Main Street Lending Staff Group, Board of Governors of the Federal Reserve System — Mark Carey, GARP
Summary
Public comments to the Federal Reserve on the Main Street loan facilities announced April 9. A memo dated April 14, 2020 from Mark Carey, co-President, GARP Risk Institute, to the Main Street Lending Staff Group asks that the term sheets require EBITDA to be calculated under generally accepted accounting principles and forbid transfers of assets out of loan obligors and issuance of incremental debt. It asks who chooses the interest rate spread within the range of 250 to 400 basis points. A letter dated April 15, 2020 from the National Council of Nonprofits asks for an interest rate of 0.50% for 501(c)(3) charitable nonprofits and a date certain for when employee retention provisions begin.
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“Main Street Lending Staff Group, Board of Governors of the Federal Reserve System — Mark Carey, GARP.”
Original at www.federalreserve.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/federal-reserve-public-comments-9-pdf-www-federalreserve-gov-a2532fae9-dddbc3789b/
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To: Main Street Lending Staff Group
Board of Governors of the Federal Reserve System
From: Mark Carey
co-President, GARP Risk Institute
Date: April 14, 2020
RE: Comments and Suggestions on Main Street Loan Facilities Announced April 9
Thank you so very much for your recent forthright, timely and constructive actions to preserve
the financial system and economic activity.
Comments herein are focused on limiting losses borne by the proposed Main Street New Loan
Facility and Main Street Expanded Loan Facility (jointly the “Facilities”). It is best in the long
run if the Treasury and Federal Reserve bear few or no net losses associated with the Facilities.
Market participants are likely to press for an easing of terms, but the Facilities should be
backstops and should not lend to extremely risky firms.
Comments and suggestions relevant to both the New Loan Facility and the Expanded Loan
Facility:
Item 5 under “Eligible Loans” in the Term Sheets uses a ratio of debt-to-EBITDA to
control loan size and risk. The Term Sheets should state that EBITDA must be calculated
according to generally accepted accounting principles (GAAP). In the leveraged loan
market, the majority of loan agreements now allow borrowers wide latitude in calculation
of EBITDA-based measures used in covenants. Unless GAAP is specified, some market
participants may use “adjusted” or “enhanced” measures of EBITDA, which can differ
importantly from GAAP measures. Permitting this latitude would, in all probability,
substantially increase losses borne by the Facilities by permitting lending to firms with
GAAP debt-to-EBITDA ratios much higher than the specified limits.
o If you wish to limit the use of Facility loans to support the foreign operations of
firms headquartered abroad, the Term Sheets should specify that EBITDA include
only cash flow for foreign firms’ U.S. subsidiaries that are loan obligors, not
EBITDA of the consolidated global firm.
o Stating that “Eligible Borrower” includes only affiliates and subsidiaries that are
obligors under the loan contract would help limit padding of debt-to-EBITDA
ratios. Guarantors should not be included in Eligible Borrower.
Item 5 under “Eligible Loans” in the Term Sheets mentions “…the Eligible Borrower’s
2019 (EBITDA)…” Instead, the term sheets should specify “…the Eligible Borrower’s
EBITDA calculated for the four fiscal quarters ending before March 1, 2020…”
Borrowers with fiscal years not coincident with the calendar year may interpret “2019” as
“fiscal 2019” and may choose to use estimates of cash flow for fiscal quarters not yet
completed, which could increase loan sizes for risky borrowers and thus losses borne by
the Facilities. EBITDA for “calendar 2019” might be difficult for some borrowers to
calculate.
The Term Sheets should forbid any transfers of assets out of corporate units that are
Facility loan obligors or guarantors and any issuance of debt of equal or higher priority
(“incremental debt”) (apart from drawdowns on existing lines of credit). The Facilities
cannot rely upon covenants in loans made by the private sector to accomplish such
restrictions. Many loan agreements allow asset transfers and issuance of incremental
debt. Failure of the Term Sheets to forbid asset transfers and incremental debt could
allow equity holders to preserve their own value in bankruptcy while leaving the
Facilities with few assets as a basis for recovery. In addition to protecting the Facilities,
the suggested limitations will incentivize prepayment of Facility loans, which is
desirable.
The second attestation in each Term Sheet permits repayment of outstanding debt in the
case of “mandatory principal payments.” The Term Sheets should state that repayments
of maturing drawdowns on lines of credit are not “mandatory principal payments.” (As
you may know, drawdowns have a fixed maturity date and, in normal times, are routinely
rolled over.) Otherwise borrowers may use funds obtained under the Facilities to repay
substantial amounts of pre-existing debt.
Do not weaken or remove provisions of the Term Sheets related to compensation, stock
repurchases, and capital distributions. Such provisions are likely to provide powerful
incentives to prepay loans made by the Facilities, which is desirable.
Term Sheets should require borrowers to promptly inform lenders and the Facilities if
any attestations prove to be incorrect (for example, after audits are completed). You
should consider whether the Facilities should have the option to call the loans in such
cases. And, to hold corporate officers personally liable if the attestations are found to be
intentionally false or misleading.
Answers to the following questions are likely to be important information in the eyes of
borrowers and Eligible Lenders, so including such information in the Term Sheets would
be helpful:
o In Item 3 under Eligible Loans, the Term Sheets specify that the interest rate paid
by the borrower is SOFR + 250-400 basis points.
Within the range 250 to 400 basis points, who chooses the interest rate
spread for loans advanced by the Facilities? Is it solely the Eligible
Lender’s choice, or must the Facility agree?
o Will the SPV make all underwriting decisions or delegate such decisions to the
Eligible Lenders, accepting any loan that Eligible Lenders state is consistent with
the Term Sheets?
What is the Eligible Lender’s liability in case of errors?
Comments and suggestions relevant only to the Expanded Loan Facility:
The opening language of Eligible Loans specifies that “An Eligible Loan is a term loan
made by an Eligible Lender(s)…” In the leveraged loan market, many term loans
originated by a bank do not remain on the bank’s books but are held by nonbanks.
Clarity in the Term Sheets would be helpful about how much, if any, of a term loan
originated by a bank must remain on a bank’s books for the term loan to be eligible for
upsizing under the Expanded Loan Facility. If any must remain, the set of Eligible
Borrowers may be much smaller than may be intended. Relatedly, may an Eligible
Lender distribute the Facility’s upsized portion of the loan to nonbanks, or must all
remain on the bank’s books?
In Item 5 of Eligible Loans, a portion of the language specifying maximum loan size is
unclear. Does “…30% of the Eligible Borrower’s existing outstanding and committed
but undrawn bank debt” mean:
a) “…30% of the Eligible Borrower’s existing outstanding debt and committed but
undrawn bank debt”, or
b) “…30% of the Eligible Borrower’s existing outstanding bank debt and
committed but undrawn bank debt” (bolded words added)?
a) and b) are not the same even if the borrower has only leveraged loans outstanding
because the majority of leveraged-loan debt is held by nonbanks.
In the Term Sheet under Loan Participations, the reference to “…share risk on a pari
passu basis” should specify that the Facility will have the same covenant rights as are
granted in the loan agreement for the loan being upsized and that the Facility will have
voting rights on modifications in proportion to the Facilities’ holdings. Otherwise, after
origination of Facility participations, the Eligible Lender and borrower could change the
terms of the loan in ways that increase risk to the Facility without the Facility’s
permission.
NATIONAL COUNCIL OF
NONPROFITS
National voice. State focus. Local impact.
April 15, 2020
Public Comments Re: Main Street Lending
The National Council of Nonprofits - the nation's largest network of charitable
organizations - writes to express concern that the Main Street Loan Facilities announced
4/9 fai l to extend essential relief to nonprofit organizations. If the programs are intended
to satisfy the mandates in CARES Act §4003(c)(3)(D), significant changes must be made
to comply with the law. If the Secretary intends to create a different loan program to
extend cred it to mid-size nonprofits, it is imperative that t he Treasury and the Fed
communicate this intention immediately to stem the furloughs of nonprofit employees
wh ile the needs for their services are growing exponentially.
As Treasury and the Fed work to create a program under §4003(c)(3)(D) providing
financing to lenders to make loans to nonprofits and other employers with up t o 10,000
employees, t he program should include the following terms to satisfy the requirements of
the CARES Act:
• Include an interest rate of 0.50% (50 basis points) for 501(c)(3) charitable nonprofits
at a 5 year amortization
• Provide priority to 501(c)(3) charitable nonprofits responding to COVID-19 relief
efforts and requ ire lenders to make a proportionate number and value of loans to
nonprofits t o prevent t he crowding out that is being seen in the Paycheck Protection
Program
• Set a date certa in for when employee retention provisions should begin
• Payments shall not be due until two yea rs after a direct loan is made
We also ask that Treasury and the Fed utilize all authority to establish protocols to
convert loans under this program into grants, similar to the terms established for the
Paycheck Protection Program. Regard less of size, the needs and rea lities of nonprofits on
the frontlines are the same. Loan programs should provide equal treatment.
Regards,
U,4~
David L. Thompso
Vice President of Public Policy
1001 G Street NW, Suite 700 East I Washington, DC 20001 I (202) 962-0322 I www.councilofnonprofits.org
From: Office_of_Secretary@FRB.GOV
Sent: Thursday, April 16, 2020 2:14 PM
To: Main-Street-Business-Lending-Program
Subject: Fw: MainStreet Lending Forward
Attachments: 20200415162542910200_attachment0000.png.final.pdf; 20200415162542910200
_attachment0001.DOCX.final.pdf
‐‐‐‐‐ Forwarded Message ‐‐‐‐‐
From: Jennifer Gallagher [jennifer.c.gallagher@frb.gov]
To: Office_of_Secretary@FRB.GOV
Date: 4/15/2020 4:25:47 PM
Subject: MainStreet Lending Forward
NONCONFIDENTIAL // EXTERNAL
From: Ellis Rochkind, Dina [dinaellis@paulhastings .com]
Sent: Wednesday, April 15, 2020 3:44 PM
To: Jennifer Gallagher [jennifer.c.gallagher@frb.gov]
Subject: RE: OTG Group
NONCONFIDENTIAL // EXTERNAL
Jen,
Know you must be going crazy but attached is the comment letter that we submitted to the Fed. on behalf of OTG.
Thanks, Dina
________________________________
[logoredesign][http ://www. paulhastings .com/]
Dina Rochkind | Of Counsel, Corporate Department Paul Hastings LLP | 875 15th Street, N.W., Washington, DC
1
On behalf of our clients, we hope that the Federal Reserve and the Treasury recognize that businesses
vary widely in their financing needs and will adjust or expand on the programs for mid-sized businesses.
We further request implementation of additional programs for mid-sized businesses as specifically
described in 4003(c)(3)(D)(i) of the CARES Act.
We note that the term sheets for the Main Street Loan Facilities currently do not adequately address the
needs of mid-sized companies adversely affected by the COVID-19 crisis for the following reasons.
First, the loan facilities are likely unavailable under the MSNLF and definitely unavailable under the
MSELF to borrowers that do not have existing credit facilities with banks. Many mid-sized businesses
obtain credit from business development companies or non-bank specialty finance companies.
Second, blanket restrictions on debt refinancing are problematic. Some businesses have a pre-existing
need to refinance credit prudently obtained prior to the pandemic due to near term maturities.
Companies that could have refinanced that debt absent economic disruption and resulting catastrophic
revenue declines need a refinancing solution, not more debt. These companies expect to repay all
amounts borrowed plus interest.
Third, the maximum loan sizes are too small for companies in need of a refinancing solution.
Fourth, the leverage conditions will automatically and indiscriminately eliminate aid to too many credit
worthy borrowers.
Relief under the current Main Street programs may be non-existent for credit worthy mid-sized
companies with a current need to refinance pre-existing debt owed to non-bank lender and that, absent
the current economic crises, could have refinanced that debt.
(1) Eligible Lenders: Please clarify that the US branches of foreign banks regulated by the
Fed may serve as Eligible Lenders if such a bank is an administrative agent for the
Eligible Loan.
(2) Eligible Borrowers: Please clarify how to calculate whether a majority of employees
are based in the U.S. If the borrower is otherwise a U.S. entity for eligibility purposes,
please clarify that such employees of the US entity are determined by calculating the
employees of such entity plus any foreign employees of any business entity that is a
subsidiary of the US entity, provided that neither the U.S. entity nor any direct or indirect
subsidiary of such entity makes any distributions to a foreign entity.
(3) Eligible Loans:
a. Paragraph 5(ii): Clarify to confirm that the term "outstanding" refers to drawn term
loan and revolver (i.e., "30% of existing outstanding and committed but undrawn
bank debt). This will provide access to the required amounts of liquidity for most
companies looking to bridge the current crisis.
b. Paragraph 5(iii):
i. Allow netting of existing cash in the calculation of the leverage ratio. This
change is required to ensure that the ratios reflect appropriate leverage.
ii. Allow the leverage ratio to be calculated including only the other debt that
is of similar or higher priority as the new upsized tranche. For example,
to the extent the existing loan facility is a first lien secured priority, allow a
similarly secured upsizing tranche to the extent the borrower's aggregate
first lien secured leverage will remain below 6x 2019 EBITDA. This will
ensure appropriate priority and protection for the government while also
providing flexibility for borrowers to access these needed loans.
iii. Clarify to confirm that EBITDA is to be calculated in the manner
calculated under the existing credit agreement. We recommend using
EBITDA as determined under the existing credit agreement as that
calculation has already been the subject of a negotiation with a
counterparty that understands industry standards and its lending
responsibilities. This will ensure that the Main Street Loan Facilities can
be accessed on an industry agnostic basis, using the most appropriate
measure for a borrower's current earnings.
iv. Although we assume "2019 EBITDA" is intended to be based off of 2019
year end financials, please clarify that if the borrower has more recent
financials available for the last twelve months and the EBITDA number is
higher, they may optionally use the more recent financial information for
purposes of leverage calculations. In addition to the clarification as to the
use of only pari passu debt requested in (ii) above, please further clarify
that debt levels at the time of the new financing should be used and also
calculated in compliance with the borrower's existing credit agreement.
(4) Required Attestations:
a. Clarify that proceeds of the upsized tranche can be used to repay drawn revolver
borrowings so long as pay down does not result in a permanent reduction of
availability. The Fed would recognize the benefits of paying down drawn
revolvers while still providing access for future use as this will free up liquidity for
the banks.
b. Allow leverage ratios of less than 6x calculated by including only the debt of
similar or higher priority to the upsized tranche (e.g., first lien secured leverage)
to satisfy the leverage condition. See (3)(b)(2) above. Clarify that the leverage
ratio calculation should not include as "committed but undrawn" debt certain
delayed draw term loans that require contingencies be met in order to access the
funds, such as using proceeds for acquisitions. This will provide greater flexibility
on the utilization of the facility by needed borrowers to ensure access by not
artificially inflating leverage ratios.
c. Clarify that tax customary distributions may still be made despite CARES Act
restrictions on dividends. Tax customary distributions should not be considered
as dividends that are restricted under the CARES Act. The Main Street
Expanded Loan term sheet refers to the section on prohibition on dividends for
companies that receive relief under authorized Fed programs that provide direct
loans. However, the statutory language included in the Mid-Size Businesses
program in the CARES Act has a similar prohibition in 4003(c)(3)(D)(i)(VII),
except that the language includes the following exception, which we believe
would allow these customary distributions: "except to the extent required in a
contractual obligation that is in effect as of the date of enactment of this Act." The
Main Street Lending Facility should adopt a similar exception and clarify that it
permits tax customary distributions.
d. Clarify that limitations on stock buybacks will not prevent the sale of all or any
portion of the borrower during the covered period. A sale may be the most likely
means of repayment of the government loan for some businesses. Any dividend
or stock repurchase done in connection with a change of control that results in
repayment in full of the government loan should be permissible.
