans they originate. It is indisputable that small
equipment finance companies play a critical role in the U.S. economy, and will play a critical
role in getting the economy running normally again as the health crisis begins to recede.
As you are aware, as of the time of this submission, most small finance companies are
excluded from receiving funds under the Small Business Administration's Paycheck Protection
Program. Additionally, the Paycheck Protection Program is already fully subscribed to its initial
$350 billion allocation, with a path for additional funding unclear.
We are concerned that the loan standards contained within the Main Street Lending
program may dramatically limit the availability of loans under the program to small equipment
finance companies that have relatively high debt to EBITDA ratios when compared to non
financial companies. As a measure, debt to EBITDA ratios for finance companies do not align
with the market averages due to a majority of the cash flow received by finance companies being
principal or capital returned from the transactions they invest in, which doesn't get picked up in
the definition of EBITDA. Thus, EBITDA is understated vs the underlying debt causing higher
debt to EBITDA ratios that may not comply with the program requirements. In general finance
companies have debt to EBITDA ratios that align with the asset lives, which may be long in
duration.
ELFA is concerned that the combination of these two factors may leave small equipment
finance companies with no avenue for federal relief during these unprecedented times. It has
been striking to hear from equipment finance companies repeatedly telling stories of the
companies that are unable to make payments, and for which they are granting deferrals. The
companies seeking deferrals are not their lowest credit customers, but the opposite, it is
frequently the best customers who are seeking deferrals and cannot pay because their revenue
went to zero due to a government-mandated closure. If equipment finance companies are left
with no avenue for relief, they will be forced to reduce payroll, stop making new loans, and will
not be ready to respond when the economy begins to reopen in the coming months.
We encourage the Federal Reserve to consider how to accommodate small finance
companies into the Main Street Lending Program so that this critical portion of the U.S. capital
formation system is not left out of the government's relief efforts. One way to accomplish this
would be to exclude the debt to EBITDA ratio for finance companies. A second more complex
method would be to include an adjusted EBITDA for finance companies that includes principal
portion of direct finance leases or loans. However, finance companies that finance longer life
assets will still have higher debt to EBITDA ratios as the term of their portfolio is longer.
For more information, or if we can be of assistance as you further develop this program
or others, please contact Andy Fishburn, ELFA's Vice President of Federal Government
Relations at afishburn@elfaonline.org . We stand ready to assist the Federal Reserve as you
undertake these monumental tasks to provide critical relief to U.S. businesses.
Respectfully submitted,
'24?~
Ralph Petta
President and CEO
BACKGROUND ON ELFA
ELFA is the trade association representing financial services companies and
manufacturers in the nearly $1 trillion U.S. equipment finance sector. Equipment finance not
only contributes to businesses' success, but to U.S. economic growth, manufacturing and jobs.
Seventy-nine percent of U.S. companies use some form of financing when acquiring equipment,
including loans, leases, and lines of credit (excluding credit cards). In 2019, a projected $1.8
trillion will be invested by U.S. businesses, nonprofits, and government agencies in plant,
equipment, and software. Approximately 50%, or $900 billion of that investment, will be
financed through loans, leases and lines of credit. America's equipment finance companies are
the source of such financing, providing access to capital.
ELFA represents more than 57 5 member companies, including many of the nation's
largest financial services companies and manufacturers and their associated service providers, as
well as regional and community banks and independent, medium, and small finance companies
throughout the country. ELFA member companies finance the acquisition of all types of capital
equipment and software, including agricultural equipment; IT equipment and software; aircraft;
manufacturing and mining machinery; rail cars and rolling stock; vessels and containers; trucks
and transportation equipment; construction and off-road equipment; business, retail, and office
equipment; and medical technology and equipment. The customers of ELF A members range
from Fortune 100 companies to small and medium sized enterprises to governments and
nonprofits.
ELFA represents virtually all sectors of the equipment finance market and its members
see virtually every type of equipment financing transaction conducted in the United States and
every type of funding available to providers of equipment finance. ELF A members who are
service providers to the equipment finance industry (such as lawyers, accountants, trustees and
vendors) have a unique vantage point of seeing scores of financial transactions from initial
concept to final payout and from the perspective of both the borrower/issuer and
lender/investor/funding source. ELFA truly is at the heart of equipment finance in the United
States and our member companies provide lease, debt, and equity funding to companies of all
sizes.
E S CA
EMPLOYEE-OWNED S CORPORATIONS OF AMERICA
April 16, 2020
The Honorable Jerome H. Powell
Chairman
Board of Governors of the Federal Reserve System
20th and Constitution A venue, NW
Washington, D.C. 20551
Email: regs.comments@federalreserve.gov
Re: Comments on Main Street Lending Program
Dear Chairman Powell:
Employee-Owned S Corporations of America ("ESCA") appreciates the opportunity to
submit comments on the Main Street Lending Program authorized by Congress in the CARES
Act.
ESCA is the national voice for employee-owned S corporations, and its exclusive mission
is to preserve and protect employee-owned S corporations and the benefits provided to their
employee-owners. Most S corporation employee stock ownership plans (''S ESOPS") are 100percent owned by their employees. Our S ESOP companies engage in a broad spectrum of
business activities, many on the front lines of the response to the pandemic, ranging from health
care to manufacturing tubing for ventilators to playing critical supporting roles such as retail
grocery stores and other essential functions to America's infrastructure.
We ask that the guidance under the Main Street Lending Program clarify that ESOPs,
including S ESOPs, are eligible borrowers under the program and will not be denied loans as a
result of the program's stock repurchase and capital distribution restrictions. In particular, we are
concerned that without clarity from the Federal Reserve and Treasury, private, employee-owned
companies that are otherwise eligible for Main Street Lending Program loans could be denied
loans based on the language in Sections 4003( c )(2) and 4003( c )(3)(A)(ii) of the CARES Act.
Section 4003( c )(2)(F) of the CARES Act establishes restrictions on eligible borrowers
paying dividends or making other capital distributions with respect to the eligible borrower's
common stock. Section 4003( c )(3)(A)(ii)(II) requires an eligible borrower to attest that "until the
date 12 months after the date the loan or loan guarantee is no longer outstanding, the eligible
business shall not pay dividends or make other capital distributions with respect to the common
stock of the eligible business." We respectfully ask for clarification that S ESOPs with
mandatory share repurchase obligations are not in violation of the restriction on making
"other capital distributions with respect to the common stock of the eligible business."
1341 G Street NW• 6th Floor• Washington, DC 20005
T: 202-466-8700 F: 202-466-9666
www.esca.us
-fei.
financial executives
international
April 14, 2020
The Honorable Jerome Powell
Chairman
Board of Governors of the Federal Reserve System
20 th Street and Constitution Avenue, NW
Washington, DC 20551
Dear Chairman Powell,
On behalf of the membership of Financial Executives International (FEI), I write to urge you to include all 501(c)
organizations, including 501(c)(6) trade and professional associations, in the Main Street Lending program that
was created by the CARES Act. While the CARES Act did include funds for 501(c)(3) nonprofit organizations through
expanded Small Business Administration loans, it did not provide relief for all other 501(c) organizations, including
501(c)(6) trade and professional associations.
FEI is a professional association representing the interests of more than 10,000 chief financial officers, treasurers,
controllers, chief tax officers and other senior financial executives from over 8,000 companies throughout the
United States. Like many businesses including 501(c) organizations, FEI has been impacted by the COVID-19
pandemic. Associations - large and small - face severe layoffs and the threat of bankruptcy during this crisis.
