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April 30, 2020

COVID-19 UPDATE: Federal Reserve Announces Expanded Main Street Loan Program; Governor’s Modified Stay-At-Home Order Extension Begins May 1st

We continue our efforts to keep you informed of key legal developments relating to COVID-19. Today, we focus on the Federal Reserve’s expanded Main Street Lending Program, Governor Pritzker’s modified Stay-At-Home Order through May 30th, as well as other federal and local updates. For our previous updates, please see HERE.

FEDERAL ECONOMIC ASSISTANCE PROGRAMS

On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, providing trillions in economic relief, including through the U.S. Small Business Administration (“SBA”) and the U.S. Department of the Treasury (the “Treasury”).

The initial $349 billion in appropriations to the SBA’s Paycheck Protection Program (“PPP”) was quickly depleted and the additional $310 billion in appropriations is likely to be oversubscribed. We continue to field questions on how to maximize the forgivable portions of these loans as explained in our prior update (see HERE). The Treasury continues to update its guidance and FAQs on the PPP daily (see HERE).

Further, while Congress appropriated an additional $50 billion to the SBA’s Economic Injury Disaster Loan (“EIDL”) and $10 billion to the EIDL advance grant programs last week, the SBA has stopped accepting new applications for these programs due to a “lapse in appropriations.” See HERE.

That being said, we summarize below other economic assistance programs available to small, medium-sized and large companies.

Main Street Lending. Yesterday, the Federal Reserve (the “Fed”) announced an expansion in the scope of and eligibility for its Main Street Lending Program. There are now three Main Street Loan facilities, with a combined size of up to $600 billion. Unlike the PPP loans, these loans are not forgivable; however, companies should assess these options carefully, as their terms may be more favorable than other credit sources to which they have access and, importantly, at least one option can be used to refinance existing debt. A few key points follow:

  • For all Main Street Loan options, the requirements based on size have increased. Now, companies with up to 15,000 employees or $5 billion in annual revenues are eligible.
  • For “Main Street New Loans,” the minimum loan size is $500,000, and the maximum amount is the lesser of (a) $25 million; or (b) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed four (4) times its adjusted 2019 EBITDA. These loans must not be contractually subordinated in terms of priority to any of the borrower’s other loans or debt instruments.
  • Through the “Main Street Expanded Loan” facility, a borrower may “upsize” an existing term loan or revolving credit facility. The minimum loan size is $10 million and the maximum loan size is $200 million. The maximum amount cannot exceed: (a) 35% of the borrower’s existing outstanding and undrawn available debt that is pari passu in priority with the eligible loan and equivalent in secured status (i.e., secured or unsecured); or (b) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed six (6) times its adjusted 2019 EBITDA. The upsized loan tranches must be senior to or pari passu with the borrower’s other loans or debt instruments, other than mortgage debt.
  • The new option, the “Main Street Priority Loan,” provides increased risk sharing by lenders for borrowers with greater leverage. The minimum loan size is $500,000, and the maximum loan amount is the lesser of: (a) $25 million; or (b) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed six (6) times its adjusted 2019 EBITDA. The loans must be senior to or pari passu with the borrower’s other loans or debt instruments, other than mortgage debt. Of importance, a borrower under the Main Street Priority Loan Facility may, at the time of origination of the loan, refinance existing debt owed to a lender that is not the eligible lender providing it financing under this facility.
  • All loan options have a term of four years – with payments deferred for the first year – and a fixed interest rate of LIBOR + 3%. They also all permit borrowers to prepay without penalty.

While borrowers may not apply for more than one type of Main Street Loan, businesses that have received PPP loans are permitted to borrow under the Main Street Lending program. Also, although nonprofit organizations are not eligible under the program, the Federal Reserve Board “is evaluating a separate approach to meet their unique needs.” See today’s press release HERE.

The Fed will announce the start date for this program soon. The special purpose vehicle (“SPV”) created by the Fed will purchase Main Street loans through September 30th, 2020. Given that underwriting criteria and processing time may vary by loan option and lender, we are encouraging interested clients to begin discussions with their lenders now. The Fed has issued FAQs on the Main Street Lending Program, which will be updated regularly (see HERE).