Contact:
Jeff McMillen
Partner
Akin Gump Strauss Hauer & Feld
jmcmillen@akingump.com
202-887-4270
AmericC1fl
Heart
Association.
C1'nlill'DI of !ht- lloatd
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lmldmf April 15, 2020
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Cba1m!OIH-'.«I To whom it may concern:
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Ki~ S V E~ MO, HS FAliA
On behalf of the American Heart Association, thank you for the
opportunity to comment on the Main Street Lending Program. We
lmm«fiatt ,mr Chaman
breJPlr.ll respectfully request that 501 (c)(3) nonprofits be expressly included
lmm<dbfr"3srl'n-.ridmf in the Program and that the Treasury:
t-.u J ~ MO, fAHA
• Include a 0% interest rate (nonprofits are structurally different
than for-profits) or, at most, a .50% rate (50 basis points) for
l»«tots
Mo1V Ann l?IJlmal, MO 501(c)(3) nonprofits at a 5 year amortization
Rtog!m M. Derpnn. Ml) ...a;,
• Prioritize 501(c)(3) nonprofits responding to COVID-19 relief
0cuj.m s ll0!t:!
11/::t!h Out:ITlltil, MO, FA!IA efforts
Stll\fflA~
Urda~ • Defer payments until two years after a direct loan is made
!bx! w tbi:Jocl
.b1qlh lmaiJO, MD, Ft10 fAHA • Begin em ployee retention provisions on the date loan
llrancPn,, MO TNIA
funding is received by the borrower
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lttSmMlrm\HD. FAHA • Define "workforce" as full-time employees or full-time
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lttSha;im equivalents in any workforce restoration and retention
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provisions
Toorlffl Pni Y/lr®
JoscfJi C Wu,MD, f'!-0 f A/IA Many nonprofits employ more than 500 employees and cannot
~f~ Off,a:, access the Paycheck Protection Program, which contains critical
1.arqiA.lliowrl
loan forgiveness provisions necessary to help ensure they will be
a i d ~ Offur able to continue to provide services during the crisis and assist w ith
Swlt-1.Jp!on
our nation's recovery efforts. Economic recovery will take years and
CJit:fSdm:rondHtdiall Off!Cf1
Mar1.'ll~Ml>fAIIA
nonprofits require more time to begin repayment, especially those
more reliant on charitable donations.
CJiJt,I Adminlwat,\.r Olf1a1 tltld
Capc,,a:e Sem-tari,
larrvD Cllmon Charit able nonprofits are the 3 rd largest employer in our nation's
economy. The recommendations above will help to keep our
organization f inancially strong and allow us to continue to meet
the immediate and future needs of our communities. The AHA has
already committed $2.5 million in rapid response research awards
to better understand COVID and has also developed the first
W u te 300 I W 1ngt n DC I 00 6
COVID-focused registry to aggregate data and aid in disease research. To
ensure our continued service and commitment to our communities, the
AHA urges you to adopt these recommendations.
If you have questions, please contact Tyler Hoblitzell, Regulatory Affairs
Manager, at tyler.hoblit zell@heart.org o r 202-785-7901.
HEALTH CENTER
PARTNERS
of Southern Collfornlo
April 15, 2020
RE: Comments on the Main Street Lending Program
Like other businesses, Community Health Centers (CHCs), which are non-profit businesses, are
experiencing huge financial losses because of COVID-19. On average CHCs are seeing a drop
in primary care visits of 50%. While the situation continues to evolve on the ground, data
projections for California's CHCs suggests a shortfall of at least $1 billion in revenue
over the next three months. If such a reality were to come to pass, the ability to provide
access to 7.2 million Californians will be at risk.
Nationally, CHCs are the Health Homes for 29 million patients. We were viewed as the
frontline in the U.S. health care delivery system long before COVID-19 arrived and will remain at
the frontline long after it is gone. At this critical juncture, it is imperative that CHCs maintain their
operations and staffing levels, both to keep our patients healthy, and to assist with diverting our
patients from already over-burdened hospitals.
The SBA Payroll Protection Loan is a valuable resource many CHCs are applying for; however,
with its 500-employee limit it is out of reach for 22 CHCs in California alone. These CHCs
serve the largest number of patients are at the greatest risk of closing. Not only will they suffer
the greatest revenue losses, ranging from $5M-9M per entity, per month; they are also
forced to endure this pandemic without the financial support that their smaller counterparts have
access to, through SBA loans.
We respectfully request CHCs with 500 or more employees be included to receive direct
financial support via the Main Street Lending Program. Our CHCs need an immediate infusion
of cash to guarantee safety-net health care is available tomorrow, for the most vulnerable.
3710 Ruffin Road, San Diego, CA 92123 I Phone: 619.542.4300 I Fax: 619.542.4350 I www.hcpsocal.org
KENTUCKY
NONPROFIT
NETWORK
Public Comments Re: Main Street Lending
Kentucky Nonprofit Network is concerned that the Main Street Loan Facilities announced 4/9
fail to extend essential relief to nonprofit organizations. To satisfy the mandates in CARES Act,
significant changes must be made to comply w ith the law. If a different loan program to extend
credit to mid-size nonprofits is planned, this must be communicated immediately to stem the
furloughs of nonprofit employees while the needs for services grows exponentially.
As Treasury and the Fed work to create a program under §4003(c)(3)(D) providing financing to
lenders to make loans to nonprofits and others with up to 10,000 employees, the program
should include the following to satisfy the requirements of the CARES Act:
• Include an interest rate of 0.50% (50 basis points) for 501(c)(3) nonprofits at a 5 year
amortization
• Provide priority to 501(c)(3) nonprofits responding to COVID-19 relief efforts and require
lenders to make a proportionate number and value of loans to nonprofits to prevent the
crowding out occurring in the PPP
•Set a date certain for when employee retention provisions should begin
•Payments shall not be due until two years after a direct loan is made
We ask that Treasury and the Fed utilize all authority to establish protocols to convert loans
under this program into grants, similar to the terms of the PPP. Regardless of size, the needs
and realities of nonprofits on the frontlines are the same. Loan programs should provide equal
t reatment.
Sincerely,
J;)~Chw-
Danielle Clore
CEO
Kentucky Nonprofit Network, Inc., PO Box 24362, Lexington, KY 40524
T: 859.963.3203 F: 859.534.3310 www.kynonprofits.org
• Colorado
·O·
•
NONPROFIT
Association
April 15, 2020
Re: 1tfain Street Lending
O n behalf of Colorado Nonprofit Association and our 1,400 nonprofit members, I
write to express our concern and disappointment that the Main Street Loan
Facilities announced on April 9 th fail to provide essential relief to nonprofit
organizatio ns and appear inconsisten t with the requirements of §4003(c)(3)(D) of
the CARES Act
If the Secretary has o mitted nonprofits fro m these facilities with the intent of
creating a separate Mid-Size loan program to extend credit to nonprofits, then the
Treasury and the Fed should communicate this immediately to prevent more
furloughs of nonprofit employees at a time that demand for nonprofits' services is
growing exponentially.
A program that provides financing for loans to nonprofits with 500 to 10,000
employees and meets the requirem ents of §4003(c)(3)(D) of the CARES Act
should in clude the following terms:
• Include an interest rate of 0.50% (50 basis points) for 501 (c)(3) charitable
nonprofits at a 5 year amortization;
• Make it a priority to support 501(c)(3) charitable nonprofits responding to
COVID -19 relief efforts;
• Require lenders to make a proportionate number and value of loans to
nonprofits in order to prevent the crowding-out effect seen in the Paycheck
Protection Program;
• Set a date certain for commencement of employee retention provisions; and
• Require payments not to be due until two years after a direct loan is made.
I ask that Treasury and the Fed exercise authority to convert loans under this
program into grants, similar to the terms of the Paycheck Protection Program.
Nonprofits are on the front lines of responding to COVID-19. The Mid-Size Loan
program should treat larger non profits equitably as they face the same challenges as
smaller nonprofits with respect to COVID-19.
Sincerely,
Mark Turner, Senior Director of Public Policy
Serving nonprofits. Strengthening communities.
789 Sherman Street I Suite 240 I Denver, Colorado 80203 I (303) 832-571 o I (800) 333-6554 I ColoradoNonprofits.org
April 16, 2020
Re: Main Street Lending
On behalf of the Arc Thriftstores of Colorado, a 52 year old non profit which funds advocacy for persons
with intellectual disabilities and is also one of the largest employers of persons with intellectual
disabilities in Colorado, I write to express our concern that the Main Street Loan Facilities announced
on April 9th fails to provide essential relief to nonprofit organizations and appear inconsistent with the
requirements of §4003(c}(3)(D) of the CARES Act.
If the Secretary has omitted nonprofits with the intent of creating a separate Mid-Size loan program to
extend credit to nonprofits, then the Treasury and the Fed should communicate this immediately to
prevent more furloughs of nonprofit employees at a time that demand for nonprofits' services is growing
exponentially.
Our 52 year old non profit has been SEVERELY impacted by the COVID-19 crisis, and we have been
forced to furlough 700 of our 1,800 employees given a reduction of $2 million PER WEEK in revenue,
with a corresponding 25% reduction in services to persons and their families with intellectual
disabilities. In fact, our very survival is now at stake, with a severe risk we may have to furlough the
remainder of our employees without support from the Treasury and Fed.
A program that provides financing for loans to nonprofits with 500 to 10,000 employees and meets the
requirements of §4003(c}(3)(D) of the CARES Act should include the following terms:
• Include an interest rate of 0.50% (50 basis points) for 501(c)(3) charitable nonprofits at a 5 year
amortization.
• Make it a priority to support 501(c)(3) charitable nonprofits responding to COVID-19 relief effort;
• Require lenders to make a proportionate number and value of loans to nonprofits in order to
prevent the crowding-out effect seen in the Paycheck Protection Program;
• Set a date certain for commencement of employee retention provisions; and
• Require payments not to be due until two years after a direct loan is made.
I ask that Treasury and the Fed exercise authority to convert loans under this program into grants, similar
to the terms of the Paycheck Protection Program. Nonprofits are on the front lines of responding to
COVID-19. The Mid-Size Loan program should treat larger nonprofits equitably as they face the same
challenges as smaller nonprofits with respect to COVID-19.
Sincerely,
Lloyd Lewis
President/CEO
Arc Thriftstores of Colorado
Cl~·
,.,,,,,,,...PA..
..~~ j l_
~
h_ April 15, 2020
Re: Main Street Lending
Alliance
for Strong Families
and Communities ® The Federa l Reserve
20th Street and Constitution Avenue NW
Susan N. Dreyfus
Washington D.C. 20551
President and CEO
Officers To Whom It May Concern,
Molly Greenman
Chair I am writing on behalf of the Alliance for Strong Families and Communities, a
membership network of over 350 community based human service organizations
Annette Rodriguez around the country. These are the organizations that are currently providing food
Vice Chair distribution, homeless shelters, domestic violence shelters, child welfare services,
mental health, and more to their communities during this crisis.
Ron Manderschied
Treasurer Our sector is in a state of disarray. Our larger organizations are not eligible for the
Paycheck Protection Program because they exceed the number of emp loyee cap.
Mary Hollie Wit hout immediate support, these critical organizations could begin closing their doors
Secretary soon.
According to research by Sea Change Capital Partners, "the precarious financial
condition of large nonprofits is not a function of inefficiency or poor management, it is
the inevitable consequence of the context in which they operate." For example,
government contracts don't cover the full cost of doing the associated work and cause
cash flow issues since payment is subject to long and unpredictable delays. Large
organizations have fixed costs such as real estate. Cash is always an issue for large
nonprofits, but unlike large for-profits, they do not have access to the capital markets,
cannot easily unlock illiquid assets, and cannot use bankruptcy to restructure;.
As the Treasury Department works to create a program as directed under the CARES Act
section 4003(c)(3)(D} to provide financing to banks and other lenders to make loans to
nonprofits and other mid-size business of between 500-10,000 employees, we request
that the progra m:
• Include a 0.50% interest rate (SO basis points) for 501(c)(3) charitable nonprofits
at a 5 year amortization
• Provide priority to 501(c}(3} charitable nonprofits responding to COVID-19 relief
efforts
• Payments shall not be due until two years after a direct loan is made
• Employee retention provisions should begin on the date that loan funding is
received by the borrower
National Operations Center: 648 N. Plankinton Ave., Suite 425. M ilwaukee, W I 53203
National Headquarters: 1825 K St. N.W.. Suite 600. Washington. DC 20006
Alliance for Strong Families and Communities I alliance1.org
ala•
~~'-'-
, ..~i~
...,,,,,.... a..........;.
• In implementing any workforce restoration and retention provisions,
"workforce" should be defined as full-time employees or full-time equivalents
Alliance for Strong Fammes Many nonprofits employ more than 500 employees and have not been able to access
and Communit;es"
the Paycheck Protection Program, which contains loan forgiveness provisions which are
critical to t hese organizations and necessary to help ensure they will be able to continue
to provide services during the crisis and assist with our nation's recovery efforts when
the crisis is over.
Charitable nonprofits play the third largest employer in our nation's economy and as
valued problem solvers. The recommendations above w ill help to keep these
organizations financially strong and allow them to cont inue to meet the immediate
needs of their communities while planning for t he future when many of their services
will be needed most. Nonprofit organizations are our country's only institutions solely
focused on making communities stronger. In the toughest t imes, we do the toughest
work. When it's time to restore and repair our wellbeing, these community based
institutions need to be equipped to do that as well and their unique needs should not be
overlooked.
Thank you for your consideration of our comment s.
Sincerely,
Ilana Levinson
Senior Director, Government Relations
Alliance for Strong Families and Commu nities
ilevinson@allliancel.org
http:ljgd7xi2tioeh408c7o34706rc-wpengine.netdna-ssl.com/wp-
content/uploads/2020/04/Too-Big-To-Fa ii. pdf
2
e NEWYORK
CHIROPRACTIC
COLLEGE
April 15, 2020
Board of Governors of the Federal Reserve System
2ot1, Street and Constitution Avenue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of New York Chiropractic College (NYCC), I write to ask that the Federal Reserve update guidance to
clarify that private, not-for-profit colleges and universities are eligible for the Main Street Lending program. In
addition, I ask that 6,uidance be updated so that student workers are exempted for the purpose of the employee
threshold (under 10,000 employees).
Private, not-for-profit colleges and universities like New York Chiropractic College are major employers with
significant economic impact in their communities. \Xie are facing a major cash flow crisis caused by reduce revenue
and increased spending resulting from the COVlD-19 pandemic. In New York, private not-for-profit colleges and
universities have a nearly $90 billion economic impact and support more than 415,600 jobs.
Room and board refunds alone are a significant new expense, Colleges across the country expect to refund nearly $8
billion in room and board charges alone. Additionally, we have seen our auxiliary sources of revenue dry up as
campus events and summer programs are cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction required an unanticipated
investment in technology and we are also facing costs including deep cleaning campus buildings and increased
security expenses.
Low-cost loans like the Main Street Lending program would help New York Chiropractic College address the
financial impact of the COVID-19 crisis. However, there are two major barriers to our ability to access this and
other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including New York Chiropractic College, are
often some of the largest employers in their communities, there is confusion about whether non-profits are
eligible for the Main Street Lending program. We ask that the Federal Reserve update the guidance to clarify
that public and private non-profit colleges and universities, with direct borrowing authority, are eligible for
the Main Street Lending program.
• We ask that student workers be exempted for the purpose of the employee threshold for eligibility
(businesses with under 10,000 employees). \Xie hope that future guidance from the Federal Reserve will
make it clear that institutions like ours can exempt student workers from the employee count. New York
Chiropractic College employs student workers across campus as a part of their overall financial support to
help pay for college and to provide students with valuable work experiences. With campus closed for the
spring semester, these employees have left campus and should not be counted toward the employee
threshold.