Without any fault of their own, associations lose their ability to provide for constituents and employees due to
lost production and lost revenues on account of massive event cancellations.
Associations of all sizes, varied functions and disparate industries comprise Section 501(c)(6). More than 62,0001
associations across the country play an important role to train America's workforce, create industry and
professional standards, and disseminate essential information and resources to people in need - particularly
during times of crisis. These organizations are already relied upon to help coordinate federal resources to
combat the coronavirus pandemic, and they require staff to fulfill this duty. Associations now face, however,
unprecedented financial losses from event cancellations. Most associations also anticipate further losses in dues
revenues, as members address their own economically precarious circumstances by cutting expenses, including
association membership. Without support, Section 501(c)(6) organizations will be unable to continue to provide
the services on which so many rely. Meeting cancellations alone have dealt a staggering blow to associations.
According to the Professional Convention Management Association, conferences and events account for roughly
35 percent of total annual revenue for associations. And according to a recent survey conducted by the
American Society of Association Executives (ASAE) Research Foundation:
• 29% of respondents face $100,001-$500,000 in current and projected losses due to cancellations;
• 16% face $501,000-$1,000,000 in current and projected losses;
• 10% face more than $1,000,000 in current and projected losses;
• 12% have partial insurance coverage for cancellations; and
• 52% have zero insurance coverage for cancellations.
1250 Headquarters Plaza
I West Tower, 7th Floor I Morristown,
NJ 07960
~
growth energy~
Amen:a's Eltmol &4Jporters
701 8th Street, NW, Suite 450, Washington, 0.C. 20001
PHONt
202.545.4000
A
202.545.4001
GrowthEnergy.org
April 16, 2020
Federal Reserve System
Board of Governors
RE: Chairman Jerome Powell
1925 Constitution A venue NW
Washington, DC 20006
Dear Chairman Powell:
Growth Energy appreciates the efforts being made at the Department of Treasury, Federal
Reserve, and Congress in establishing the Main Street New Loan Facility (MSNLF) and the
Main Street Expanded Loan Facility (Facility), programs intended to facilitate lending to small
and medium-sized businesses in response to the Coronavirus' impact on the economy. These
programs could inject much-needed financial assistance to U.S. ethanol companies on the verge
of collapse. But the earnings before interest, taxes, depreciation, and amortization (EBITDA)
condition on loan size would make some ethanol businesses ineligible, leaving them without any
financial support.
Growth Energy is the world's largest association ofbiofuel producers, representing over 100
U.S. plants that annually produce more than 8-billion gallons of renewable fuel and nearly as
many innovative businesses associated in the ethanol supply chain. Together, we work to bring
American consumers better choices at the fuel pump, grow America's economy, and improve the
environment for future generations. In 2019, the industry supported 350,000 U.S. jobs and
contributed 43 billion dollars to the nation's Gross Domestic Product.
However, shelter-in-place orders due to the Coronavirus pandemic has caused demand shocks in
the biofuels industry, forcing plants to significantly cut production. According to the U.S. Energy
Information Administration, gasoline demand for the months of April and May fell by 50
percent. Ethanol production also dropped 7 .3 billion gallons (nearly half of the production
capacity) over the last four weeks alone. Plentiful supply with low demand is pushing prices to
historic lows, devastating both ethanol plants and the rural communities they support.
Provide Flexibility to Loan Minimums
The Facility and MSNLF programs provide a measure of relief to some small- and medium-sized
businesses, but several of our companies would not be able to access this support. Most
companies with more than 500 employees are not eligible for the Small Business
Administration's Paycheck Protection Program, so larger businesses are looking towards the
Federal Reserve for assistance.
However, the MSNLF sets the following restrictions on loan amounts:
"Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that,
when added to the Eligible Borrower's existing outstanding and committed but
undrawn debt, does not exceed four times the Eligible Borrower's 2019 EBITDA."
The Facility sets similar limits:
"Maximum loan size that is the lesser of (i) $150 million, (ii) 30% of the Eligible
Borrower's existing outstanding and committed but undrawn bank debt, or (iii) an
amount that, when added to the Eligible Borrower's existing outstanding and
committed but undrawn debt, does not exceed six times the Eligible Borrower's
2019 EBITDA."
Due to various factors over the past few years, including administrative decisions by the
Environmental Protection Agency and the ongoing trade dispute with China, ethanol
companies were not profitable in 2019. However, this does not accurately reflect the
financial health of these companies. As written, the EBITDA provisions would prevent
several ethanol companies from accessing this critical financial support.
We ask that the Federal Reserve and Treasury Department amend the guidance and
strike the provision establishing the borrower's 2019 EBITDA as one of the lesser
amounts in determining the maximum size of the loan. Instead, include alternative
financial assessments that provide a more accurate valuation of a company's past
performance. We are willing to work with you in establishing this alternative financial
assessment and hope you will reach out with any questions.
Clarification on Annual Revenues
We also seek clarification as to whether the Facility and MSNLF requirement that
eligible borrowers remain below $2.5 billion in 2019 annual revenues refers to net
receipts or gross receipts. Due to the commodity nature of the ethanol business as high
volume with low margins, these companies should not be precluded from accessing the
lending programs if gross revenues exceed $2.5 billion.
During these unprecedented times, we hope you take into account the critical need for supporting
America's heartland. Thank you for considering our request.
Sincerely,
Emily Skor
CEO, Growth Energy
Holland & Knight
800 17th Street N.W., Suite 1100 I Washington, DC 20006 I T
Holland & Knight LLP I www.hklaw.com
I F 202.955.5564
April 16, 2020
The Honorable Steven Mnuchin
Secretary
U.S. Treasury Department
1500 Pennsylvania Avenue, NW
Washington D.C., 20220
The Honorable Jerome Powell
Chairman
Federal Reserve
20th Street and Constitution A venue, NW
Washington, DC 20551
Dear Secretary Mnuchin and Chairman Powell:
Thank you for the work the Treasury Department and Federal Reserve are doing on behalf of the
American people and the U.S. economy. As you work to implement Title IV of the Coronavirus
Aid, Relief, and Economic Security Act, including the Main Street Lending Program, we
appreciate the opportunity to provide comments and questions related to the term sheets released
on April 9, 2020. On behalf of clients across a wide range of industries and of diverse sizes, we
are submitting the following comments and questions regarding the Main Street Lending
Program in response to the Federal Reserve's request for comment.
•
Expand eligibility for (b)(4) programs by relaxing limits on employee count and
revenue:
o
•
While small- and medium-sized businesses, defined in current guidelines as
businesses with up to 10,000 employees and no more than $2.5 billion in revenue,
are employers critical to the U.S. economy, larger firms are also a segment of
employers in dire need during this crisis. Given many of the issues described in
greater detail below, these larger firms may also not have access to the other
programs under the CARES Act. Additionally, many of these larger firms provide
critical support and supplies to small- and medium-sized firms. The Main Street
Lending facilities should also be available to these larger firms who are critical to
U.S. employment, and to smaller firms across the country.
"US business" clarification: clarify that a U.S. business employing a majority of its
employees in the U.S. can qualify for programs regardless of whether it is owned by a
Anchorage I Atlanta I Austin I Boston I Charlotte I Chicago I Dallas I Denver I Fort Lauderdale I Houston I Jacksonville I Lakeland
Los Angeles I Miami I New York I Orlando I Philadelphia I Portland I San Francisco I Stamford I Tallahassee I Tampa I Tysons
Washington, D.C. I West Palm Beach
April 16, 2020
Page2
non-U.S. parent, with restrictions to require that funds are only used to support the U.S.
business and its employees in the U.S.