Employee Retention Tax Credit. Businesses that did not receive a PPP loan but that retain workers during the pandemic may be eligible for an employee retention credit under the CARES Act. The refundable tax credit is up to $5,000 per employee for wages paid by an employer whose business closed due to a governmental order or whose gross receipts significantly declined due to COVID-19. The IRS recently issued detailed FAQs on how to claim this credit (see HERE). We encourage clients to consult with their accountants on how to take advantage of these and other tax benefits under the CARES Act, including adjustments to the business interest rules and loss carry back rules.

ILLINOIS

Stay-At-Home Extension. Today Governor Pritzker issued Executive Order 2020-32 extending the stay-at-home order until May 30, 2020 (see HERE). The Order goes into effect on May 1, 2020. In our April 23, 2020 update, we reported on many of the pertinent aspects that are included in the Order (see HERE). We highlight that the Order mandates separate safety requirements for essential businesses and manufacturers. Such requirements are primarily aimed at promoting social distancing.

To the greatest extent possible essential businesses must:

  • Provide face coverings to all employees who are not able to maintain a minimum six-foot social distance at all times;
  • Cap occupancy at 50 percent of store capacity, or, alternatively, at the occupancy limits based on store square footage set by the Illinois Department of Commerce and Economic Opportunity;
  • Set up store aisles to be one-way where practicable to maximize spacing between customers and identify the one-way aisles with conspicuous signage and/or floor markings;
  • Communicate with customers through in-store signage, and public service announcements and advertisements, about the social distancing requirements set forth in the Order; and
  • Discontinue the use of reusable bags.

Manufacturers must follow social distancing requirements and take appropriate precautions, which may include:

  • Providing face coverings to all employees who are not able to maintain a minimum six-foot social distance at all times;
  • Staggering shifts;
  • Reducing line speeds;
  • Operating only essential lines, while shutting down non-essential lines;
  • Ensuring that all spaces where employees may gather, including locker rooms and lunchrooms, allow for social distancing; and
  • Downsizing operations to the extent necessary to allow for social distancing and to provide a safe workplace in response to the COVID-19 emergency.

Stay on Commercial Evictions. In March, Governor Pritzker issued Executive Order 2020-10 which prohibited law enforcement from enforcing eviction orders for residential properties. Last week, Governor Pritzker issued Executive Order 2020-30 (see HERE) which extended that prohibition to commercial properties. The Order prohibits the enforcement of evictions but does not relieve a tenant of its obligation to pay rent or comply with any other obligation that a tenant may have pursuant to a lease or rental agreement. The Order exempts eviction actions where the tenant has been found to pose a direct threat to the health and safety of other tenants, an immediate and severe risk to property, or has violated any applicable building code, health ordinance, or similar regulation. While the Order is currently law, it is unclear whether the Governor has the power to decree these stays through an executive order. We continue to monitor for any challenges to the Order and will update our clients on any further developments.

Marijuana Dispensary Licenses. Illinois was scheduled to award 75 more recreational marijuana dispensary licenses on May 1, 2020. The State has elected to delay the awarding of those licenses because of the COVID-19 pandemic. Licenses will not be awarded until after the end of the coronavirus disaster proclamation or until the Illinois Department of Financial and Professional Regulation announces a new date. Since the initial round of recreational licenses went to existing medical marijuana dispensaries, this round was the first opportunity for entrepreneurs and social equity applicants – who qualified for lower fees and business loans – to obtain recreational licenses.

LOCAL

Local Grant Programs. The City of Chicago has established the Microbusiness Recovery Grant Program. The program will distribute $5,000 grants to up to 1,000 businesses with four or fewer employees and less than $250,000 in annual revenue in low- and moderate-income areas of the City that have been severely impacted by COVID-19. Grants will be distributed by lottery and applications are open through May 4th at 5:00pm. To read more about the program and access the application, click HERE.

As we noted in our previous updates, Cook County has launched the Community Recovery Initiative to help small businesses, non-profits, community service organizations and independent contractors during the COVID-19 pandemic. The Initiative offers one-time, zero-interest loans of up to $20,000 for small businesses and $10,000 for independent contractors in suburban Cook County. Suburban Cook County business with fewer than 25 employees and less than $3 million in revenue are eligible for the initiative. Independent contractors who make at least half of their income through 1099 contract work and make less than $100,000 a year are also eligible. Click HERE to complete a form enabling you to receive notifications about the application period.

We will continue to send periodic updates on topics that may be helpful to your businesses. If you have a particular issue that you’d like us to address or if you’d like to be removed from the distribution list, please let us know.

Feel free to contact us with any questions.

Sincerely,
Gery Chico, Jon Leach, and Alpita Shah

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