2360 State Rt. 89 Seneca Falls, NY 13148 315-568-3000
e NEWYORK
CHIROPRACTIC
COLLEGE
Low-interest loans will provide vital support to private, not-for-profit colleges and uni vers.ities like New York
Chiropractic College that are working to continue to fulfill their educational missions and support their
communities despite the severe financial impacts of the pandemic. We look forward to working with you on this
and other loan programs as the Federal Reserve responds to the COVID-19 crisis.
Sincerely,
J. Todd Knudsen, DC
Vice President for Institutional Advancement and Special Projects
2360 State Rt. 89 Seneca Falls, NY 13148 315-568-3000
From: Office_of_Secretary@FRB.GOV
Sent: Thursday, April 16, 2020 2:20 PM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200415235258755263_attachment0002.PDF.final.pdf
----- Forwarded Message -----
From: Sirisha Bandla [Sirisha.Bandla@virginorbit.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/15/2020 11:53:13 PM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
Hello,
We respectfully submit the attached comments on the Main Street Lending Facility. We are happy to discuss any of the
comments further.
All the best,
Sirisha
[cid:image003.png@01D3C521.50ED2DB0]&lt;http ://www. virginorbit .com/&gt; SIRISHA BANDLA DIRECTOR
GOVERNMENT AFFAIRS
1800 M STREET NW, SUITE 4525S
WASHINGTON, D.C. 20036
Cell Phone Number
E SIRISHA.BANDLA@VIRGINORBIT.COM&lt;mailto :SIRISHA.BANDLA@VIRGINORBIT.COM&gt;
1
Open the Main Street Lending Facility Loans to All American
Businesses to Expedite Economic Health & Recovery
The MSLF should employ metiics that allow advanced manufacturing/technology
companies and those in the pre-revenue stage access to loans.
ISSUE
As currently written, many companies do not qualify for a Joan through the Main Street Lending
Facility (MSLF). Currently, the MSLF:
• Employs EBITDA for determining the maximum Joan amount; this does not necessarily
provide an apples-to-apples comparison of the health of a company, and a different metric
should be used to open loan access to high tech pre-revenue companies.
• Dictates an interest rate higher than that stipulated in the CARES Act. Loans should in
this program should not exceed an interest rate of 2 percent.
• Uses a loan maximum that is too low for companies in the advanced manufacturing sector
or others who incur high overheads and employ a highly-skilled and highly-competitive
workforce.
BACKGROUND
The COVID-19 pandemic has caused the largest crisis in the American workforce in history. The
U.S. employment rate is now the worst since the Great Depression, and more than 17 million
Americans have filed for unemployment benefits in the past four weeks. The financial uncertainty
and market volatility caused by the pandemic have forced employers to reduce staff, hours, and/or
compensation in order to remain financially solvent.
This is especially true for small and medium-sized businesses, which typically do not enjoy the
financial reserves or large sources of revenue as larger businesses. However, these firms employ
nearly 60 percent of the American workforce. The current economic challenge is especially
compounded for businesses in critical infrastructure and advanced manufacturing sectors, which
often have high overhead because of the capital intensive nature of their work and their highly-
skilled, highly-competitive workforce. These companies are especially important as they generate
more employment, and more employment means an improved economy. Innovative
manufacturing/technology companies also spur innovation and inject highly competitive
thinking into the marketplace.
RECOMMENDATIONS
Recommendation - Focus on American Employment:
Maximum loan size that is the lesser of (i) $150 million or (ii) an amount that, when added
to the E(gible Borrower's existing outstanding and committed but undrawn debt, does not
exceed one time the Eligible Borrower's 2019 annual U.S. employee payroll, including
associated employer payroll taxes and benefits paid on behalf of US based employees.
Eligible borrowers in the MSLF are defined as "businesses with up to 10,000 employees or up to
$2.5 billion in 2019 annual revenues." However, the terms of the loan paint a different picture.
The features of a loan through the MSLF require that the Eligible Borrower's maximum loan
''...does- not exceed four times the Eligible Borrower's 2019 earnings before interest, taxes,
depreciation, and amortization (''EB.TTDA'');" This requirement does not allow any company in
the pre-revenue or late R&D stages to apply for a loan. Furthermore, EBITDA may not accurately
reflect the health of a company, and can make completely unprofitable firms appear to be fiscally
healthy. In addition, the metric can be easily manipulated by the accounting practices of a
company.
The use of EBITDA to determine maximum loan disqualifies many mid-sized businesses that were
about to bring innovative products and solutions to market before the pandemic hit. Many ofthese
companies are currently operating with uncertain income due to the effects of COVID-19, but were
well funded before the COVID-19 crisis - with a record of healthy capital investment, some in the
hundreds of millions of dollars. Access to these loans would allow them to weather this uncertain
period where investment may be scarce, and keep their employees on payroll. Not helping these
key businesses also negatively impacts innovation and the leadership role that the US holds in
several key sectors.
Recommendation - .Increase Loan Maximum to Maintain a Robust Manufacturing .Industrial
Base:
Maximum loan size should be increased from $25M to $150M, consistent with the Main
Street Expanded Lending Facility Program.
For many mid-sized companies - especially those in the advanced manufacturing sector, or those
with employee counts in the thousands - $25M will not provide adequate assistance to offset their
overhead costs. As many companies are applying for assistance to keep their employees on payroll
during this time of uncertainty, the current loan amount will not result in more than 3 months of
assistance. Without knowing how long the pandemic will last, the possibility of a second wave,
and needing time for the economy to recover - the loan maximum amount should be higher, and
enough to assist a company through a minimum of 6 months of uncertainty.
Recommendation - Cap the Loan Interest at 2%:
Set a "not to exceed" amount of 2% on interest per the direction of the CARES Act, and
reduce Facility Fee and Loan Origination Fee for Eligible Borrowers.
The interest on the loan, among other features, may be a determining factor for a company
applying through the MSNLF. The alternative choice for a company during this uncertain time
may be to downsize or furlough their employees. The Federal Reserve should be incentivizing
companies to take advantage of funding to endure the pandemic's effects so that our nation can
emerge on the other end with a chance for an expedited recovery. Loss of companies and American
workers, especially in the technology sector could be a devastating blow for American
competiveness and our nation's industrial base. The MSNLF states that a feature of the loan shall
be an "[a]djustable rate of SOFR + 250-400 basis points." This translates to potential interest rate
on a loan between approximately 2.5% and 4.3%.
This range is higher than stipulated in the CARES Act. Furthermore, the requirements add an
additional 2% to the overall cost of the loan with the Facility Fee and Loan Origination Fee.
JUSTIFICATION
One of the purposes of the Federal Reserve is to "conduct the nation's monetary policy by
influencing money and credit conditions in the economy in pursuit of full employment and stable
prices•.'' As we prepare policies and programs to help our nation and our economy weather the
pandemic, we must also focus on the importance of corporations in continuing to employ
Americans, as it will help expedite our economic recovery. Across the Atlantic, many European
nations have concentrated on programs for employment. This has resulted in smaller changes in
unemployment in those nations during the COVID-19 crisis compared to the record numbers
Americans are seeing. For example, the Ifo Institute for Economic Research predicts the
unemployment rate in Germany will peak around 5.9 percent midyear before subsiding, whereas
JPMorgan Chase estimates unemployment could hit 20% in the U.S. in the second quarter2 • We
ask that the Treasury continue to implement policies to help and incentivize U.S. corporations to
continue to employ our nation's workers in this difficult time; this includes access to loans for
employee retention for as many U.S. corporations as possible.
1
"What is the purpose of the Federal Reserve System?" November 2016. Link.
2
Washington Post. "How Europe manages to keep a lid on coronavirus unemployment while it spikes in
the U.S." April 2020. Link.
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of Cazenovia College, I write to ask that the Federal Reserve
update guidance to clarify that private, not-for-profit colleges and universities
are eligible for the Main Street Lending program. In addition, I ask that
guidance be updated so that student workers are exempted for the purpose
of the employee threshold (under I0,000 employees).
Private, not-for-profit colleges and universities like Cazenovia are major
employers with significant economic impact in their communities. We are
facing a major cash flow crisis caused by reduce revenue and increased
spending resulting from the COVID-19 pandemic. Cazenovia has a $63
million economic impact on our community and we support 207 full and
part-time jobs.
Room and board refunds alone are a significant new expense, Cazenovia
College anticipates that we will refund $1,547,000 to students, a huge cost
that could not have been anticipated. Additionally, we have seen our
auxiliary sources of revenue dry up as campus events and summer programs
are cancelled - currently a loss of $151,127 before canceling Summer
College or our high school summer programming.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote
instruction required an unanticipated investment in technology and we are
also facing costs including deep cleaning campus buildings and increased
security expenses.
Low-cost loans like the Main Street Lending program would help Cazenovia
College address the financial impact of the COVID-19 crisis. However, there
are two major barriers to our ability to access this and other loan programs
offered by the federal government:
• Although private, not-for-profit colleges and universities, including
Cazenovia College, are often some of the largest employers in their
communities, there is confusion about whether non-profits are eligible
for the Main Street Lending program. We ask that the Federal Reserve
update the guidance to clarify that public and private non-profit
colleges and universities, with direct borrowing authority, are eligible
for the Main Street Lending program.
• We ask that student workers be exempted for the purpose 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 institutions like ours can exempt student workers
from the employee count. Cazenovia College employs student workers
across campus as a part of their overall financial support to help pay
for college and to provide students with valuable work experiences.
With campus closed for the spring semester, these employees have
left campus and should not be counted toward the employee threshold.
Low-interest loans will provide vital support to private, not-for-profit colleges
and universities like Cazenovia College that are working to continue to fulfill
their educational missions and support their communities despite the severe
financial impacts of the pandemic. We look forward to working with you on
this and other loan programs as the Federal Reserve responds to the
COVID-19 crisis.
Sincerely,
Julie Palmer
Executive Director of Development/Chief Advancement Officer
Grant Thornton
Main Street Lending - Feedback Form
Grant Thornton LLC recognizes the Federal Reserve's Main Street Lending Program's support for small and mid-sized
businesses that require financing as a result of the coronavirus disease 2019 ("COVID-19"). Per review of the Main Street New
Loan Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF), Grant Thornton and our clients have identified the
following areas in which clarification may be required.
General
• Question: Could the Federal Reserve please provide clarification on the relationship between the CARES Act and
the Federal Reserve term sheets, including, but not limited to, the Main Street Lending Program's MSNLF and
MSELF?
• Question: Do the restrictions referenced under 4003(c)(3)(D)(i) apply to the Federal Reserve's term sheets,
including, but not limited to, the Main Street Lending Program's MSNLF and MSELF?
Debt & Prepayment
• According to the MSNLF Eligible Loans Section 5, "Maximum loan size that is the lesser of (1) $25 million,(ii) 30% of
the Eligible Borrower's existing outstanding 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 earnings before interest, taxes, depreciation, and amortization ("EBITDA")."
• According to the MSELF Eligible Loans Section 5, "Maximum loan size that is the lesser of (1) $150 million,(ii) 30% of
the Eligible Borrower's existing outstanding 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 earnings before interest, taxes, depreciation, and amortization ("EBITDA")."
o Question: As such, can it be understood to mean that firms must max out their potential debt draws before
they are eligible?
o Question: As such, if current debt alone already exceeds the amount noted in clause (1), can it be
understood to mean that firms are not eligible for the MSLP?
o Question: As such, can it be understood to mean that EBITDA negative firms are not eligible for the MSLP?
o Question: As such, can it be understood to mean the six times EBITDA leverage covenant applies to all
types of debt, including mortgage debt for firms with real estate assets?
Organizational Structures
• According to the MSELF/MSNLF Required Attestations Section, "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."
o Question: Can you please define what it means for a company to "make reasonable efforts to maintain its
payroll and retain its employees"?
■ How do such efforts pertain to hourly employees?
■ How do such efforts pertain employees who have already been laid off or partially furloughed?
• According to the MSELF/MSNLF Eligible Borrowers Section, "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."
Grant Thornton
o Question: As such, can this be understood to mean United States' businesses with offshore companies are
not considered separate entities?
o Question: How is the "business of lobbying" defined?
■ If the primary function of the organization is lobbying, are they in the "business of lobbying"?
■ If a trade association has a lobbyist on staff, but their organization's primary function is not lobbying,
are they eligible?
Use of Eligible Loan
• According to the Federal Reserve's April 9th, 2020 press release on the Main Street Lending Program, "The Federal
Reserve established the Main Street Lending Program to enhance support for small and mid-sized businesses that
were in good financial standing before the crisis ... Firms seeking Main Street loans must commit to make reasonable
efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and
dividend restrictions that apply to direct loan programs under the CARES Act."
o Question: As such, can this be understood to mean Eligible Borrowers are not permitted to use Eligible
Loans to make acquisitions?
• According to the MSELF/MSNLF Required Attestations Section, 'The Eligible Borrower must attest that it will follow
compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section
4003(c)(3)(A)(ii) of the CARES Act"
o Question: As such, can this be understood to mean there are no exceptions for tax distributions of Eligible
Borrowers who may be S-corporations or other pass-through businesses?
From: Office_of_Secretary@FRB.GOV
Sent: Thursday, April 16, 2020 2:24 PM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200416094559663808_attachment0000.pdf.final.pdf
----- Forwarded Message -----
From: "Laird, Betsy" [blaird@ICSC.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 9:46:01 AM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
Please find attached comments on the Main Street Lendi ng Program from the International Council of Shopping Centers.
Our member network of nearly 70,000 represents the entire spectrum of the shopping center/retail real estate industry,
which has been severely impacted by necessary closures due to the COVID-19 pandemic. Thank you for the opportunity
to provide input.
Betsy Laird
Senior Vice President, Global Public Policy International Council of Shopping Centers
555 12th Street, N.W. | Suite 660 | Washington DC | 20004 | United
1
Main Street Lending Comments
Access to Main Street Lending Facilities
(1) Waiver of Dividend Distributions Restriction
ICSC, on behalf of our members organized as a real estate investment trust (REIT), requests a waiver
for REITs from the dividend restriction requirement that applies to direct loan programs under Section
4003(c)(3)(A)(ii) of the CARES Act. REITs are required by law to annually distribute their taxable
income each year to their shareholders to qualify as a REIT.
ICSC members, regardless of structure, are facing severe economic challenges due to the COVID-19
pandemic. Without a waiver on dividend distributions, REITs must seek assistance from other programs
that require ratings by maj or nationally recognized rating organizations - a requirement not met by
many REITs.
(2) Borrowers Without Existing Eligible Loans
Many U.S. businesses that would otherwise be Eligible Borrowers cannot qualify for the Main Street
Expanded Loan Facility (MSELF) because they do not have an existing Eligible Loan that can be
upsized. In some cases, this is because the borrower's existing lender is not an Eligible Lender. In
others, it is because the borrower relies on financing other than a term loan (for example, by using a
revolving loan). Such borrowers are not able to access the MSELF based on the existing term sheets,
and consequently are forced to rely on the Main Street New Loan Facility (MSNLF), which has a much
smaller maximum loan size and more expensive fees.
We request that the MSELF be made available to all Eligible Borrowers with an existing loan originating
before April 8, 2020, regardless of whether (i) the loan is a term loan or (ii) the applicable lender meets
the definition of an Eligible Lender. In the alternative, we request that the maximum loan size for the
MSNLF be increased to the maximum loan size available under the MSELF.
(3) Borrowers With Existing Loans With Loan Covenants Prohibiting Non-Subordinated Debt
Many Eligible Borrowers have existing loans in place that contain loan covenants prohibiting them from
taking on additional debt that is not subordinated to the existing loan. These Eligible Borrowers may be
unable to obtain consents or waivers from the existing lenders for these covenants. Therefore, in order
to allow such Eligible Borrowers to access the MSNLF, we request that the Federal Reserve specify
that Eligible Loans under the MSNLF are subordinated, in addition to being unsecured.