•
•
Eligible Lenders: the current guidance requires that lenders be certain U.S. financial
institutions. This could create issues for Eligible Borrowers seeking an expansion of an
existing syndicated facility where none of, or not all of, the lenders are approved U.S.
financial institutions. For example, many facilities now include various private direct
lenders or U.S. branches of foreign banks which could otherwise result in a
disqualification of a lender group. It also limits the available lenders that might be
available to lend, particularly in instances where a working capital line is in place to a
company but no existing term loan is in place, as the best option for most companies will
be to access either term loan through their working capital lender or factor.
o
Solution: Allow expansion of term loans for Eligible Borrowers if the
administrative agent is an approved U.S. financial institution or a majority of the
existing and expanded term loans are held by approved U.S. financial institutions,
or an eligible institution otherwise agrees to provide the expanded term loan.
Allow non-bank providers of working capital lines or factoring arrangements.
o
Clarifying Question: Where existing loan facilities are in place how will voting
and consent right issues work given the extended 95% hold of the new term loan
by Treasury? Will Treasury allow the lender to drive consent, amendment,
waiver and enforcement issues, particularly if the lender will retain a majority of
the overall credit risk to the company?
Eligible Loans under the MSELF: the current guidance only allows for term loans
originated before April 8, 2020 to serve as eligible loans. Many borrowers utilize
revolving lines of credit to finance working capital needs and often these revolving lines
of credit are made in conjunction with or under a facility that also has a term loan.
o
•
Clarifying question: Can revolving lenders and borrowers agree to convert all or a
portion of outstanding revolving loans into a term loan (or add to an existing term
loan) that would otherwise be eligible to allow for participation in the MSELF?
SOFR as Rate of Interest on Eligible Loans: the current guidance only allows for loans
with adjustable rates based on SOFR plus an applicable spread. Many lenders have not
transitioned from LIBOR to SOFR and the spread (250+400 bps) may exclude a large
pool of "main street" businesses.
o
Solution: allow for LIBOR to control interest rate until LIBOR succession event
occurs. In addition, allow spread to be set by the Eligible Borrower and Lender,
with a floor of LIB OR+ 250.
o
Clarifying question: if SOFR must control, can Eligible Lenders use LIBOR
succession language to impose SOFR to create an Eligible Loan.
April 16, 2020
Page 3
o
•
•
Clarifying question: Many lenders use LIBOR floors in their calculations. Can
these sorts of floors continue to be used (whether for LIB OR or SOFR)?
Increase maximum loan size: it is hard to overstate the severe conditions U.S.
employers are facing given the current economic crisis and the COVID-19 pandemic. To
remain on or regain solid economic footing, U.S. businesses are going to need substantial
loan support. The current Main Street Lending program loan sizes are currently limited
(1) for loans under the Main Street New Loan Facility, to the lesser of (a) $25 million and
(b) the amount that, when added to the Eligible Borrower's existing outstanding and
committed but undrawn debt, does not exceed 4X EBITDA, and (2) for loans under the
Main Street Expanded Loan Facility, to the lesser of (a) $150 million, (b) 30% of the
Eligible Borrower's existing outstanding and committed but undrawn bank debt, and (c)
an amount that, when added to the Eligible Borrower's existing outstanding and
committed but undrawn debt, does not exceed 6X EBITDA.
o
Solution: allow lenders to approve larger loans as they judge an application, allow
for larger loan amounts by replacing lesser with greater, and increasing the
EBITDA threshold, for example, to a multiple of 6 for new loans and a multiple
of 8 for expanded loans based on what the lender and borrower negotiate.
o
Solution: many employers have revolving amounts levels of debt and credit
throughout the year. To avoid unfairly penalizing borrowers based on an arbitrary
point in time, allow for a 12-month average of outstanding and committed but
undrawn debt.
o
Solution:: Eliminate the "committed but undrawn" component of "existing
outstanding and committed but undrawn bank debt" calculation or change it to
permit a historical lookback on actual available amounts under asset-backed
liquidity facilities.
o
Solution: allow netting of cash against "existing outstanding and committed but
undrawn bank debt" in calculation of maximum loan size.
EBITDA definition: EBITDA, if interpreted as its classical definition, will exclude several
adjustments that lenders and borrowers have agreed are appropriate to the specific circumstances
of a particular credit if not industry-standard altogether. This, in turn, will lower the maximum
loan size or make many borrowers ineligible to participate. Moreover, whether intended or not,
any company with negative EBITDA over a relevant measurement period will not be able to
participate even if it has de minimis currently outstanding debt. Additionally, metrics other than
EBITDA are often employed in commercial credits in early stage businesses whose innovations
are important to the economy; under a pure EBITDA based approach many of these businesses
will not qualify.
April 16, 2020
Page4
o
Solution: For the MSELF program, utilize the definition of Adjusted EBITDA
defined under the borrower's existing credit agreement. For the MSNLF program,
allow banks to agree with lenders on the definition of Adjusted EBITDA consistent with
market practices. For businesses where EBITDA is an inappropriate or limiting metric,
allow lenders and borrowers to agree on alternative metrics such as a multiple of
recurring revenue.
•
Clarify availability to nonprofits: while Section 4003 of the CARES Act suggests that
eligible businesses should include, "to the extent practicable," nonprofit organizations,
the initial guidance is silent on whether they are able to participate in the program.
Treasury should clarify whether nonprofit organizations, including entities organized
under Section 50l(c)(3) of the Internal Revenue Code, are eligible. If nonprofit
organizations are able to participate, some guidance may need to be modified (for
example, the cap on loan size based on EBITDA would likely not be appropriate).
•
Amortization not defined: If the intent is to have this loan pari with an existing term
loan, the lender should be able to mirror amortization to the extent practical, subject to
the maturity date of four years.
•
Interest: How will interest accrue and be paid? Can it be added to principal, then paid at
maturity?
•
Prohibition on use of proceeds: While it is reasonable to disallow use of proceeds of
loans under the Main Street facilities simply to pay down existing debt generally, the
guidelines should make clear that like the Small Business Administration Paycheck
Protection Program (the "PPP"), proceeds can be used to pay outstanding interest on
existing debt.
•
o
Clarifying question: Further definition of debt is needed - i.e. how do the
guidelines define "debt" and "bank debt" (used once)? The definition should be
limited to something like "funded debt" not "debt" as typically defined in existing
lending arrangements.
o
Solution: Tightly define "capital distribution" to permit intercompany
distributions and only prohibit cash distributions to ultimate beneficial owners.
Prohibition on prepaying other debt: While it is reasonable to disallow prepayment of
existing funded debt until the loans until the Main Street facilities are repaid, the
guidelines should carve out repayment of (a) revolving lines and other short term
liquidity facilities that do not represent long term debt, (b) repayment of term debt that in
a current liability (i.e. maturing debt), and (c) any SBA loans (whether under the CARES
Act or otherwise). Many companies have had to use these short term facilities while
waiting on CARES Act programs to stand up and should not be penalized for doing so, or
have facilities that cannot be refinanced in the current market.
April 16, 2020
Page 5
•
o
Clarifying question: further definition of debt is needed (as noted above).
o
Solution: change repayment/refinancing restriction to focus solely on term loan
debt and expressly carve out revolving and capital lease debt and trade credit.