ICSC understands it is unlikely that the Federal Reserve would mandate that senior lenders consent or
provide waivers with respect to loan covenants that would otherwise prohibit Eligible Borrowers from
accessing the Main Street Lending Facilities. We note that while Eligible Lenders may be incentivized
to provide these consents or waivers with respect to an upsized tranche of a loan under the MSELF, as
noted in our request (2) above many otherwise Eligible Borrowers will not be eligible for the MSELF
without our proposed changes.
Page 1 of 2
(4) Borrowers With No Employees
The Main Street Lending Facilities have been made available to a broad number of companies that
occupy a range of industries, including retail, real estate, energy, manufacturing and hospitality. This
wide range of companies may use a variety of corporate structures such as LLCs or LLPs to enable
financing of their operations, including establishing financing vehicles that are separate legal entities
from their parent companies or operating companies that may employ the business's employees and
conduct other operations.
ICSC requests the Federal Reserve clarify that an entity will meet the definition of Eligible Borrower
even if the entity itself does not have any employees, provided that the business enterprise of which it
is a part would collectively meet the Eligible Borrower definition, including having sign ificant operations
and a majority of its employees in the United States and having up to 10,000 employees or $2.5 billion
in 2019 annual revenues. This clarification is necessary in order to allow companies across a range of
industries that may make use of complex corporate structures for various tax, administrative or other
reasons, to access the Main Street Lending Facilities, as intended by Congress.
Relief for the Commercial Mortgage-Backed Securities (CMBS) Markets
ICSC urges the Treasury and the Federal Reserve to recognize the $135.8 billion in outstanding debt
underlying CMBS owed by shopping centers and other retail real estate owners and establish a
program within the Main Street Lending Facilities or another emergency lending program utilizing the
remaining funding allocated to the Treasury Department under Title IV of the CARES Act to support
those borrowers.
The shopping center/retail industry has been devastated by mandated closures necessary for public
safety. The latest Census figures indicate a $46.2 billion drop in total retail and food services sales from
February to March 2020, or 8. 7%. ICSC estimates a $20 billion loss in retail real estate rent in April with
the number in May looming even larger. With businesses shuttered and retail tenants unilaterally
stopping payment of contractually obligated rent, shopping center owners are facing mounting
challenges in meeting their mortgage obligations. In the absence of regulatory flexibility that allows
CMBS servicers and borrowers to work out potential solutions during this challenging time, we believe
the market relief fund option warrants serious consideration. ICSC requests immediate action to
address the CMBS crisis and prevent an economic collapse.
For more information please contact Betsy Laird at blaird@icsc.com.
Page 2 of 2
From: Office_of_Secretary@FRB.GOV
Sent: Thursday, April 16, 2020 2:26 PM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200416102748804482_attachment0001.pdf.final.pdf
----- Forwarded Message -----
From: Erik Hansen [EHansen@ustravel.org]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 10:27:58 AM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
Hello:
Please find attached questions and comments re: the Main Street Lending Program from the U.S. Travel Association and
its membership. Please let us know if we can provide any additional information or clarifications regarding this
document.
Thank you for your continued work to provide financial relief to impacted businesses and accelerate economic recovery.
Erik Hansen | Vice President, Government Relations U.S. Travel Association 1100 New York Avenue, NW | Suite 450 |
Washington, D.C. 20005 T 202.408.2184 LEARN MORE ustravel .org[http ://www. ustravel .org] | travelcoalition
.org[http ://www. travelcoalition .org] FOLLOW US Facebook[https ://www. facebook .com/U.S.TravelAssociation] |
Twitter[https ://twitter .com/USTravel] | LinkedIn[https ://www. linkedin .com/company/ustravelassociation] [U.S.
Travel Association][http ://www. ustravel .org/]
1
Comments and Questions Regarding
Federal Reserve Programs and Facilities
Main Street Lending Program
1. Will the minimum loan size under and terms of the loan under the MSLP be flexible to
account for the needs and circumstances of each bon-ower, or will the program use a one-
size-fits-all model?
o U.S. Travel comments: We believe lenders should be a ble to provide loans as
low as $250,000 under the MSLP, with terms for maturity as short as 2 years.
This would allow more businesses, including small businesses, to access the loans
without taking on more debt than is needed to get through this crisis.
2. Are U.S.-based nonprofit organizations (as described in section 501(c) of the Internal
Revenue Code of 1986) with less than 10,000 employees or less than $2.5 billion in
revenue considered eligible borrowers under the MSLP?
o U.S. Travel comments: In section 4002(4)(B) of the CARES Act, the term
"eligible business " is broadly defined as "a United States business that has not
otherwise received adequate economic relief in the form of loans or loa n
guarantees. .. " This definition does not preclude nonprofits, regardless of size,
from receiving assistance enabled through the Exchange Stabilization Fund.
Further, section 4003(c)(3)(D)(i) of the CARES Act encourages fina ncing to
lenders to provide direct loans to "eligible businesses including, to the extent
practicable, nonprofit organizations ... " implying that Congressional intent is for
the term "eligible business" to be inclusive of nonprofits generally.
Destination Marketing Organizations (DMOs), which are typically small
501(c)(6) or 501(c)(4) nonprofits with a North American Industry Classification
System code of 561591, provide critical economic development, convention sales
and management, and tourism promotion services for cities and towns across the
U.S. The vast majority of DMOs are funded through a combination of local
lodging taxes and private sector membership dues or contributions.
The sharp drop in hotel occupancy a nd a liquidity crunch in the travel industry as
a result of COVID- 19 have decimated OMO revenue, halting their operations and
forcing them to layoff thousands of workers. DMOs are in desperate need of
financial assistance to keep workers employed and maintain operations in order
to help power the economic recovery.
The U.S. Travel Association encourages the Federal Reserve and Treasury
Department to clarify that small nonprofits, such as DMOs, are eligible
borrowers under the MSLP.
3. Is a small business bo1Tower eligible to receive a loan through the Main Street New
Lending Program if it has also received a loan through the Paycheck Protection Program
(PPP) or the Economic Injury Disaster Loan (EIDL), provided that the proceeds of the
MSLP loan are not used to pay off the PPP or EIDL loan or provide overlapping
coverage of the same expenses?
o U.S. Travel comments: In section 4002(4)(B) of the CARES Act, the term
"eligible business" is broadly defined as a "business that has not otherwise
received adequate economic relief in the form of loans or loan guarantees
provided under [ the Act]. " Given the limitations of the EIDL and PPP -
including a maximum loan calculation of only 2.5x average monthly payroll, a
25% cap on loan forgiveness used for eligible nonpayroll expenses, and a covered
period ending June 30 - these programs should not be considered sufficient for
providing adequate relief to travel-dependent small businesses.
The U.S. Travel Association encourages the Federal Reserve and the Treasury
Department to continue to ensure that any small business that has received either
a PPP loan, an EIDL, or both are still eligible to receive a loan through the
MSLP if they still have outstanding expenses.
4. The MSNLF term sheet states that an eligible borrower must attest that it will make
"reasonable efforts" to maintain its payroll and retain employees during the repayment
period. Is the Federal Reserve required under the CARES Act to develop more specific
attestations for bo1TOwers regarding the use of loan proceeds to maintain payroll and
employment? Will the Federal Reserve and/or the Treasury Depa1tment develop more
detailed guidance or threshold on what constitutes "reasonable efforts" by the borrower to
maintain payroll and payroll?
o U.S. Travel comments: Travel-dependent businesses (e.g. hotels, car rentals,
theme parks, restaurants, entertainment, etc.) are either closed or empty because
of public health measures restricting domestic and international travel, requiring
social distancing or limiting large gatherings. Without sufficient customers or
revenue, these businesses cannot rehire or maintain employment at pre-
corona virus levels until consumer demand returns to pre-coronavirus levels.
Any borrower requirements or attestations to maintain employment and payro]l
must take into consideration the unique circumstances for travel-dependent
businesses that will not have the consistent liquidity or consumer demand to
rehire and maintain e mployment until public health restrictions are eased and
consumer demand returns.
5. With respect to a holding company with controlling interests in smaller businesses, a
multi-business pa1tnership, or a business concern with multiple establishments:
a. How will the Federal Reserve or lenders apply the eligibility requirements for
borrowers with less than 10,000 employees or up to $2.5 billion in 2019 revenue?
Will these limits be detemrined by aggregating total employment and revenue
across all physical establishments of a business concern, any establishment
partially owned through a pa1t nership, or subsidiaries of a holding company?
b. Will individual establishments or subsidiaries with less than 10,000 employees or
$2.5 billion in 2019 revenue be eligible to receive loans through the MSNLF or
MSELF, if its parent company or a controlling interest has a total number of
employees or annual 2019 revenues that exceed these limits?
c. If an eligible borrower at the property- or establishment-level receives a loan
through the MSLP, will the attestations regarding dividends, stock repurchasing,
and executive compensation apply to its parent companies or controlling interests,
as well?
d. If a holding company or business concern with multiple establishments receives a
loan through the MSNLF, will its subsidiruies or individual establishments be
unable to pruiicipate in the MSELF?
e. How will franchisees and franchisors be treated in terms of the 10,000-employee
or $2.5 billion limits?
o U.S. Travel comments: Many travel-dependent businesses are organized as
partnerships between several different, but sometimes related, entities. Many
establishments do not have a simple vertical ownership structure, but they often
each have separate Employer Identification Numbers (EINs). Therefore, applying
program requirements at the parent- or holding company-level might prevent
many locally operated businesses from gaining relief through the program
Municipal Liquidity Facility
1. If an eligible city or county government assesses a local hotel tax and uses that revenue,
either in whole or in part, for the purpose of funding a nonprofit Destination Marketing
Organization (e.g. a convention and visitors bureau), can the city or county government
issue MLF bonds backed by the hotel tax revenue and use the bond proceeds to help with
cash flow issues of the nonprofit Destination Marketing Organization?
o U.S. Travel Comments: Destination Marketi ng Organizations (DMOs), which
are typically classified as small 501(c)(6) or 501(c)(4) nonprofits, provide critical
economic development, convention sales and management, and tourism
promotion services for cities and counties across the U.S. The vast majority of
nonprofit DMOs receive funding from hotel taxes assessed by a city or county
government. In many cases, the nonprofit DMOs were also established through
enabling legislation passed by a city or county government.
COVID-19 has led to a sharp drop in hotel occupancy along with a liquidity
crunch among travel industry partners, decimating DMO revenue, halting their
operations and forcing them to layoff thousands of workers. DMOs are in
desperate need of financial assistance to keep workers employed and maintain
operations in order to help power the economic recovery.
Given the direct funding relationship between city or county governments and
DMOs, and the DMOs' direct reliance on funding from hotel taxes assessed at the
local level, we urge the Federal Reserve to allow city or county governments to
issue bonds backed by hotel tax revenue and permit the use of the bond proceeds
for funding the operations ofDMOs that would have otherwise received the
lodging tax revenue.
2. Will maturity be extended beyond 2 years?
o U.S. Travel comments: We believe a two-year maturity period is fa r too short for the
communities most in need of assistance, particularly those that rely on robust travel
spending to support their economies, their budgets and the operation of tax-supported
entities, like Destination Marketing Organizations. A 2-year maturity date doesn't
give issuers enough time to restore their economies to full strength and generate the
revenue needed to pay back the bonds. Further, under many projections, it 'fl take an
extended amount of time for social distancing precautions to fully recede and longer
still for consumer demand to pickup. As such , the revenue generated through travel-
related taxes, such as hotel occupancy and rental car taxes, will not likely fully
rebound within the next two years, with depressed collections remaining a strain on
issuers-which will be compounded by the need to repay the bond within two years.
3. Will bond pricing consider the credit rating of the issuer before the crisis hit?
o U.S. Travel comments: The interim guidance provided by the Federal Reserve states
that "pricing will be based on an Eligible Issuer's rating at the time ofpurchase with
details to be provided later. " However, many state and local governments are facing
extreme financial stress due to the unexpected cost ofCOVID-19 on health-related
expenditures, social safety nets, and tax revenue- which may impact their credit
rating and ultimately the bond's cost (i.e. yield). Therefore, we believe pricing should
be based on the best credit rating the issuer received over the previous 3 years, with
the expectation that the bonds will enable issuers and the communities they serve to
return to full financial strength on a sustainable basis. A high yield will make it
harder to return to that strength in the shortest amount of time.
4. Will U.S. territories be able to participate in the Municipal Liquidity Facility?
o U.S. Travel comments: The guidance provided by the Federal Reserve only lists the
District of Columbia as an eligible state-equivalent participant, but U.S. territories
have similar needs to U.S. states and are experiencing similar stresses. Therefore,
they should be given equal treatment within the Municipal Liquidity Facility.
5. Will the aggregate bond limit only be based on the general and utility revenue of the
issuer in fiscal year 2017, or can the issuer elect other years that more accurately reflect
its financial needs?
o U.S. Travel comments: Many states, territories, counties, and cities have gone
through drastic changes in recent years, including the establishment of new agencies,
partnerships, and services that derive their revenue from hotel taxes and other new or
modified taxes and fees. Restricting revenue considerations to only fiscal year 2017
may distort and minimize the real challenges faced by states, territories, cour:ties,
and cities to make up for lost revenue and meet the needs of their residents. To
account for this, issuers should be able to elect any fiscal year within the last 5 years
(including F)'.2020 based on the most recent revenue projections available before the
crisis hit) to determine the appropriate aggregate bond limit.
6. Can the Federal Reserve change the population requirements for eligible issuers in
the Municipal Liquidity Facility to be below 1 million residents for cities and below 2
million residents for counties?
o U .S. Travel comments: We believe any municipality or county government with
bonding authority should be able to participate in the l'vILF. Many cities and counties
that do not meet the respective resident thresholds will be disadvantaged by having to
compete for funds at the State level, even if their budgets were not previously dependent
on the State for primary funding. Even though States are able to request an increase in
their aggregate limit to account for the needs of political subdivisions and
instrumentalities that are not eligible for the JY.(LF, the extra step may act as an
impediment for political subdivisions and instrumentalities that do not have strong
relationships with State officials.
~ ROBERTS
'lW
WESLEYAN COLLEGE
April 16, 2020
Board of Governors of the Federal Reserve System
20 h Street and Constitution A venue NW
1
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of Roberts Wesleyan College, I write to ask that the Federal Reserve update
guidance to clarify that private, not-for-profit colleges and universities are eligible for the
Main Street Lending program. In addition, I ask that guidance be updated so that student
workers are exempted for the purpose of the employee threshold (under 10,000 employees).
Private, not-for-profit colleges and universities like Roberts Wesleyan are major employers
with significant economic impact in their communities. We are facing a major cash flow
crisis caused by reduced revenue and increased spending resulting from the COVID-19
pandemic. Roberts Wesleyan has a $121.3M annual economic impact on our commwlity and
we support over 800 jobs, including full- and part-time faculty and staff, adjuncts and
student employees.
Room and board refunds alone are a significant new expense, Roberts Wesleyan College
anticipates lost revenue of just over $1.2M in room and board, a huge cost that could not
have been anticipated. Additionally, we have seen our auxiliary sources of revenue stop as
campus events and summer programs are cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction
required an unanticipated investment in technology and we are also facing costs including
deep cleaning campus buildings and increased security expenses.
Low-cost loans like the Main Street Lending program would help Roberts Wesleyan College
address the financial impact of the COVID-19 crisis. However, there are two major barriers
to our ability to access this and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including Roberts
Wesleyan College, are often some of the largest employers in their communities,
there is confusion about whether non-profits are eligible for the Main Street Lending
program. We ask that the Federal Reserve update the guidance to clarify that public
and private non-profit colleges and universities, with direct borrowing authority, are
eligible for the Main Street Lending program.
• We ask that student workers be exempted for the purpose 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 institutions like ours can
exempt student workers from the employee count. Roberts Wesleyan College
~ ROBERTS
\lW WESLEYAN COLLEGE
employs student workers across campus as a part of their overall financial support to
help pay for college and to provide students with valuable work experiences. With
campus closed for the spring semester, these employees have left campus and should
not be counted toward the employee threshold.
Low-interest loans will provide vital support ro private, not-for-profit colleges and
universities like Roberts Wesleyan College that are working tO continue to fulfill their
educational missions and support their communities despite the severe financial impacts of
the pandemic. We look forward to working with you on this and other loan programs as the
Federal Reserve responds to the COVID-19 crisis.
Sincerely,
~ .
La~
Chief Financial Officer
2 :lOI \\ !'~hid,• l)r.. Rndw,11.-r. :,.. Y lti<,21, 1997 .i8:i..i9t, .(,O()() 800.777.t, R\\T r<>hl• rh.ccl11
UNIVERSITY OF CALIFORNIA
EXECUTIVE VICE PRESIDENT- OFFICE OF THE PRESIDENT
CHIEF FIN AN CTAL OFFTCER 1111 Franklin Street, 6 th Floor
Oakland, California 94607-5200
510/987-9029
April 16,2020
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
To Whom It May Concern:
On behalf of the University of California (UC), we submit the following comments in response
to a request for input as detailed in the Federal Reserve's April 9, 2020 press release
announcing the establishment of the Main Street Lending Progr am: Main Street New Loan
Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF), initiated by the Federal
Reserve pursuant to H.R. 748, the Coronaviru s Aid, Relief, and Economic Security (CARES)
Act.
The University of California requests that the Federal Reserve updates the guidance to clarify
that non-profit private and public in stitution s of higher education, regardless of how many
employees they have, are eligible for the Ma in Street Lending Program. In addition, we also
ask that the Federal Reserve imp lements the Main Street Lending Program in a manner that
allows for individual UC campuses to be eligible to apply for these loans.
With more than 285,000 students and 227,000 faculty and staff the University of California
is vital to the California economy and each of the ten UC campuses are major employers in
their communities, and an integral part of the regional economies in which they participate.
As a healthcare system, a research institution, and a major employer, the University of
California is on the frontlines of the COVID-19 crisis, treating patients, finding innovative
ways to continue to educate our student s, researching diagnostics, tests and vaccines and
protecting our students and workforce. UC is extremely grateful to Congress and the Federal
Reserve for their swift action in response to the pandemic, and for providing much needed
resources to address the crisis.
The University notes that even with the relief Congress has already appropriated to respond
to COVID-19, the UC system continues to be significan tly impacted fina ncially-and estimates
that for our academic health systems alone, the direct and indirect costs associated with
responding to the COVID-19 epidemic could easily exceed $1 billion by the end of our fiscal
year in June.
As the Federal Reserve moves towards implementing the Main Street Lending Program, we
ask that you take the necessary step s to ensure that non-profit private and public higher
education institutions, like UC and our campuses, have access to the valuable and much
needed resources of the Federal Reserve. UC campuses wou ld benefit from being eligible to
apply for low cost loan s to help address the financial impact of the COVID-19 crisis, and are
interested in accessing the credit and loans available under the Main Street Lending
Program. In order to ensure our campuses can access these loans, the University of California
asks that you support the following requests:
• UC asks that the Federal Reserve update its guidance regarding the Main Street
Lending Program to clarify that non-profit private and public institutions of higher
education, regardless of h ow many employees they have, are eligible to apply for loans
and other financial tools made available under the program.
• UC also specifically requests that non-profit private and public institutions of higher
education be made eligible for participation in the Main Street Lending Program
without having to meet the eligibility requirement established for businesses, of
having fewer than 10 ,000 employees, or meeting certain annual income requirements.
Non-profit private and public higher education institutions may have more than
10,000 employees, especially if they are part of a large public university system, such
as UC, and would benefit from being eligible to participate in programs such as the
Main Street Lending Program as part of their response efforts to COVID-19.
• UC also asks that as guidance is developed for these programs, the Federal Reserve
consider the positive impact Main Street Lending Program loans could have for
individual UC campuses in bolstering their efforts to cover operating costs and payroll
expenses. We request that the Federal Reserve implements the Main Street Lending
Program in a manner that allows for individual UC campuses to be eligible for these
loans.
Thank you for consideration of our requests. We look forward to working with the Federal
Reserve as it implements the Main Street Lending Program and other important loan
programs established to resp ond to the COVID-19 crisis. If you have any questions regarding
the University of California's specific requests, please contact Chris Harrington at (202) 997-
3150.
Sincerely,
/2./1//
Paul Jenny
Interim Executive Vice President-Chief Financial Officer
Cc: Associate Vice President Arrivas
Associate Vice President Harrington
Office of the Senior Vice President
for Finance and Administration
715 North Avenue
New Rochelle, NY 10801
April 15, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution A venue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To ,vhom it may concern:
On behalf of Iona College, I write to ask that the Federal Reserve update guidance to clarify that
private, not-for-profit colleges and universities are eligible for the ]\fain Street Lending program. In
addition, I ask that guidance be updated so that student workers are exempted for the purpose of
the employee threshold (under 10,000 employees).
Private, not-for-profit colleges and universities like Iona College are major employers ,vith
significant economic impact in their communities. We are facing a major cash fiow crisis caused by
reduce revenue and increased spending resulting from the COVID-19 pandemic. In New York,
private not-for-profit colleges and universities have a nearly $90 billion economic impact and
support more than 415,600 jobs.
Room and board refunds alone are a significant new expense, Iona College anticipates that we will
refund $4 million to students, a huge cost that could not have been anticipated. Additionally, we
have seen our auxiliary sources of revenue dry up as campus events and summer programs are
cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction required an
unanticipated investment in technology and we are also facing costs including deep cleaning campus
buildings and increased security expenses.
Low-cost loans like the Main Street Lending program would help Iona College address the financial
impact of the COVID-19 crisis. However, there are two major barriers to our ability to access this
and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including Iona College, are often
some of the largest employers in their communities, there is confusion about whether non-
profits are eligible for the Main Street Lending program. We ask that the Federal Reserve
update the guidance to clarify that public and private non-profit colleges and universities,
with direct borrow:ing authority, are eligible for the Main Street Lending program.
• We ask that student workers be exempted for the purpose 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 institutions like ours can exempt student workers
from the employee count. Iona College employs student workers across campus as a part of
their o verall financial support to help pay for college and to provide students with valuable
work experiences. With campus closed for the spring semester, these employees have left
campus and should not be counted toward the employee threshold.
Low-interest loans will provide vital support to private, not-for-profit colleges and universities like
Iona College that are working to continue to fulfill their educational missions and support their
communities despite the severe financial impacts of the pandemic. We look forward to working with
you on this and other loan programs as the Federal Reserve responds to the COVID-19 crisis.
Sincerely,
Anne Marie Schettini-Lynch
Aime Marie Schettini-Lynch
Senior Vice President for Finance and Administration
aschettiniJynch@iona.edu
914-633-2468
101 N Front Street Harrisburg, PA 17101 I (717 ) 232-8649
April 15, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution A venue NW
Washington, DC 20551
Re: Main Street Lending Program
To whom it may concern:
We write on behalf of the 90+ independent, non-profit colleges and universities in
Pennsylvania, who serve 291,000 students. This student body includes 39% of all first
generation students in post-secondary institutions in PA, 44% of all Pell-eligible students
seeking four year degrees, 48% of all STEM students, 49% of a ll working age adult students
and 50% of all minority students in four year institutions. According to an independent study
completed just a year ago, these 90+ independent, non-profit schools contribute $48B to the PA
GNP every year, are responsible for over 195,000 family-sustaining jobs, pay $1. 1B in state
and local taxes and contribute well over 5M hours in volunteer service in all 67 counties in this
state every year.
We write today to ask that the Federal Reserve update its guidance to clarify that independent,
non-profit higher education institutions are e ligi,ble 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).
Jnstitutions of higher education in Pennsylvania, which are often one of the top ten employers in
their local communities, face a major cash flow crisis in light of the reduced revenue and
increased expenses imposed by this pandemic. Schools expect to refund millions in room and
board charges alone. Anticipated sources of auxiliary revenue have dried up as campus events
have been canceled and summer programs which provide critical budget-balancing revenue to
many institutions also have been canceled. These sources of revenue greatly assist these schools
with their bottom line.
At the same time, institutions are facing additional costs including deep cleaning campus
buildings, increased security expenses, paying for student transportation, returning items to
students' homes and ramping up to 100% on-line instruction. They continue to offer safe living
spaces to vulnerable student populations in the midst of transitioning to on line delivery methods.
Other schools have increased costs because they have opened their facilities to help medical
personnel and first responders as well as donated thousands of medical supplies to health care
facilities. All of this occurs before we experience an expected minimum 10% decline in
enrollment next fall, a direct result of the pandemic.
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 loans available
under the Main Street Lending program, recently announced by the Federal Reserve.
Unfortunately, we are concerned about two major barriers that will prevent our institutions from
accessing these programs:
Institutions of higher education are often one of the largest, employers within their community
and larger region. There has been confusion about the Main Street Lending program and whether
or not non-profits are eligible, because the current guidance is silent. We ask that the Federal
Reserve update the guidance to clarify that independent, non-profit institutions ofhigher
education, with direct borrowing authority, are eligible for the Main Street Lending program.
We also ask that student workers be exempted for the purposes ofthe 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 and provide students
with work experiences while keeping them close to campus for the purposes of their education.
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 are federal precedents for excluding student workers in employee counting throughout
federal agencies. For example, the Jnternal Revenue Service (IRS) generally exempts student
workers from being defined as employees under IRS regulations implementing the Student
FICA and the Federal Unemployment tax exceptions. The Department of Labor's Wage and
Hour Div ision creates special exceptions for students under the Fair Labor Standards Act, and
the Department of Education's Integrated Postsecondary Education Data System (IPEDS) does
not include student employees in an institution's employee count. We ask the Federal Reserve
to follow these precedents.
It is vital to provide this access to low-interest loans to independent, non-profit colleges and
universities financially devastated by the pandemic and struggling to continue to educate and
assist students and employ the hundreds of thousands of faculty and staff who work on both
public and independent non-profit campuses around the Commonwealth .
Thank you for all you are doing in regards to this and other important loan programs as the
Federal Reserve responds to the COVID-19 crisis.
Sincerely,
?;hv~?-
TomFoley
Association oflndependent Colleges and Universities of Pennsylvania (AICUP)
M B C A
MID-SIZE BANK COALITION OF AMERICA
Via Electronic Mail
Re: Main Street Loan Program
Ladies and Gentlemen:
The Midsize Bank Coalition of America I submits this letter on behalf of our 102 member banks
in response to your request for comments about the two Main Street Lending program (MSL)
te1m sheets published on April 9th . Our member banks applaud the Federal Reserve's goal of
launching the MSL in a deliberate - and yet still timely manner. Although MBCA is very
suppo1tive of the MSL's objectives, our member banks believe that refinements to the term
sheets - including FAQs clarifying terms - would encourage America's banks to participate and
to recommend their clients participate. We have organized our comments to align with the topic
headjngs in the two MSL term sheets:
Eligible Borrowers
• What about busi nesses that meet the Eligible Borrowers definition, but which are
incorporated in non US jurisdictions for tax or other reasons? Are US subsidiaries of
foreign domiciled bo1rnwers eligible?
• Does the Fed intend to apply affiliation rules to count employees or measure annual
revenues?
• Will eligibility guidelines align with PPP (including not-for-profits)?
Eligible Loans
• Must the loan be first lien secured, or just secured (for extended MSL program)? For
instance, if a client asks to expand an existing Term Loan that sits behind an asset based
loan (ABL), would this kjnd of collateral arrangement (i.e. 2nd position behind ABL
lender) qualify? Would a loan secured by a collateral pool comprised of a mix of assets
variously subject to first or second liens be acceptable?
1 Founded in 2010, the MBCA is a distinct and singularly focused "self-help" organization for mid-size banks that
has the direct involvement of each of its member banks' CEOs and most of their management committee
members. MBCA's 100 member banks average approximately $20 billion in size and collectively serve customers
and communities through more than 13,000 branches in all 50 states, Washington, DC, and three U.S. territories.
The MBCA's member banks currently have combined assets exceeding $2 trillion, deposits of nearly $1.7 trillion,
and total loans of more than $1.4 trillion. Thirty of MBCA's members are the largest independent institutions
headquartered in their respective states. For example, MBCA member banks in Arkansas, Connecticut, Hawaii,
Mississippi, Oklahoma, Oregon, Tennessee, Virginia and Wisconsin are both headquartered in and the largest
independent institutions serving those states.
1
• Our members have multiple questions about EBITDA measurement:
o EBITDA definition - 2019 "reported" EBITDA - What if the borrower doesn't
have a 2019 audit?
o Inclusivity of debt in the Debt to EBITDA ratio? Are all classes of debt
included? (second lien, mezzanine, subordinated debt, etc).
o More clarity on EBITDA calculations; does this mean GAAP EBITDA? Is there
a potential for add backs and if so what percentage would be acceptable for the
MSL program?
o Are bank loans ever acceptable based on non-EBITDA metrics because the
borrower is not EBITDA positive (recurring revenue, TCF, etc.) or because the
loan is an ABL facility. An example of a non-EBITDA bo1TOwer is a film
company (which may have significant EBITDA losses in 2019 due to timing of
film releases, etc.)?
o "Bank debt" versus " debt" when sizing the potential facility and leverage metrics
at the time of underwriting. The MSL new facility te1m sheet says "debt" but the
add-on MSL facility term sheet uses the term "bank debt." Could we have clarity
on why the difference and how to account for " non" bank debt like mezzanine
debt, etc.
• Is the leverage test (4x or 6x) based on lease adjusted leverage?
• How will the interest accruing during the one year payment deferral period be calculated
and payable?
• Will the Fed (and other prudential regulators) apply leveraged lending guidelines to MSL
loans?
• SOFR .. .Is this only option? Although our member banks are preparing for a non-LIB OR
future, many members report that their cmTent systems cannot handle some or all SOFR
rates. We suggest consideration of a LIBOR option to address operational concerns
some banks might face with a SOFR only MSL program. The promissory notes could
include the standard fallback language to address the unavailability of LIBOR in the
future. Our member banks have noted that SOFR is not representative of their cost of
funds and many support the Ameribor rate instead. Regardless of the rate used for the
MSL notes, we suggest an interest index rate floor (before addition of the spread points)
of no less than zero, to address member bank concerns about whether their systems can
handle negative interest rates.
• Term sheets indicate that the loans may have maturities of up to 4 years, but will facilities
that are much sho1ter in tenure allowable?
Loan Participations
• Voting Rights - What is Fed's expectation about its SPV's holdings? The sooner the Fed
publishes its fo1m of pa1ticipation agreement for review and comment the better. Fed
control of 95% of the loan balance of new loans under the MSL program is problematic,
because it lacks the track records built by other loan participants (typically other banks)
that our members partner with. How will required amendments of existing facilities be
handled while loan is outstanding?
• Process - if banks underwrite to the parameters outlined, is the Fed committed to fund
their portion? How will banks know when the MSL pipeline of available funding is
nearing exhaustion? Will the Fed or the SPY need to opine on/approve the stmcture and
2
underw1iting of the loans? Is a bank's commitment to its client subject to advance Fed
approval?
Required Attestations
• Although loan proceeds cannot be used to refinance existing debt, are all other uses
permissible? For example, can a borrower use proceeds to consummate
acquisitions? Make capital expenditures?
• Our members are concerned that the current term sheets effectively subordinate pre-
existing loans and lines of credit to MSL loans. We understand that Fed's obj ective is to
prevent banks from refinancing current bank debt, but we ask that the Fed clarify that
no1mal course repayments/reductions are pe1missible. Moreover, there will be asset sales
which should trigger a reduction of prior debt (especiaJly if the asset was the collateral
for the prior debt).
o Impact of new MSL debt on syndicated and pa1iicipated deals (SNCs and non-
SNCs) - Will banks view the required attestations sufficiently burdensome as to
require the consent of other lenders to the borrower prior to maki ng MSL loans?