Modify prohibitions on capital distributions: The CARES Act restricts capital
distributions and dividends for employers that take advantage of Main Street facilities,
and appropriately so. Congress clearly intended to prevent capital distributions to
shareholders with this provision. Treasury should make clear that this restriction does not
apply to certain payments where Congress did not intend to apply those restrictions.
Without clear direction from Treasury, many lenders are likely to exclude employers with
this structure from participating in the program.
o
Solutions: Permit limited distributions (a) for employers with a corporate
structure where, to service existing debt, taxes or other obligations, dividends are
paid up from an operating company to a parent company, (b) to
shareholders/members/partners to pay related income tax obligations (as would
typically be permitted by a senior lender where the borrower is a pass-through
entity for tax purposes); and (c) relating to existing compensation and benefit
plans (i.e. such as for ESOPs to pay plan participants to related benefits) [perhaps
other than for highly compensated employees covered by Section 4004].
Additionally, provide clarity that the foregoing restrictions are not intended to
prevent change of control transactions that may necessitate a dividend or
distribution during the one year period after repayment.
•
Four year maturity: the Main Street Expanded Loan Facility guidelines include a
limitation to loans that have a 4 year maturity. To conform to the existing loans that were
originated before the release of this guidance, and to ensure more flexibility to borrowers
and lenders, the expanded loans should match the maturity of the existing loan being
expanded, where the maturity is in excess of 4 years.
•
Reasonable efforts to make payroll: to increase certainty in Main Street loans, further
guidance is needed on what "reasonable efforts to maintain" payroll and employees
during the term of the loan means.
o
•
Solution: Alternative/suggestion: Provide explicit immunity for
lending/borrowing under the loan programs except in the case of fraud.
Alternatively, add concrete details around what constitutes "exigent" (i.e., a
particular amount of cash runway based on good faith projections), and what
"reasonable efforts" must be made.
Assignability: The current guidance requires that lenders retain 5% of each eligible loan,
to ensure adequate due diligence by lenders. Once the eligible loan is made, and to
promote lender involvement and market liquidity in the eligible loan, consider providing
April 16, 2020
Page 6
additional guidance that would clarify that eligible lenders would be permitted to assign
and/or participate it's 5% share to other eligible lenders, on terms consistent with, and in
an otherwise customary manner for, the commercial loan market, generally.
•
Credit ratings: Many critical businesses and employers who have been affected by the
COVID-19 pandemic are over the 10,000 employee threshold, and thus are currently
unable to access the Main Street Lending programs. We understand that others programs,
such as the Primary and Secondary Corporate Credit Facilities (PMCCF and SMCCF),
are available to many of these employers. However, these programs are limited only to
those who have an investment grade rating from a nationally recognized rating agency
that the Federal Reserve considers "major." Also, under the current guidelines
participation in these programs requires a BBB-/Baa3 credit rating from a Nationally
Recognized Securities Ratings Organization (NRSRO). Solutions:
o
Employers who would otherwise qualify for the PMCCF and SMCCF programs
should be allowed to participate if they have sufficient ratings from one NRSRO,
even if ratings from other ratings organizations are below the required rating.
o
Ratings from any Federal Reserve designated "eligible" ratings agency should
also be recognized for purposes of the PMCCF and SMCCF.
o
Reduce the required credit rating standards to allow greater access to capital for
employers in need.
Thank you for your consideration of these comments and questions and for your continued work
on behalf of the American people.
Sincerely yours,
HOLLAND & KNIGHT
INDEPE DENT
SECTOR
April 16, 2020
The Honorable Jerome H. Powell
Chair, Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Dear Chair Powell:
We are writing you to urge the Federal Reserve to provide financial support and clear guidance for the
nonprofit sector to access and participate in the lending facilities authorized under the CARES Act,
including opening the Federal Reserve's Main Street lending facilities or other facilities to the charitable
sector. Lending terms must recognize the unique value of the nonprofit sector as well as the unique
circumstances it faces. Doing so will provide an important form of relief to nonprofits currently fighting
on the front lines of the global pandemic as a result of COVID-19.
Independent Sector is a national membership organization representing a diverse set of nonprofits,
foundations, and corporate giving programs working to ensure all people in the United States thrive. The
charitable sector is a bedrock of the U.S. economy, both in terms of the number of Americans it employs
as well as the resources it provides in place of the private sector. With 12.3 million paid workers
(comprising 10% of the private workforce), nonprofits employ more workers than many major U.S.
industries. In particular, their employment rivals manufacturing and is twice that of the nation's
transportation, wholesale trade, and finance and insurance industries. Even more important than this
impact as a major U.S. employer and economic driver, nonprofits serve on the frontlines meeting the
exponential growth in healthcare, food, housing, employment and education needs during the crisis.
The charitable nonprofit community appreciates that several key relief programs in the CARES Act were
modified to include nonprofit eligibility, including the Economic Stabilization Fund from which the Main
Street lending facilities originate. This approach recognizes the critical role that charitable nonprofits
play in our nation's economy and as valued problem solvers in communities. However, efforts that
undermine congressional intent to provide economic relief for nonprofit organizations are cause for
grave concern to the charitable sector. As a result, we strongly urge the Federal Reserve to provide
additional guidance that allows the sector to receive relief that recognizes its unique value and
circumstances.
On behalf of the sector we represent, we want to thank you and all Federal Reserve employees working
tirelessly to help the nation in a time of unprecedented need. We trust you share our commitment to
making certain that those whose mission it is to serve the most vulnerable across our nation have
equitable access to these vital resources.
Sincerely,
Daniel J. Cardinali
President and CEO
Independent Sector
•
The current leverage limits for MSNLF (4x EBITDA) and MSELF (6x EBITDA) are too low and
will shut out many lower and middle market businesses from accessing the facility. We believe
these levels should be raised to 6x EBITDA for the MSNLF and 8x EBITDA for the MSELF to
more accurately reflect the balance sheets of these businesses.
•
Since most non-bank lenders and smaller companies do not typically use unadjusted EBITDA, the
MSLP should allow for use of "adjusted" EBITDA, which permits customary add-backs and non
cash items.
•
Earlier stage businesses that are unable to access the PPP because of the SBA affiliate aggregation
rule may not have generated sufficient EBITDA to access MSLP capital to save their business and
protect their employees. Business that were told they were too large for the PPP should not now
be told that they are too small for the MSLP. We can't allow these critical Main Street business to
fall through the cracks.
•
The existing terms leave out many middle market businesses that rely on nonbank lenders for
credit. The MSLP should recognize non-bank lenders, including BDCs electing Regulated
Investment Company status under Internal Revenue Code Sec. 851(a)(l)(B) as "eligible lenders"
under both the MSNLF and MSELF.
•
The definition of an "eligible loan" in both the MSNLF and MSELF should be expanded to
include loans made by entities electing Regulated Investment Company status under Internal
Revenue Code Sec. 851(a)(l)(B).
•
Restrictions on dividends and stock repurchases under section 4003(c)(3)(A)(ii)(I) of the CARES
Act should not be automatically applied, given the need for middle market businesses to attract
and retain investors, and that both retail and institutional investors rely on the income generated
from dividend payments.
•
At a minimum, the terms related to dividend restrictions should reflect the uniqueness of certain
investment structures and pass-through entities which are required to make tax-related
distributions to shareholders. Among other requirements, the Interal Revenue Code requires a
BDC to pay out at least 90 percent of its taxable income each year as investor dividends. BDCs
should not be disqualified from programs or facilities providing direct loans as a result of
compliance with other legal obligations.