(We recognize that this answer will depend on whether the MSL loans falls within
the existing incremental and new debt negative covenants built into the existing
document). Must all other lenders participate in the 5% risk share or can one or
more of the lenders take larger shares so that the total lender share satisfies the
5% risk share?
o The term sheets' prohibition of repayment/cancellation of any debt will cause
challenges to no1mal operations by both banks and their borrowers. Without
reasonable guidance, banks will be concerned about future defaults on small
dollar maturities as well as limitations on their ability to restructure debts. A
lender making a MSL loan to its bo1TOwer will be disadvantaged compared to
other banks and non banks lending to same bo1TOwer; these other lenders can
withhold consent to the MSL loan if their documents give them that power and in
any event can require timely repayment of their loans. Moreover, although the
te1m sheets pe1mit borrowers to make mandatory principal payments, there is no
exception for making the interest portion of payments due to lenders ... the
nonpayment of which would create contractual defaults.
o Lenders extending RLOCs will be reluctant to make MSL installment loans.
These lines often have annual terms and renewals are subject to credit
underwdting. In addition, these are often controlled by fo1mulas or borrowing
bases. RLOCs are frequently set up as sweep arrangements, paid down or paid
off overnight via incoming deposits to the borrowers ODA accounts. We suggest
that repayment prohibitions not apply to ordinary course operation of RLOCs,
should not require lenders to renew RLOCs and not prohibit borrowers from
repaying, or lenders from accepting payments on, RLOCs when contractually due
(including at maturity).
• We suggest clarification that the ce1iification relating to "reasonable effort to maintain
payroll" does not prevent the Borrower from doing necessary restructurings while the
MSL facility is outstanding. The pandemic has disrupted many business models and will
likely require changes in payrolls to permit business to survive.
3
• With respect to the borrower's required certification that "exigent circumstances
presented by the coronavirus disease 2019 ("COViD-19") - if the borrower was stressed
before, and COVID made it worse, can the borrower be an eligible boITower? Will
banks be able to take additional 5% stakes in borrowers if the credit is already a criticized
credit?
Loan Originations and Servicing
• We recommend that the Fed provide its desired form of promisso1y note, including
whatever wording it desires in the note (or a loan agreement) to evidence other bo1TOwer
attestations or covenants.
• To administer the loan, must the lender be the incumbent Administrative Agent on the
Borrower's existing credit facility? Could a bank arrange a new loan for a company that
currently has a credit facility with a non-bank?
• Management of the facility with the SPY as a 95% participant - voting rights, default
situations, strncture, information flow - what are the Fed 's expectations. I
• What will the take out commitment look like from Fed. Our members want to ensure
bank reputational risk with our clients will be taken into account. .. for example, a bank
approves but then Fed does not approve.
Facility Termination
• Are there any mandatory prepayment conditions?
• Can proceeds from PMCCF be used to take out MSLs without penalty?
The M BCA appreciates this opportunity to comment on the Federal Reserve' s Main Street
lending programs. Our member banks look forward to assisting America's businesses
survive this difficult period and welcome the opportunity to deliver Main Street loans in the
near future. If you have any questions, please do not hesitate to contact me by phone at 213-
335-4344 or by e-mail brent.tjarks@midsizebanks.com.
Sincerely,
Brent Tjarks
Executive Director
The Mid-Size Bank Coalition of
America
1049 South Serenade Avenue
West Covina, CA 91790
4
MID-SIZE BANK COALITION OF AMERICA MEMBERS
1. Ameris Bank (Moultrie, GA) 57. Jnvestors Bank (Short Hills, NJ)
2. Apple Bank (New York, NY) 58. IBERIABANK (Lafayette, LA)
3. Arvest Bank (Fayetteville, AR) 59. Mechanics Bank (Richmond, CA)
4. Associated Bank (Green Bay, WI) 60. MidFirst Bank (Oklahoma City, OK)
5. Atlantic Union Bank (Richmond, VA) 61. NBT Bank (Norwich, NY)
6. BancorpSouth (Tupelo, MS) 62. New York Communty Bank (NewYork,
7. Banner Bank (Walla Walla, WA) NY)
8. BankUnited (Miami Lakes, FL) 63. Northwest Bank (Warren, PA)
9. Banc of California (Santa Ana, CA) 64. Old National Bank (Evansville, lN)
10. Bank of Hope (Los Angeles, CA) 65. Opus Bank (ln1 ine, CA)
11. Bank Leumi USA (New York, NY) 66. Pacific Premjer Bank (Irvine, CA)
12. Bank of Hawaii (Honolulu, HI) 67. PacWest Bank (Beverly Hills, CA)
13. Bank OZK (Little Rock, AR) 68. People's United Bank (Bridgeport, CT)
14. Berkshire Bank (Pittsfield, MA) 69. Pinnacle Bank (Lincoln, NE)
15. BOK Financial (Tulsa, OK) 70. Pinnacle Financial Partners (Nashville, TN)
16. Bremer Bank (Saint Paul, MN) 71. Popular Community Bank (New York, NY)
17. Busey Bank (Champaign, II) 72. Provident Bank (Iselin, NJ)
18. Cadence Bank (Houston, TX) 73. Raymond James Bank (Saint Petersburg,
19. Cathay Bank (Los Angeles, CA) FL)
20. Cenlar FSB (Ewing, NJ) 74. Renasant Bank (1\1pelo, MS)
21. Centennial Bank (Conway, AR) 75. Rockland Tmst (Rockland, MA)
22. CenterState Bank (Winter Haven, FL) 76. Sandy Spring Bank (Olney, MD)
23. Central Bancompany (Jefferson City, MO) 77. Seacoast Bank (Palm Beach, FL)
24. CIT Bank (Pasadena, CA) 78. ServisFirst Bank (Birmingham, AL)
25. Citizens Business Bank (Ontario, CA) 79. Signature Bank (New York, NY)
26. City National Bank (Los Angeles, CA) 80. Silicon Valley Bank (Santa C lara, CA)
27. City National Bank of Florida (Miami, FL) 81. Simmons Bank (Pine Bluff, AR)
28. Columbia Bank (Tacoma, WA) 82. South State Bank (Columbia, SC)
29. Commerce Bank (Kansas City, MO) 83. Sterling National Bank (Montebello, NY)
30. Community Bank (De Witt, NY) 84. Stifel Bank & Tmst (Saint Louis, MO)
31. Cullen/Frost Bankers (San Antonio, TX) 85. Synovus Bank (Columbus, GA)
32. Customers Bartle (Phoenixville, PA) 86. TCF Bank (Sioux Falls, SD)
33. Dollar Bank (Pittsburgh, PA) 87. Texas Capital Bank (Dallas, TX)
34. EagleBank (Bethesda, MD) 88. Third Federal Savings (Cleveland, OH)
35. Eastern Bank (Boston, MA) 89. TIAA Bank (Jacksonville, FL)
36. East West Bank (Pasadena, CA) 90. TowneBank (Portsmouth, VA)
37. F .N.B. Corporation (Pittsburgh, PA) 91. Trustmark (Jackson, MS)
38. FirstBank Holding Company (Lakewood, 92. UMB Financial (Kansas City, MO)
CO) 93. Umpqua Bank (Roseburg, OR)
39. First Citizens Bank (Raleigh, NC) 94. United Community Bank (BlairsviUe, GA)
40. First Financial Bank (Cincinnati, OH) 95. United Bartlcshares (Charleston, WV)
41. First Financial Bankshares (Abilene, TX) 96. Valley (Wayne, NJ)
42. First Hawaiian Bank (Honolulu, HI) 97. Veritex Community Bank (Dallas, TX)
43. First Horizon Bank (Memphis, TN) 98. WaFd Bank (Seattle, WA)
44. First Interstate Bank (Billings, MT) 99. Webster Bank (Waterbury, CT)
45. First Merchants Bank (Muncie, lN) 100. WesBanco Bank (Wheeling, WV)
46. First Midwest Bank (Itasca, IL) 101. Western Alliance Bank (Phoenix, AZ)
47. First National Bank of Omaha (Omaha, NE) 102. Wintmst Financial (Rosemont, IL)
48. Flagstar Bank (Troy, Ml)
49. Fulton Financial (Lancaster, PA)
50. Glacier Bank (Kalispell, MT)
51. Great Western Bank (Sioux Falls, SD)
52. Hancock Whitney Bank (Gulfport, MS)
53. Heartland Financial (Dubugue, lA)
54. Hilltop Holdings (Dallas, TX)
55. Jndependent Bank (McKinney, TX)
56. International Bancshares (Laredo, TX)
5
League
of American
Orchestras
Advancing the Orchestral Experience for All
April 16, 2020
To: The Federal Reserve - Mainstreet Lending Comments - via regs.comments@federalreserve.gov
On behalf of the League of American Orchestras, we thank the Federal Reserve for this comment
opportunity.
We request immediate revisions to enable 501(c)(3) nonprofit eligibility for the Mainstreet Lending
facilities and adoption of loan calculations suitable to nonprofits. This near-term opportunity for
businesses of up to 10,000 employees could provide a critical form of support for nonprofit
organizations unable to access the Paycheck Protection Program, and in urgent need of resources to
support their workforce and services to the public.
We also request that future lending programs created in response to Section 4003(c)(3)(D) of the
CARES Act:
• Include a 0% interest rate or, at most, a .50% rate (50 basis points) for 501(c)(3) nonprofits at
a 5-year amortization
• Defer payments until two years after a direct loan is made
• Require lenders to make a proportionate number and value of loans available to nonprofits
• Begin any employee retention provisions on the date loan funding is received by the
borrower
• Define "workforce" as full-time employees or f ull-time equivalents in any workforce
restoration and retention provisions.
As a vibrant part of the charitable sector, our nation's more than 1,600 nonprofit orchestras rely on
philanthropy and event-dependent income to fuel programs that serve community needs and
support a dynamic workforce. Both sources of revenue are severely constricted in the wake of the
COVID-19 crisis. We urge consideration of loan eligibility- and forgivability - as the Federal Reserve
takes further action. Orchestras and the broader nonprofit sector are critical partners in jump-
starting local, state, and national recovery efforts during and after COVID-19, and should be
supported by all forms of relief.
Jesse Rosen,
President & CEO
amoricanorchostras.org 520 8th Avenue. Suite 2005, 20th Floor, New York NY 10018 1602 L Street NW, Suite 611, Washington DC 20036
t 212 262 5161 t 202 776 0215
ALVERNO COLLEGE MARIAN UNIVERSITY
BELLIN COLLEGE MARQUETTE UNIVERSITY
BELOIT COLLEGE MEDICAL COLLEGE OF WISCONSIN
CARDINAL STRITCH UNIVERSITY MILWAUKEE INSTITUTE OF ART & DESIGN
CARROLL UNIVERSITY MILWAUKEE ScHOOL OF ENGINEERING
CARTHAGE COLLEGE MOUNT MARY UNIVERSITY
CONCORDIA UNIVERSITY WISCONSIN ASSOCIATION OF INDEPENDENT NASHOTAH HOUSE
EDGEWOOD COLLEGE COLLEGES AND UNIVERSITIES NORTHLAND COLLEGE
HERZING UNIVERSITY RIPON COLLEGE
HOLY f AMILY COLLEGE ST. NORBERT COLLEGE
LAKELAND UNIVERSITY W ISCONS IN'S PRIVATE , NONPROF IT COLLEGES AND UNIVERSITIES VITERBO UNIVERSITY
LAWRENCE UNIVERSITY WORKING TOGETHER FOR EDUCATIONAL OPPORTUNITY WISCONSIN LUTHERAN COLLEGE
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of the 24 private nonprofit colleges and universities that are members of the Wisconsin
Association of Independent Colleges and Universities (WAICU) and their 56,000 students, I am writing
you today to request that guidance be issued to confirm that colleges and universities, includfog private,
nonprofit colleges and universities, are eligible for the Main Street Lending program.
Institutions of higher education, often the largest or one of the largest employers in their local
communities, are facing a major financial crisis as a result of the reduced revenue and increased
expenses rising out of the COVID-19 pandemic. Wisconsin's private, nonprofit institutions expect to
refund nearly $24 million in room and board charges alone. Some institutions have also refunded tuition
payments. Anticipated sources of auxiliary revenue have dried up as campus events have been canceled.
Summer programs which provide revenue to many institutions also have been canceled. At the same
time, institutions are facing additional costs-such as deep cleaning campus buildings, translating the
entire curriculum to digital formats, and increased security expenses. Colleges have absorbed these
increased costs even as they have opened their facilities to help medical personnel and first responders.
Specifically, on behalf of Wisconsin's private, nonprofit institutions, I request that the Federal Reserve
update the guidance to clarify that colleges and universities are eligible for the Main Street Lending
Program. In addition, I ask that student workers be exempted for the purposes of the employee threshold
for eligibility requirements (under 10,000 employees). With the majority of our campuses closed for the
spring semester and transitioned to online learning, all or most of these student employees have left
campuses, and therefore should not be included for the purposes of the employee threshold. It is vital to
provide this access to low-interest loans to non-profit colleges and universities financially devastated by
the pandemic and struggling to continue to educate and assist students.
122 W. Washington Avenue, Suite 700 Telephone 608.256.7761
Madison, WI 53703-2723 ROLF WEGENKE, Ph.D. mail@waicu.org
www.waicu.org President www.wisconsinsprivatecolleges.org
Board of Governors of the Federal Reserve System
Re: Comments on the Main Street Lending Program
Page Two
April 16, 2020
It is estimated that our institutions have already experienced over $76 million in expenses directly
related to the COVID-19 crisis. Many of our colleges and universities are seeking low cost loans, to help
address the financial impact of the COVID-19 crisis and would benefit from the credit and loans
available under the Main Street Lending program.
Thank you for your attention to this matter.
Sincerely,
Rolf Wegenke, Ph.D.
President
a:!ffl The California State University
~ OFFICE OF THE CHANCELLOR
Office of Federal Relations
444 N. Capitol Street NW, Suite 207
Washington, DC 20001
202.434.8060
www.calstate.edu
April 16, 2020
Board of Governors of the Federal Reserve
20 th Street and Constitution Avenue NW
Washington, DC 20551
Re: Comments on "Main Street Lending"
On behalf of the California State University (CSU), I submit the following comments with
respect to the "Main Street Lending" facility.
By way of background, the CSU is the largest system of four-year higher education in the
country, with 23 campuses, 53,000 faculty and staff and 482,000 students. Half of the CSU's
students transfer from California community colleges. Created in 1960, the mission of the CSU
is to provide high-quality, affordable education to meet the ever-changing needs of California.
With its commitment to quality, opportunity, and student success, the CSU is renowned for
superb teaching, innovative research and for producing job-ready graduates. Each year, the CSU
awards more than 127,000 degrees. One in every 20 Americans holding a college degree is a
graduate of the CSU and our alumni are 3.8 million strong.
As with many entities across the country, the current health crisis combined with steps taken to
reduce the spread of COVID-19 have taken a tremendous financial toll on the CSU and its
campuses. Across the university system, CSU campuses have moved classes to online
instruction, which is one of many factors driving significant cost increases in providing a
high-quality postsecondary education. At the same time, revenue streams have decreased
significantly and refunds have been made to students in a number of areas, including student
housing, parking, and student dining. Maintenance and debt service for unused facilities
continues, even though revenue is no longer generated.