We respectfully urge the Federal Reserve and Treasury to issue updated terms that reflect these
changes so that the portfolio companies of our members can weather this crisis. We appreciate your
consideration of this request during this challenging time.
2
1455 PENNSYLVANIA AVENUE , NW
WASHINGTON , D .C . 20004
I
202 . 548 .1190
I
SUITE 400
I
IPA .COM
INDEPENDENT PETROLEUM
ASSOCIATION OF AMERICA
April 15, 2020
The Honorable Jerome Powell
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Dear Chairman Powell,
The Independent Petroleum Association of America (IPAA) writes to recognize and appreciate the
aggressive steps that have been taken to respond to the threats of the COVID-19 pandemic. As federal,
state and local governments continue to work on relief measures, such as the CARES Act, we
respectfully request that their implementation consistently supports the American energy industry and
protects its workforce.
IPAA represents the thousands of independent oil and natural gas producers and service companies
across the United States. America’s independent producers develop 91 percent of the nation’s oil and
natural gas wells. These companies account for 83 percent of America’s oil production, 90 percent of its
natural gas and natural gas liquids (NGL) production, and support over 4.5 million American jobs. A
recent analysis has shown that independent producers are investing 150 percent of their U.S. cash flow
back into American oil and natural gas development to enhance their already aggressive efforts to find
and produce more energy.
As the Federal Reserve is guided in its mandate from Congress to promote maximum employment and
stable prices, we are pleased to see your efforts to provide assistance to our nation’s small- and midsized businesses, including many of our members, through the Main Street Lending Program.
IPAA hopes that you are able to implement this program in a manner that recognizes the critical
importance of the energy exploration and production businesses and the variance within the industry
regarding financing needs. To that end, IPAA would like to provide input to ensure the program is
effective in its support for the economy.
As you are aware, America’s global energy dominance is owed to independent energy producers. Any
economic recovery package must acknowledge that these producers account for an astounding 90
percent of all U.S. natural gas and oil production, and that abundant, affordable energy will be a key
component to our economic revitalization.
As currently drafted, the Main Street New Loan Facility contains a key provision that may prevent
independent natural gas and oil producers from using these facilities to meet their critical economic
needs:
INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA
1201 15TH STREET, NW ▪ SUITE 300 ▪ WASHINGTON, DC 20005 ▪ 202-857-4722 ▪ FAX 202-857-4799 ▪ WWW.IPAA.ORG
The Eligible Borrower must commit to refrain from using the proceeds of the Eligible Loan to
repay other loan balances. The Eligible Borrower must commit to refrain from repaying other
debt of equal or lower priority, with the exception of mandatory principal payments, unless the
Eligible Borrower has first repaid the Eligible Loan in full.
IPAA asks that you consider providing flexibility on this provision to otherwise Eligible Borrowers,
such as independent producers. Just as the American independent producer has revitalized the country
after previous economic hardships, the industry will be essential to restarting our economy after the
COVID-19 pandemic has passed.
IPAA would also suggest that this flexibility can be a force multiplier throughout the economy, limiting
the number of defaults that debt holders experience on those debts coming due. This can only be helpful
in containing the negative economic impact of the COVID-19 crisis.
Oil and natural gas producers are not looking for a government handout; they are seeking a bridge to
help survive this economic disruption. Allowing the use of loans provided by the Main Street New Loan
Facility to pay off outstanding debts coming due before this crisis subsides will be the bridge to recovery
for businesses that would have otherwise been able to meet their debt obligations, were it not for the
virus.
Thank you for the leadership during these difficult times. IPAA members are proud to support the
ongoing national response to COVID-19, and they will continue to operate responsibly to ensure our
nation emerges from this situation stronger than ever.
Sincerely,
Barry Russell
President & CEO
Independent Petroleum Association of America
INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA ▪ 1201 15TH STREET, NW ▪ SUITE 300 ▪ WASHINGTON, DC 20005
202-857-4722 ▪ FAX 202-857-4799 ▪ WWW.IPAA.ORG
April 13, 2020
Lindblad Expeditions, LLC
96 Morton Street, 9th Floor
New York, NY 10014
Chair Jerome H. Powell
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Dear Chair Powell,
Lindblad Expeditions was founded in New York in 1958 to offer travel focused on nature, culture and history
around the world. We invented the expedition cruise category and, in 1969, we built the first purpose-designed
expedition ship in the world. In 2017 and 2018, we completed the first two purpose-designed expedition ships ever
built in the United States. Since 2004, we have partnered with National Geographic to deliver high quality, curated
experiences in unique destinations around the world. We are also a carbon neutral company with a 50+ year legacy
of sustainability and conservation.
We take approximately 32,000 guests annually on small ship-based and land-based expeditions together with our
sister company, Natural Habitat Adventures. Our guests are 90% from the United States. Our U.S. employee base is
approximately 457 people, which includes 264 employees working in our offices in New York, Seattle and Denver
and 193 employees working on our four U.S. flagged ships (two of which were recently built in the state of
Washington for a total cost of $130 million). We went public on the NASDAQ exchange in 2015.
Lindblad is being crippled by the global spread of the Coronavirus. We have, of course, stopped all of our trips and
currently are not generating any revenue. Like the airline and hotel sectors, we are encumbered by a high, fixed cost
structure. The high cost items (crew, staff, fuel, port costs, ship maintenance, insurance, financing costs) of
operating a ship are almost the same whether we have occupancy of 0% or 100%. While the airline and hotel
sectors have rightly been targeted for specific assistance, we are concerned that we may get lost in the shuffle.
It is important to note that we are a very conservatively managed company and were a very well-capitalized and
profitable company with ample liquidity before this unimaginable crisis that has eliminated all of our revenues for a
prolonged period of time.
The Main Street Expanded Loan Facility is a program that is perfectly suited to assist us as we were a very strong,
well positioned American company, and will be again after the crisis passes. We also are the very rare travel
company that has made no lay-offs, furloughs or even salary cuts to date, Confidential Business Information
At our size, this kind of financing will not be easy to secure in the regular
capital markets.
LINDBLAD EXPEDITIONS, 96 MORTON STREET, NEW YORK, NY 10014
1.800.EXPEDITION (800.397.3348); 212.261.9100; FAX: 212.261.3770 WWW.EXPEDITIONS.COM
believe that loans from the Main Street Program, if properly tailored, will be a critical source of
liquidity for a large number of companies until the coronavirus crisis stabilizes and markets return
to a more normalized state.
In order for the Main Street Program to achieve its goal, we believe it is essential that the
parameters and criteria for the MSNLF and MSELF reflect current circumstances and market
standards so that this program will be accessible as a practical matter to as many of the intended
recipients as possible. In that regard, we discuss below certain key changes that we believe will
make the Main Street Program more effective, followed by more detailed comments on the term
sheets.
I.
Key Measures to Increase Accessibility to the Main Street Program
It is clear that the Federal Reserve and the Treasury are committed to providing liquidity and
stability to the many companies that need assistance, and we appreciate the challenge of designing
a program that addresses the different financing needs across those companies. In order to ensure
that the Main Street Program is accessible to as many qualifying small and medium-sized
companies as possible, our core recommendations are to: (i) incorporate more flexible terms to
recognize that most eligible borrowers are constrained by existing debt agreements, whether the
borrower seeks a loan under the MSNLF or MSELF; (ii) reconsider the proposed EBITDA and
leverage-based test which may exclude many otherwise qualifying borrowers from the Main Street
Program, (iii) give lenders more discretion to use their judgment and expertise to determine
appropriate terms and conditions for these loans, recognizing that lenders will retain exposure to
these loans; and (iv) broaden the base of eligible lenders to include non-U.S. and non-bank
institutions either directly or as part of a syndicate with other eligible lenders.
A.
The Main Street Program should accommodate the constraints that existing debt
agreements place on borrowers.
Most borrowers have existing indebtedness that prohibit the incurrence of additional debt
and/or liens, subject to specified exceptions. Unless there is an available exception, a
consent or amendment from existing lenders or bondholders may be necessary. Such
consent may be difficult to obtain, or prohibitively expensive, particularly for broadly
syndicated credit facilities or bonds. This issue may be particularly acute where the new
indebtedness is secured, as contemplated by the MSELF. Even where a new loan is not
secured, such as would be available under the MSNLF, companies may be unable to enter
into new loans, for example, with a shorter maturity without consents and amendments.
Accordingly, we believe affording eligible lenders and borrowers maximum flexibility to
negotiate the terms of the Main Street Program will be critical to their success. For
example, where a small or medium-sized operating company cannot access new loans
because of restrictions in their existing debt documents, the Main Street Program could
allow the loan to be made to a direct or indirect holding company. 3 We would welcome
these companies also need and should receive support from Section 4003(b)(4) programs, and we urge the Federal
Reserve and the Treasury to continue to develop such programs.
3
This approach is fully described in the "LSTA Proposal for Loans to Businesses under Section 4003(b) of the CARES
Act," a copy of which was provided to the Federal Reserve and the Treasury on April 8, 2020. Under this structure,
2
the opportunity to discuss this structure with you in more detail and provide any assistance
by way of supporting materials, such as a term sheet describing this structure.
B.
Access to the Main Street Program should not rely on an EBITDA-based leverage
test.
For the reasons we describe in more detail below, requiring all borrowers to comply with
an EBITDA-based leverage test could exclude many from the Main Street Program. Some
borrowers, such as nonprofits and early-stage growth companies, simply do not have
positive EBITDA. For many others, a standardized EBITDA test which is not tailored to
the particular business and its industry could give a distorted view of true cash flow and
therefore leverage.
We propose relying on the lender and the borrower to agree upon appropriate metrics
consistent with a borrower's existing debt agreements and market convention in the
borrower's industry in order to determine whether to make a loan under the MSNLF or
MSELF. We believe the lender should retain discretion to make prudent credit decisions
regarding the maximum size of the loan based on their judgment and expertise, subject to
the dollar limit set out in the term sheet for the relevant facility.
C.
The Main Street Program should give lenders more discretion to determine
appropriate terms and conditions for the loans they originate.
More generally, since lenders will retain a 5% interest in the loan and are in any case bound
by "safety and soundness" requirements, we propose they be given more discretion to make
prudent decisions based on their credit expertise and knowledge of the borrower and its
capital structure. For example, interest rates, whether interest should PIK after the one year
deferral period, amortization after the one year deferral period, and collateral are all matters
that the lender will be best positioned to tailor to a borrower's particular circumstances.
This flexibility will also increase the chance that the Main Street Program loans can be
structured to fit with the borrower's existing debt structure.
D.
The Main Street Program should broaden the base of eligible lenders.
The current term sheets for the MSNLF and MSELF limits the universe of eligible lenders
to "U.S. insured depository institutions, U.S. bank holding companies, and U.S. saving and
loan holding companies." However, a significant amount of credit for small and medium
sized U.S. companies is provided by foreign banks and their U.S. branches and by non
bank lenders, such as private debt funds. Foreign banks are often the agent or arranger on
syndicated term loans, and both foreign banks and non-bank lenders, such as CLOs and
other institutional investors, participate in bank syndicates.
Given the urgent need to provide liquidity to eligible U.S. companies dealing with losses
incurred as a result of the coronavirus crisis, we encourage the Federal Reserve and the
the holding company would be required to invest the proceeds from such loan in the operating company, and the loan
could be secured by the assets of the holding company, including intercompany loans and loan receivables, net cash
proceeds received from distributions on equity interests in the operating company, accounts into which such loan
receivables and distributions are deposited and any proceeds of the foregoing. Such a structure would generally not
require consents, waivers and/or inter-creditor arrangements from the operating company's existing lenders.
3
Treasury to include a broader range of lenders as eligible lenders. But even if they are not
included more broadly as eligible lenders in the Main Street Program, we strongly believe
at a minimum that the MSELF program should be expanded to allow eligible lenders to
lend alongside existing indebtedness even if that existing indebtedness is not itself provided
by eligible lenders.
II.
Detailed Comments on Term Sheets
A.
Existing Financings Under MSELF
MSELF requires a loan to be structured as an increase to a term loan provided by an eligible
lender. This excludes borrowers that do not currently have term loans in their capital
structure, such as companies with only a revolving credit facility. It also excludes
borrowers that have term loans provided by foreign banks, direct lenders, and other non
bank institutions that are not eligible lenders as currently defined, and borrowers whose
financing has been syndicated to non-bank term loan Blenders. This exclusion will have
a particularly significant impact on the many small to mid-sized companies that rely on
direct lenders as a critical source of funding.
We propose making MSELF available to borrowers who have any existing indebtedness 4
so long as the MSELF loan itself is provided by eligible lenders. In that regard, where there
are multiple lenders in an existing loan facility, MSELF should permit expansions of such
facility by eligible lenders, including where eligible lenders extend credit alongside other
lenders that do not themselves qualify as eligible lenders.
We also request clarification that MS ELF is not limited to "upsizing" an existing tranche
of a term loan but can be provided as incremental expansions of existing facilities by
eligible lenders. Because of the differing terms between those of the existing debt and
those of the "upsize", the existing credit agreements will not allow for the expansion to be
an increase of the existing loan tranche, rather it will need to be structured as a separate
tranche.
B.
Maximum Loan Size and Leverage Attestations
The proposed criteria for determining the maximum loan size in the MSNLF and MSELF
will significantly limit borrowers' ability to access needed funds. In particular, the
requirement that each borrower must attest that it satisfies proposed EBITDA leverage tests
may disqualify many companies without inclusion of the proposals described below.
1.
EBITDA: Although both the MSNLF and MSELF propose to use an
EBITDA construct as the basis for a cap on the size of eligible loans and a
leverage test for borrowers, the term sheets do not define EBITDA. If the
intention is to define and use EBITDA uniformly and narrowly, we believe
it would preclude many borrowers from satisfying the leverage tests and
accessing loans. It would also be inconsistent with market standards which
4
Existing indebtedness could relate to term loans or non-term loans, whether provided by an eligible lender or
non-eligible lender.
4
do not use a uniform EBITDA metric to measure risk. Instead, customary
debt agreements typically tailor the definition of EBITDA to eliminate non
cash and other items to establish a more accurate picture of cash flow
available to service debt for each particular borrower's business.
Furthermore, as noted above, some borrowers, such as nonprofits and early
stage growth companies, simply do not have positive EBITDA. For these
companies, an EBITDA-based leverage metric is typically not used to
measure creditworthiness. Application of such a metric as a requirement to
access the Main Street Program will likely exclude these companies from
receiving liquidity that they need.