In order to meet these challenges and keep personnel employed, public universities and
non-profit entities will require access to low-cost capital, such as that envisioned by the Main
Street Lending facility. The CSU notes:
CSU Campuses Fresno Monterey Bay San Francisco
Bakersfield Fullerton North ridge San Jose
Channel Islands Humboldt Pomona San Luis Obispo
Chico Long Beach Sacramento San Marcos
Dominguez Hills Los Angeles San Bernardino Sonoma
East Bay Maritime Academy San Diego Stanislaus
l. There has been confusion about Lhe Main SLreeL Lencling progrnm and Lhe eligibiliLy of
public nnivPrsitii>s an<l non-prnfits hPCHIISP thP r.11rrPnt g11idan1·p is silPnt. WP ask that thP
Federal Ilese1ve update the guidance 10 cla1ily thac non-prolit entities and public
insLilutions of higher etlut:alion wilh diret:L borrowing auLhority arc eligible for Lhe Main
Street Lending program; and
2. Clarity is npo,c]pll with rPSfl!'l't ro tlw clPfinitinn nf i>mploymPm of smclPnt workPrs.
Specifically, the CSU asks that student workers be exempted for the purposes of the
ernplnyee threshold for digihiliLy ( bus i ncssc, with undcr I 0,000 ernplciyec,). We hope
that funue guidance from the Federal Reserve will make ii dear that instimtions can
exempl sLudem workers from Lhe employee counl. Many of our campuses employ sLuclem
\,nrkPrs as a part of ovprall smclPnt fi nanda l supp1111 m hPl p pay for mlli>ge and tn
provide s111dents ¼ilh work experiences while keeping them close to campus. With our
t:drnpuscs dosctl. d 11 or rnosL or Lhe,c sLutlen Lcrn ployees dtc mi lunger present, and
therefore should not be included for the purposes of the employee threshold.
ThHnk you in allvanrP for your artPntinn m thPsP r.nm mPnts.
im Gelb
Assistant Vice Chancellor for Federal Relations
San Jose State University TEL: 408-924-1177
SAN JOSE STATE
SJSU
Mary A. Papazian, Ph.D.
President One Washington Square FAX: 408-924-1199
UNIVERSITY San Jose, CA 95192-0002 sjsupres@sjsu.edu
The California State University:
Chancellor's Office
April 16, 2020
Bakersfield
Channel Islands
Chico Board of Governors of the Federal Reserve System
Dominguez Hills
East Bay 20th Street and Constitution Avenue NW
Fresno
Fullerton
Washington, DC 20551
Humboldt
Long Beach
Los Angeles Re: Comments on the Main Street Lending Program
Maritime Academy
Monterey Bay
North ridge To Whom It May Concern:
Pomona
Sacramento
San Bernardino
San Diego
The Main Street Lending Program, created under authorization from Section
San Francisco 4003(c)(3)(D)(ii) of the Coronavirus Aid, Relief and Economic Security (CARES) Act, is
San Jose
San Luis Obispo designed to help entities during the ongoing COVlD-1 9 crisis and accompanying economic
San Marcos
Sonoma
downturn. San Jose State University submits the following comments in regard to the
Stanislaus Program and asks that the Federal Reserve update the guidance to clarify that nonprofit
private and public higher education institutions are eligible. In addition, we ask that student
workers be exempted for the purposes of the employee threshold for eligibility requirements
(under 10,000 employees).
Institutions of higher education, many of which are significant employers in their
communities, are experiencing devastating financial impacts due to the COVID-19
pandemic. According to recent estimates from SJSU's Division of Administration and
Finance, our own university will be absorbing nearly $16 million in costs and losses through
May 2020 alone. This total likely will increase in the coming months as a result of additional
distance learning costs, decreased enrollments for upcoming summer and fall terms, and
losses by campus auxiliaries, among many other factors.
Many colleges and universities are seeking low-cost loans to help address the financial
impact of the COVlD-19 crisis and are interested in accessing the credit and loans available
under the Main Street Lending program. The Program will provide much-needed support of
up to $600 billion in bank lending to small and mid-sized businesses, including new loans of
$1 million to $25 million or expansion of a business's existing loan with a bank to up to
$150 million.
Unfortunately, it is currently unclear whether institutions of higher learning and Minority-
Serving Institutions like SJSU are eligible to participate in the Program. Potential exclusion
from this program would have a compounding effect, when considering that SJSU is also
ineligible for the Paycheck Protection Program implemented by the Small Business
Administration.
We are concerned with two major barriers keeping our institution from accessing these
programs:
1. Institutions of higher education are often the largest, or one of the largest, employers
within their community and larger region. There has been confusion about the Main
Street Lending program and whether or not nonprofits are eligible, because the
current guidance is silent. We ask that the Federal Reserve update the guidance to
clarify that nonprofit private and public institutions of higher education, with direct
borrowing authority, are eligible for the Main Street Lending program.
powering SILICON VALLEY sjsu.edu
2. 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 institution can
exempt student workers from the employee count. SJSU employs student workers
across our campus as part of their overall financial support to help pay for college
and provide students with work experiences while keeping them close to campus for
the purposes of their education. Since our campus has transitioned to online
learning, all or most of these student employees have left our campus, and therefore
should not be included for the purposes of the employee threshold.
As Silicon Valley's public university, SJSU has both unique opportunities and challenges
that can affect the long-term economic prosperity of our state and our region. We need to
continue to enroll students from a wide variety of backgrounds; make essential investments
for our campus to improve the learning environment; support student well-being; and ensure
a well-educated workforce vital for our future.
At SJSU, we transform the lives of our students and open the doors of social mobility.
Nearly a third of our students are the first in their families to attend college and about half
are eligible for Pell grants. More than 40 percent of incoming freshmen and 35 percent of
incoming transfer students identify as an underrepresented minority. We are proud of our
designation as both a Hispanic-Serving Institution and an Asian American and Native
American Pacific Islander-Serving Institution.
More than two out of three of our undergraduate students are from the Bay Area. The vast
majority of our graduates stay and work in the region, and SJSU sends more college
graduates into the Silicon Valley workforce than any other institution. This includes
business, engineering and science graduates, in addition to degree holders in education,
social sciences, arts and humanities and the health and human sciences.
It is vital to provide this access to low-interest loans to non-profit colleges and universities
like SJSU that are 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.
IfI can answer any questions, provide additional context, or be of assistance in any way,
please feel free to reach out to me directly.
Sincerely and with appreciation,
7----
Mary A. Papazian, Ph.D.
President
XAVIER UNIVERSITY OF LOUISIANA
Dr. Reynold Verret
President
April 16, 2019
Re: Comments on the Main Street Lending Program
To Whom It May Concern:
Xavier University of Louisiana submits these comments pertaining to t he Main Street Lending
Program. Specifically, we ask that the Federal Reserve update the guidance to clarify that non-profit-
private and public institutions (in particular colleges and universities) be eligible for the Main Street
Lending program. We are asking also that st udent workers be exempted for the purposes of the employee
threshold for eligibility requirements (under 10,000 employees).
Institutions of higher education such as Xavier rank among the largest employers in their local
communities and are key drivers of job creation in their local economies. Such institutions face a major
cash flow crisis due to reduced revenue and expenses arising from the immediate response to the COVID-
19 pandemic. These institutions are refunding nearly room and board charges, amounting to millions of
dollars per school. Some schools have also refunded tuition payments. Other costs are anticipated,
including lost revenue from summer programs, deep cleaning of campus and other needed services.
Xavier University of Louisiana educates more African Americans who become physicians than any other
higher education institution in the nation. As we grapple with the disparate impact of the COVID-19
pandemic on African Americans and other underrepresented populations, the graduates of Xavier
University of Louisiana and of HBCUs and other minority serving institutions will be essential to our
management through the epidemic and our subsequent recovery as a nation. It is vital to the nation that
such institutions have access to the Main Street Lending program.
Colleges and universities are seeking low cost loans t o address the financial impact of the COVID-19 crisis.
They must have access to credit and loans available under the Main Street Lending program.
Unfortunately, we are concerned with two major barriers keeping our institutions from accessing these
programs:
• There is confusion about the Main Street Lending program as to whether or not non-profits are
eligible. The current guidance is silent.
• Most colleges and universities employ st udents on campus as part of their overall financial support
to make their study affordable. Student workers must be exempted for the purposes of the employee
threshold for eligibility (businesses with under 10,000 employees). This needs to be clarified in
Federal Reserve guidance.
Thus we ask that Federal Reserve guidance be updated to grant to allow direct borrowing authority to
non-profit private and public inst itutions of higher education under t he Main Street Lending program.
I Dre.~el Drive, Box 46 • New Orleans, Louisiana 70125 • Telephone: {504) 520-7541 • Fax: (504) 520-7904 • presidenl@xula.edu
We hope that future guidance exempts student workers from the employee count and that they not be
included for the purposes of the employee threshold.
Institutions are vital elements of the economy of their communities and region. They are key elements of
economic development and workforce formation. Support of these institutions is to avoid the loss of a
generation due to the pandemjc. We look forward to workjng with the Federal Reserve on this and other
initiatives as responds as a nation to the COVJD-19 pandemic.
Sincerely,
Reynold Verret
President
Xavier University of Louisiana
I Drexel Drive, Box 46 • New Orleans, Louisiana 70125 • Telephone: {504} 520-7541 • Fax: (504) 520-7904 • president@xula.edu
16 Aplil 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
By e-mail
Re: Comments on the Main Street Lending Program
Dear Sir or Madam:
On behalf of Fordham University, we write to request that the Federal Reserve update guidance
to claiify that private, not-for-profit colleges and universities ai·e eligible for the Main Street
Lending program. In addition, we ask that guidance be updated so that student workers are
exempted for the purpose of the employee threshold.
Private, not-for-profit colleges and universities like Fordham University are major employers
with significant economic impact in our communities. We are facing a major cash flow clisis
caused by reduce revenue and increased spending resulting from the COVID-19 pandemic.
Fordham University has an economic impact of more than $1.4B in the New York metropolitan
ai·ea and we support more than 8,000 direct and indirect jobs.
Room and boai·d refunds alone are a significant new expense; colleges across the country expect
to refund neai·ly $8 billion in room and boai·d charges alone. Additionally, we have seen our
auxiliary sources of revenue dry up as campus events and summer programs are cancelled.
Meanwhile, costs related to the pandemic ai·e rising. Our pivot to remote instrnction required an
unanticipated investment in technology and we are also facing costs including deep cleaning
campus buildings and increased secmity expenses.
Low-cost loans like the Main Street Lending program would help Fordham University address
the financial impact of the COVID-19 crisis. However, there are two major barriers to our ability
to access this and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including Fordham University,
are often some of the largest employers in their communities, there is confusion about
whether non-profits ai·e eligible for the Main Street Lending program. We ask that the
Federal Reserve update the guidance to clarify that public and private non-profit colleges
and universities, with direct borrowing authority, ai·e eligible for the Main Street Lending
program.
• We ask that student workers be exempted for the purpose 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 institutions like ours can exempt student
workers from the employee count. Fordham University employs student workers across
campus as a part of their overall financial suppo1t to help pay for college and to provide
students with valuable work experiences. With campus closed for the spring semester,
these employees have left campus and should not be counted toward the employee
threshold.
Low-interest loans will provide vital support to private, not-for-profit colleges and universities
like Fordham University that are working to continue to fulfill our educational missions and
suppo1t our communities despite the severe financial impacts of the pandemic. We look forward
to working with you on this and other loan programs as the Federal Reserve responds to the
COVID-19 crisis.
If you have any questions, or if we may be of assistance with this or any other matter, please do
not hesitate to contact us.
Sincerely,
Lesley A. Massiah Althur Bill Colona
Associate Vice President and Special Assistant Director, Government Relations
to the President for Government Relations Federal and Urban Affairs
massiah@fordham.edu
CC: Joseph M. McShane, SJ, President
Marco A. Valera, Vice President for Administration
• ST. FRANCIS COLLEGE
THE SMALL COLLEGE OF BIG DREAMS
Office of the President
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N\V
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of St. Francis College in Brooklyn New York, I write to ask that the Federal Reserve
update guidance to clarify that private, not-for-profit colleges and universities are eligible for the
Main Street Lending program. In addition, I ask that guidance be updated so that student workers
are exempted for the purpose of the employee threshold (under 10,000 employees).
Pri·nte, not-for-profit colleges and uni,rersities like St. Francis College are employers with significant
economic impact in their communities. We are facing a major cash flow crisis caused by reduce
revenue and increased spending resulting &om the COVID-19 pandemic. In New York, private
not-for-profit colleges and universities have a nearly $90 billion economic impact and support more
than 415,600 jobs.
Room and board refunds alone are a significant new expense. Colleges across the country expect to
refund nearly $8 billion in room and board charges alone. Additionally, we have seen our auxiliary
sources of revenue dry up as campus events and summer programs are cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction required an
unanticipated investment in technology and we are also facing costs including deep cleaning campus
buildings and increased security expenses.
Low-cost loans like the ]\fain Street Lending program would help St. Francis College address the
financial impact of the COVID-19 crisis. However, there are two major barriers to our ability to
access this and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including St. Francis College, are
often some of the largest employers in their communities, there is confusion about whether
non-profits are eligible for the Main Street Lending program. We ask that the Federal
Reserve update the guidance to clarify that public and private non-profit colleges and
universities, with direct borrowing authority, are eligible for the Main Street Lending
program.
St. Francis College 1180 Remsen Street, Brooklyn Heights, New York 11201 I Tel: 718-489-5200 Fax: 718-237-8964 1sfc.edu
• We ask that student \vorkers be exempted for the purpose 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 institutions like ours can exempt student workers
from the employee count. St. Francis College employs student workers across campus as a
part of their overall financial support to help pay for college and to provide students with
valuable work experiences. With campus closed for the spring semester, these employees
have left campus and should not be counted tO\'vard the employee threshold.
Low-interest loans will provide vital support to private, not-for-pro.fit colleges and universities like
St. Francis College that are working to continue to fulfill their educational missions and support
their communities despite the severe financial impacts of the pandemic. In addition to providing
our students an innovative online higher education experience, we are offering free online classes to
senior citizens living in the community and providing free virtual events from film festivals and
webinars to support local businesses. We look forward to working with you on this and other loan
programs as the Federal Reserve responds to the COVID-19 crisis.
In Peace and Friendship,
Miguel Martinez-Saenz
President
St. Francis College 1180 Remsen Street, Brooklyn Heights, New York 11201 I Tel: 718-489-5200 Fax: 718-237-8964 1sfc.edu
Housing Finance and Regulatory Affairs
David L. Ledford
National Association Executive Vice President
of Home Builders dledford@nahb.org
April 16, 2020
Board of Governors of the Federal Reserve System
20th and Constitution Avenue, NW
Washington, DC 20551
Re: Main Street New Loan Facility and Main Street Expanded Loan Facility
Submitted by electronic delivery to: regs.comments@federalreserve.gov
To Whom It May Concern:
On behalf of the National Association of Home Builders (NAHB)1, I am writing to thank you for t he opportunity to
offer our input as you establish programs or facilities to provide liquidity to the financial system that will support
lending to businesses, States or municipalities as provided for in the Coronavirus Aid, Relief and Economic
Stimulus (CARES) Act. Providing financing to small and m id-sized businesses has significant potential to sustain
businesses that are the backbone of the country's economy and will be critical to leading the country to an
economic recovery. In particular, NAHB is interested in the parameters of the Main Street Lending Program's
New Loan Facility and Expanded Loan Facility and ensuring the availability of these facilities to our members.
As the Board of Governors of the Federal Reserve (Federal Reserve) considers the details of the Main Street New
Loan and Expanded Loan Facilities, NAHB urges the agency to specify that home builders, remodelers,
multifamily builders and property owners, land developers and property managers are eligible to access and
utilize the program. Making emergency financing available to these businesses will help prevent a reoccurrence
of the devastating losses experienced by the housing industry during the Great Recession and will be key to a
quicker economic recovery as the coronavirus abates in the United States.