We believe the Main Street Program should permit lenders to use an
EBITDA definition that is consistent with that used in the borrower's
existing credit agreements or commonly used in the borrower's industry for
purposes of calculating the maximum loan amount of an eligible loan and
the leverage test. Furthermore, for companies for whom an EBITDA-based
metric is not appropriate, we propose permitting lenders to use alternative
creditworthiness metrics that are customary in that company's industry.
2.
Debt: For purposes of the leverage calculations used to establish a cap on
the size of an eligible loan and the leverage test for borrowers, "debt"
includes undrawn commitments, but the term sheets do not otherwise
explain how such debt will be calculated. For example, it is not clear
whether "debt" would include financing leases, guarantees of parent
company debt, intercompany indebtedness or contingent obligations, and
whether it would be calculated on a net or gross basis. Furthermore,
inclusion of undrawn commitments as debt in a leverage test is atypical and
would likely result in an eligible borrower's inability to access these loans.
To ensure that the broadest swath of eligible borrowers is able to benefit
from the Main Street Program, we believe undrawn commitments should
not be included as "debt" for purposes of determining the maximum loan
amount or in the leverage calculation. More generally, lenders should be
permitted to use debt definitions that are consistent with those set forth in
individual company's existing debt agreements for ratio calculation
purposes.
3.
Leverage: Even with the proposed modifications to the EBITDA metric
noted above, the leverage tests (i.e., four times for MSNLF and six times
for MSELF) are likely too restrictive for many otherwise eligible borrowers.
In some instances, as highlighted above, any EBITDA-based leverage test
would simply disqualify certain companies (e.g., growth companies with
negative EBITDA, not for profits, real estate companies, etc.).
Accordingly, we propose permitting lenders to extend loans to such
companies that exceed those levels if the lender, based on its judgment and
expertise, is otherwise comfortable doing so. For companies for which
EBITDA-based leverage is not an appropriate metric, as noted above, we
further propose relying on the lender to identify metrics other than EBITDA
5
and leverage consistent with the borrower's existing debt agreements or
market standard for the borrower's industry when deciding whether to
extend a loan to the borrower. This approach would make Main Street
Program loans available to a broad set of companies for which an EBITDA
based leverage ratio is not an appropriate or accurate metric.
4.
C.
Maximum Dollar Amount in the MSELF - 30% Cap: The determination of
the maximum loan size relies on a calculation of undrawn commitments of
"bank debt." The inclusion of undrawn commitments in this calculation is
problematic for the reasons described above. Furthermore, the term sheet
does not define "bank debt" or explain whether or how "committed but
undrawn bank debt" differs from "committed but undrawn debt" referenced
in the leverage calculations. We propose that the 30% calculation be
aligned with the leverage test to refer to "debt" broadly. To the extent a
distinction is intended, however, we propose that "bank debt" be clarified
to include loans made by non-banks and syndicated term loans held by non
bank institutional and other lenders.
Loan Features
1.
Structure and Security: Most companies will have limited debt and lien
capacity under their existing debt agreements, so they may not be able to
borrow under the Main Street Programs without a waiver or consent from
their existing lenders or bondholders. As discussed in Section I.A above,
obtaining a waiver or amendment to permit the incurrence of additional
loans may be challenging in many situations, especially for companies with
debt held by a large syndicate of lenders, even if the new loan is unsecured
such as contemplated by the MSNLF.
To address these challenges, we request that where a company's existing
debt agreements do not permit them to incur additional secured debt, the
MSELF permit an upsized tranche to be unsecured even if the existing loan
is secured, as long as the eligible lenders extending the loan are willing to
make the loan on an unsecured basis.
In addition, we further propose permitting companies to incur Main Street
Program loans at a holding company level on a secured basis if their existing
debt documents do not permit them to incur any additional debt at the
operating company. We believe that structure would be consistent with the
goals of the program, i.e. providing much needed liquidity while
safeguarding taxpayer funds.
2.
Tenor and Amortization: For borrowers that have existing loans, many
credit agreements require new debt to have a maturity outside the maturity
of the existing debt so the four-year maturity term may violate the weighted
average life and maturity requirements in their existing credit agreements.
Since a typical term loan will have a maturity of five to seven years, some
qualified borrowers may be precluded from borrowing new debt with a four
year maturity. For some otherwise eligible borrowers, lenders may not be
willing to make a loan with a four-year tenor, but would be willing to extend
6
a loan with a shorter maturity. We also note that there is a potential market
risk in having all Main Street Program loans maturing at the same time.
We propose relying on eligible lenders' judgment and expertise and
permitting eligible loans to have tenors of up to seven years. This would
provide borrowers and lenders with flexibility to address different scenarios
and allow for staggered maturities for the Main Street program loans.
In addition, the current term sheets do not specify the amount of
amortization following the one year deferral period. We would similarly
propose relying on the borrower and lender to determine the appropriate
amortization following the one year deferral period.
3.
Benchmark: The MSELF requirement that eligible loans, which are
"upsized tranches of existing loans," must use a SOFR rate is problematic
given that the existing loan references a different benchmark. The MSELF
should permit the eligible loan to reference the same benchmark as the
existing loan.
4.
Interest: The 400 basis points cap on margin may not provide sufficient
incentive for lenders to make loans to certain higher leveraged creditworthy
companies, even if they retain only 5% of the loan exposure. It also is
unclear whether deferred interest will be paid-in-kind and itself accrue
interest during the deferral period, or whether interest can continue to be
paid-in-kind following the deferral period.
We propose permitting lenders and borrowers to negotiate a rate that
appropriately reflects the credit risk, possibly up to an increased cap.
Furthermore, because we believe Main Street Program loan proceeds are
better used to continue to support and stabilize existing businesses rather
than to pay interest, we also propose that the loans require interest to be paid
in cash only to the extent there would be sufficient cash to continue
operating the company and avoid triggering a violation of a financial
covenant or operating covenant under the company's existing debt
structure. When there is insufficient cash under the foregoing construct, in
lieu of making such payment, the borrower should have the option to elect
that such accrued and unpaid interest be paid-in-kind and added to the
principal amount of the loan.
D.
Attestations and Certifications
1.
Prepayment/Repayment of Other Debt: Both the MSNLF and MSELF
would limit prepayment of equal or lower priority debt, with the exception
of mandatory principal payments, until the Main Street Program loans are
repaid. We request clarification that this restriction does not prohibit the
repayment of existing debt (of whatever priority) at maturity. We also
request clarification that this restriction does not apply to a company's
ability to repay draws and reborrow from revolving credit facilities in the
normal course as long as the size of the facility is not reduced.
7
2.
CARES Act Provisions: Both the MSNLF and MSELF require borrowers
to comply with certain provisions of the CARES Act (e.g., limitations on
stock buybacks, dividend/capital distributions, increases in salary) for 12
months after a Main Street Program loan is repaid.
For borrowers that are structured as limited liability pass-through entities,
we request clarification that the prohibition on dividends/capital
distributions is intended only to limit extraordinary payments and not the
payments necessary for paying tax obligations, and other similar ordinary
course day-to-day operations of the business. It is customary for such
entities to make regular distributions to the direct or indirect parents of the
borrower in order to permit such equity holders to maintain their existence,
pay customary ordinary course operating expenses, and pay taxes and tax
distributions in accordance with the terms of the borrower's organizational
documents. 5
We also request that if a loan is repaid in full as a result of a sale,
conveyance, transfer or other disposition of all of the property or assets or
equity interests of the borrower or the entire business is merged into another
company or otherwise sold or otherwise disposed of in its entirety (a
"disposition"), then upon giving effect to the change of control to a new
unaffiliated third party and the repayment of the Main Street Program loans,
all restrictive covenants imposed on the business will fall away. We believe
that allowing such restrictions to fall away in these circumstances
would result in earlier repayments of Main Street Program loans
by making such transactions more attractive to prospective lenders and
investors.
E.
Loan Participations
Special Purpose Vehicle ("SPV") Participation Rights: If the Federal Reserve and the
Treasury determine that they want to acquire their interests in the Main Street Program
loans via participations, many lenders would like to understand certain operational aspects
of the SPV' s participation interest, and in that respect, a form of participation agreement
would be helpful.
The LSTA has promulgated a Form of Participation Agreement which is used by loan
market participants to document the settlement of certain loan acquisitions where, for
example, the lender is denied borrower's consent and is unable to join the syndicate as a
lender. As the creator of that market standard, LSTA would be happy to engage further
with the Federal Reserve and the Treasury to assist with the tailoring of a standard
participation agreement for the Main Street Program. The LSTA's Form could be modified
to suit such loan acquisition by the Federal Reserve and the Treasury. For example the
5
Where businesses are structured as limited liability companies rather than corporations, such pass-through entities
do not pay income taxes at the operating company level, but rather typically pass through payments in an amount
equal to their taxes to their equity holders because their equity holders are responsible for reporting and paying their
share of profits and losses on their tax returns. In the absence of guidance clarifying that the prohibition on dividends
does not limit dividends necessary for paying tax obligations, this prohibition could prevent such businesses from
accessing liquidity under the Main Street Program.
8
McKINLEY CAPITAL
3800 Centerpoint Drive, Suite 1100
Anchorage, AK 99503
MANAG E MEN T , L LC
April 16, 2020
*Via Website and Email*
Board of Governors & Main Street Lending Staff Group
The Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, DC 20551
Dear Governors and Main Street Lending Staff Group,
The private sector economy of much of the rural Western United States is dominated by
seasonal industries like tourism, fishing, and natural resource extraction including oil and gas to
minerals. Short summer seasons and limited infrastructure require complex logistics, front
loading of resources, and allow a limited window to earn revenue. For example, over just a six
week period starting in mid-to-late June, more than 40 million salmon are caught and
processed in a handful of remote communities along Bristol Bay in southwestern Alaska. Similar
short seasons occur in rural counties throughout the vast expanse of the Western U.S. The state
of Alaska is larger than the entire east coast of the United States from Maine to Florida plus
California.
Doing business in rural states across the west is challenging, but in Alaska, the obstacles are
dramatically higher. More than one hundred Alaska communities (nearly 80% of the state's
acreage) are not connected by road. In addition, Alaska has a limited financial system of just 7
banks and 11 credit unions, and only a handful of publicly traded companies headquartered in
the state.
Current federal response efforts designed to work through commercial lenders or to
support capital markets therefore have little to no utility for the majority of businesses in
Alaska.
For example, the Main Street Lending Program limits application of the program to small and
medium businesses in the state and the oversight provisions created for small and medium
McKINLEY CAPITAL
3800 Centerpoint Drive, Suite 1100
Anchorage, AK 99503
MANAG E MEN T , L LC
Tourism/Travel: 43,300 jobs, $1.5 billion in Labor Income
In 2020, the tourism industry will experience a nearly total loss in visitor spending (vs. $2.2
billion in 2019). As of yesterday, more than half of all 2020 cruise ship sailings to Alaska have
been cancelled including all but 2 ships of the largest lines. Earlier this week, Holland
America Princess announced they are not opening all five of their seasonal wilderness hotels
this summer. All land excursions were canceled as well. The direct revenue loss is estimated
to be -$400 million, with the indirect cost being at least a Sx multiple of that number.
Seafood Harvesting and Processing: 37,700 jobs, $2.1 billion in Labor Income
The 2020 season for fishermen and processing plants is in jeopardy as communities grapple
with appropriate COVID-19 containment measures and depressed global demand for high
value products. More than 60,000 workers earn income in Alaska's seafood industry.
Seafood processors in Alaska are facing the same risks as the national meat processing
industry due to COVID-19 related closures. The Southwest community of Dillingham, the
hub of commercial fishing in Alaska, has asked the governor to close the season due to the
risk of fisherman and processing staff infecting local communities who are ill equipped to
manage treatment. Dillingham has 1 hospital with 18 beds, and no ICU or ventilator
capability, yet 16,000 fisherman typically come through the community in the summer.
Closing this fishery could wipe out the entire 2020 salmon season which is by most accounts
-58% of wild salmon caught in North America and a huge contributor to the state's
economy.
Energy: 77,600 jobs, $4.8 billion in Labor Income
While major producers such as ConocoPhillips and (formerly) BP are important sources of
employment, the producers and oil field services firms account for only 9,000 out the 77,600
jobs in Alaska attributed to oil and gas industry spending. The other jobs are mainly with
small Alaska firms, including professional services providers, construction companies,
transportation firms, and a wide range of other goods and services providers.
Finance/Banking
Alaska is home to just a few public companies; of which none are listed in the S&PS00. The
most notable Alaska public companies are Northrim Bank (NRIM), Alaska Communications
Systems (ALSK) and First National Bank of Alaska (FBAK). Total market cap< $1 billion.
McKINLEY CAPITAL
3800 Centerpoint Drive, Suite 1100
Anchorage, AK 99503
MANAG E MEN T , L LC
Banks, credit unions and state agencies typically issue short-term lending (over 60%) to
commercial real estate, not businesses. Alaska's largest publicly listed local banks (First
National Bank of Alaska and Northrim Bank) have less than $5bn in assets between them. As
the MSNLF and the MSELF utilize the banking channel to distribute crisis funding, this will
present a severe limitation in Alaska. If Alaska banks provide financing, it will most likely be
to those large companies that are less levered (<4x). Banks can lend to <4x leveraged
companies at SOFR + 250-400bps and retain 5% as well as receive a 25bps commitment fee.
This will be a high return on equity for the banks, but little benefit to Alaska businesses. 80%
of all credit union assets in the state are in one entity and its loans are mostly to consumer
purchases and residential mortgages.
Alaska has one of the smallest municipal finance markets in the country. Employers
benefiting from these issuances do not account for a large percentage of jobs in terms of
retention issues and growth potential.
The solution is a professionally managed Special Purpose Vehicle (SPV)
We propose a two-pronged, capital markets driven answer for deploying
Federal Reserve and in-state capital.
Region 10 (or another appropriate Regional) should authorize the creation of a Special
Investments Management Group (SIMG) with purview for the creation of an SPV for the purpose
of taking control positions in businesses in certain States that need a variety of types of
investment to survive at this time. The SIMG will then hire a professional investment firm located
in the local community to originate and structure investments. The Manager should have
analytical capacity, business leadership, best-in-class experience and ability to leverage in-state
pools of capital for debt financing and equity co-investment. The selection of the Manager is
critical to retaining jobs, as being in-market will mean greatest knowledge of microeconomic
risks and best available business operators.
Proposal: The Western States Investment Recovery Fund (WSAIRF)
The Federal Reserve (the "Investor") will allocate capital to an SPV designed to commit equity
capital for small-to-medium businesses in the affected States. It will be diverse on a geographic
and industry basis. The focus will be on financial performance, community impact, economic
leverage, jobs creation and retention. Investments structured to provide a return of capital to
the Federal Reserve. Any positive net IRR or ROIC can be used to incentivize the Manager. Due