A new study from NAHB shows that housing stands poised to lead the economic rebound once social distancing
and other virus mitigation efforts show success in containing t he coronavirus pandemic. Building 1,000 average
single-family homes creates 2,900 full-time jobs and generates $110.96 million in taxes and fees for all levels of
government to support police, firefighters and schools, according to NAHB's National Impact of Home Building
and Remodeling report. 2 Similarly, building 1,000 average rental apartments generates 1,250 jobs and $55.91
million in taxes and revenue for local, state and federal government. Moreover, $10 million in remodeling
expenditures creates 75 jobs and nearly $3 million in taxes.
The inclusion of home builders, remodelers, multifamily builders and property owners, land developers and
property managers is especially important in light of the major flaw in t he Small Business Administration's (SBA)
interim final rule, "Business Loan Program Temporary Changes; Paycheck Protection Program," issued on April 2,
2020 by U.S. Department of the Treasury (Treasury) and SBA. Specifically, the interim final rule appears to
exclude many home builders as well as land developers and multifamily property owners from eligibility in the
1
NAHB is a Washington DC-based trade association representing, among others, companies involved in t he
development and construction of for-sale single-family homes, including homes for first-time and low- and
moderate-income homebuyers, as well as the production and management of multifamily rental housing.
2
https://www. nah bclassic.o rg/generic.aspx ?section ID=734&genericContentl D=272642&cha nnel ID=311
120115th Street NW I Washington, DC 20005 I T 202 266 8200 I 800 368 5242 I nahb.org
Main Street Lending Program
April 16, 2020
Page 2
Paycheck Protection Program (PPP). These businesses have qualified payroll expenses, mortgage and rent
obligations, utility payments and other eligible costs that would appear to make them eligible for the program
except for the prohibition as found in SSA's Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2.
Many of NAHB's members are small to mid-sized businesses, meeting the profile of those the Main Street
Program is intended to support. However, many of these companies will not be willing or able, or even need, to
borrow $1 million. We ask t hat the Federal Reserve consider lowering the minimum loan amount or consider a
program that would allow two or more companies to form a coalition and apply for a joint loan.
All U.S. federally insured depositories, banking holding companies and savings and loan holding companies
should be eligible to provide the loans and loan guarantees to the small and mid-sized businesses. NAHB
requests the Federal Reserve clearly state there is no minimum asset level of eligible lenders. Many home
builders, remodelers, multifamily builders and developers rely on their community banks for financial services.
Many may not have relationships with large, commercial lenders.
We understand that qualified payroll expenses apply only to employees as defined in the National Labor
Relations Act and do not include payments to subcontractors. However, home builders, remodelers, multifamily
builders and developers rely on subcontractors to perform many critical components of building single-family
homes and multifamily projects. To be responsive to the financial responsibilities of these businesses, we ask
that the Federal Reserve consider how certain jobs performed by subcontractors could be valued as though
performed by employees when calculating the maximum loan amount and these dollars be allowed to pay
subcontractors. We believe supporting subcontractors who would not have the means to take on debt with the
features required by the Main Street Lending Program is as critical t o sustaining a builder's and developer's
business as maintaining W-2 employees.
Last, NAHB urges the Federal Reserve to consider working with Treasury to allow t he portion of the loan t hat is
used toward payroll and related expenses to be forgiven.
Thank you for considering our recommendations. Please contact Becky Froass, Director, Financial Institutions
and Capital Markets, at rfroass@nahb.org or 202-266-8259 with any questions.
Sincerely,
v~✓-~
David L. Ledford
Executive Vice President
Housing Finance and Regulatory Affairs
120115th Street NW I Washington, DC 20005 I T 202 266 8200 I 800 368 5242 I nahb.org
COLLEGE OF
MOUNT SAINT VINCENT
OFFICE OF THE PRESIDENT
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution A venue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
I write to ask that the Federal Reserve update guidance to clarify that private, not-for-profit colleges and
universities, including the College of Mount Saint Vincent, are eligible for the Main Street Lending
program. In addition, I ask that guidance be updated so that student workers are exempted for the purpose
of the employee threshold.
Private, not-for-profit colleges and universities like Mount Saint Vincent are major employers with
significant economic impact in their communities. We are facing a major cash flow crisis caused by
reduce revenue and increased spending resulting from the COVID-19 pandemic. The College has an
economjc impact of $127,800,000 on our community, a part of the $90 billion New York's private not-
for-profit colleges and universities contribute to the economy.
Our revenue streams have dried up. Cohorts of international students and second-degree students slated
for this summer have been cancelled, as have auxiliary programs. These losses, plus the reduction in
assets from market fluctuations represent more than 20 percent of the College's annual operating budget.
Meanwhile, costs related to the pandemic are risi ng. Our pivot to re mote instruction required an
unanticipated investment in technology and we are also facing costs including deep cleaning campus
buildings and increased security expenses. The College's
Low-cost loans like the Main Street Lending program would help the College and other institutions of
higher learning address the financial impact of the COVID-19 crisis without comprising their educational
mission or service the students with limited means. However, there are two majo r barriers to our ability to
access this and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including College of Mount Saint
Vincent, are often some of the largest employers in their communities, there is confusion about
whether non-profits are eligible for the Main Street Lending program. We ask that the Federal
Reserve update the guidance to clarify that public and private non-profit colleges and universities,
with direct borrowing authority, are eligible for the Main Street Lending program.
• We ask that student workers be exempted for the purpose of the employee threshold for
eligibility. We hope that future guidance from the Federal Reserve will make it clear that
institutions like ours can exempt student workers from the employee count.
We look forward to working with you on this and other loan programs as the Federal Reserve responds to
the COVlD-19 crisis.
Sincerely,
6301 RIVERDALE AVENUE. RIVERDALE. NEW YORK 10471·1093 • p; (718) 405-3440 • MOUNTSAINTVINCENT.EDU
From: Office_of_Secretary@FRB.GOV
Sent: Thursday, April 16, 2020 2:56 PM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending -- White Paper
Attachments: 20200416144059077050_attachment0000.png.final.pdf; 20200416144059077050
_attachment0001.pdf.final.pdf
‐‐‐‐‐ Forwarded Message ‐‐‐‐‐
From: [keller.troy@dorsey.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 2:41:01 PM
Subject: Main Street Lending ‐‐ White Paper
NONCONFIDENTIAL // EXTERNAL
Attached please find a short white paper about the main street lending facilities. This paper describes two mid‐sized
companies headquartered in Utah and some of the reasons why the Main Street Lending program does not currently
present sufficient incentive to accomplish its objective of enabling companies like them to maintain their employee base
during the COVID‐19 crisis. We believe that not much would be needed to tip the scales. For one, the program could
offer more capacity under the new facility option. More significantly, it could provide meaningful economic incentives.
We suggest below‐market interest rates, for instance, such as below the 2% per annum cap referenced in the CARES Act.
Another option could be deferral of interest accrual for a year, as opposed to deferral of payment.
Don't hesitate to reach out with questions or if you would like to discuss.
Troy M. Keller
Of Counsel
[Description: cid:736091019@03082011‐0D5D]
DORSEY & WHITNEY LLP
111 S. Main Street, Suite 2100 | Salt Lake City, UT 84111‐2176
1401 New York Ave, N.W., Suite 900 | Washington, D.C. 20005‐2102
P: 801.933.4073 Cell Phone Number
CONFIDENTIAL COMMUNICATION
E‐mails from this firm normally contain confidential and privileged material, and are for the sole use of the intended
recipient.
Use or distribution by an unintended recipient is prohibited, and may be a violation of law. If you believe that you
received this e‐mail in error, please do not read this e‐mail or any attached items. Please delete the e‐mail and all
attachments, including any copies thereof, and inform the sender that you have deleted the e‐mail, all attachments and
any copies thereof.
Thank you.
1
The Main Street Lending Program Can do More
After analyzing the terms of the Main Street Lending Facilities (MSLF), some mid-sized companies find
themselves faced with a difficult choice. Do t hey respond to the economic conditions they are faced
with and adapt as they would in the ordinary course, such as by making tough decisions like scaling back
operations, deferring investment in new facilit ies and equipment, postponing earned bonus payments,
and worst of all, furloughing employees and deferring compensation? Or alternatively, do they take on
the additional debt burden (and accompanying operating restrictions) of the MSLF and use those
proceeds to maint ain their employee base during the crisis?
The first option would in effect transfer the employee cost burden to state and federal governments in
the form of unemployment benefits and stimulus payments. This money of course will never be repaid
to the government. Under the second option, companies would ta ke the loans offered by the MSLF and
ret ain the workforce, albeit on a significantly less productive basis, given sales and/or operations w ill
have been impacted by the crisis. In this scenario, companies would be paying full salaries and benefits,
while risking the long-term viability of their business to operate with the additional debt burden.
From a government perspective, state and local governments wou ld seem to benefit greatly by
companies taking the MSLF. Governments would still receive the tax revenue from payroll taxes
associated with the reta ined employees' salaries and would pay out less in unemployment benefits.
Clearly, this is a better scenario fiscally for the government. The companies would not only be required
to repay the loans, but be subject to operating restrictions, and the senior employees (many of whom
have already deferred compensation) are prohibited from being rewarded through increased
compensation for a year after the money is repaid if they manage the company through this crisis
successfully.
This is not an attractive option for the companies. CEOs and CFOs are already trying to make the right
decisions to make their companies successful for employees, shareholders, vendors, customer and
community. They want to find a responsible way to keep their employee base intact. But as the terms
of the MSLF currently st and, the pathway it offers would ordinarily be considered a bad business
decision, i.e., by retaining staff and incurring additional inefficient debt, to avoid having the
unemployment and stimulus mechanisms that are already in place, take responsibility for what they
were designed for.
Two mid-sized companies in Utah are facing this choice.
Confidential Business Information
Confidential Business Information
4850-2401-70821.3
Confidential Business Information
While in concept intriguing, the MSLF as it is currently structured is not overly attractive. The interest
rates offered are, depending on credit profiles, similar to prevailing market rates, and availability is
based on relatively conservative debt-to-ebitda ratios using an EBITDA measure that has not been
clearly defined. (For example, it is unclear whether stock compensation and other non-cash infrequent
items will be added back to EBITDA for the calculation). The loans are also accompanied by meaningful
operating restrictions on things like executive pay, shareholder dividends, debt paydowns and stock
buybacks. Further, borrowers in most cases will need to incur costly waivers and consents from existing
lenders in order to incur the additional debt.
Since it is intended that the proceeds of the MSLF will be used to bridge payroll obligations-as opposed
to traditional uses of funds, such as refinancing pre-existing debt or making capital im provements-the
liquidity offered by the MSLF will turn into a burden in future years when borrowers are left with higher
debt levels and ongoing operating restrictions. Given this reality, if the goal of the MSLF is to help (and
Confidential Business
encourage) companies like ,Information
-. ___JTiaintain their employee base, the MSLF needs to offer
more. Not much would be ~ to tipfne scales. For one, the MSLF could offer more capacity under
the new facility option. More significantly, it could provide meaningful economic incentives. We
suggest below-market interest rates, for instance, such as below the 2% per annum cap referenced in
the CARES Act. Another option could be deferral of interest accrual for a year, as opposed to deferral of
payment. Some flexibility on the executive compensation restr ictions in the out years of the loans
should also be afforded, or companies will struggle to retain talent.
We understand the Fed's need to leverage the capital Treasury is providing under the CARES Act, and as
a result it needs to make loans that are ultimatelr oaid. Howeve\ the Fed has the flexibility to do
Confidential Business
more than what it has proposed. Companies like Information • an probably weather the storm by
contracting their operations and slashing strategic plans, 6ut more attractive loan terms would help
them maintain employment levels-all without the MSLF becoming a grant program.
4850-2401-7082\3
LEMOYNE
O ffice of the President
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution A venue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of Le Moyne College, I write to ask that the Federal Reserve update guidance to clarify
that private, not-for-profit colleges and universities are eligible for the Main Street Lending program.
In addition, I ask that guidance be updated so that student workers are exempted for the purpose of
the employee threshold (under 10,000 employees).
Private, not-for-profit colleges and universities like Le Moyne College are major employers with
significant economic impact in their communities. We are facing significant loss of revenues and
COVID-19 related costs, and some colleges will likely face major cash flow crises caused by these
financial impacts. In New York, private not-for-profit colleges and universities have a nearly $90
billion economic impact and support more than 415,600 jobs. In Central New York, Le Moyne
College generates an economic impact (direct and indirect) of more than $223 million annually.
Room and board refunds alone are a significant loss of revenues and Le Moyne College credited
about 22% (or approximately $4.3 million) of our annual room and board revenues back to students'
accounts, a huge cost that could not have been anticipated. We understand that Colleges across the
country expect to refund nearly $8 billion in room and board charges alone. Additionally, we have
seen our other auxiliary sources of revenue substantially reduced or eliminated as campus events and
summer programs are cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction required an
unanticipated investment in technology and we are also facing costs including deep cleaning campus
buildings and increased security expenses. We will continue to experience significant costs as we
prepare for remote education for our summer and prepare for social distancing protocols on campus
in the fall (if not also continuing remote education for some or all of our fall semester).
Low-cost loans like the Main Street Lending program could help Le Moyne College address the
financial impact of the COVID-19 crisis if we were to face additional substantial costs/losses in the
2020-2021 academic year. Ho"\vever, there are two major barriers to our ability to access this and
other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, including Le l\foyne College, are
often some of the largest employers in their communities, there is confusion about whether
non-profits are eligible for the Main Street Lending program. We ask that the Federal
Reserve update the guidance to clarify that public and private non-profit colleges and
universities, with direct borro\ving authority, are eligible for the Main Street Lending
program.
• We ask that student workers be exempted for the purpose of the employee threshold for
eligibility (businesses with under 10,000 employees). While this is less important to Le
Moyne College in this particular case as we have approximately 700 full and part-time
emp.loyees excluding student employees, such a clarification would be critically Lmportant to
other instituti.o ns where the inclusion of student workers in determining the employee
threshold now precludes them from participating LO the loan program. We hope that future
guidance from the Federal Reserve for all stimu.lus grant and loan programs will make it clear
that institutions like ours can exempt student workers from the employee count. Le Moyne
College employs student workers across campus as a part of their overall financial support to
help pay for college and to provide students with valuable work experiences. \With campus
closed for the spring semester, these employees have left campus and shou.ld not be counted
tmvard the employee threshold.
Low-interest loans could provide vital support to private, not-for-profit colleges and universities that
are working to continue to fulfill their educational missions and support their communities despite
the severe financial impacts of the pandemic. We look forward to working with you on this and
other loan programs as the Federal Reserve responds to the COVID-19 crisis.
Sincerely,
~ r£~
Linda M. LeMura, Ph.D.
President
G rcatness Meets Goodness
Linda M. LeMura. Ph.D. , President • 1419 Salt Springs Road, Syracuse, N.Y. 13214-1301
Phone: (315) 445-4120 • Fax: (315) 445-4691
the 1228 Euclid Avenue, 4'' Floor
Cleveland, Ohlo 44115
NRP Phone: 216.475.8900
Fax: 216.475.0700
group LLc w,vw.rupuroup.com
April 15, 2020
Federal Reserve
Washington, DC
Re: Main Street Lending Program
To Whom It May Concern,
I appreciate the opportunity to provide some thoughts for your consideration concerning the
Main Street Lending Program announced on April 9 th to assist businesses that are coping with the
economic impacts brought about by the spread of the coronavirus. The NRP Group was founded
in 1994 with a goal to develop, construct, manage and own apartment communities that support
residents' lifestyles and give them homes of which they can be proud. We are one of the largest
developers of affordable housing in the country, with just over 15,100 affordable units under
construction or in operation, along with another 7,900 units of market rate housing under
construction or in operation as of March 31st. We have projects located in twelve states, with
our primary investments in Texas, Ohio, Florida and North Carolina.
NRP Enterprises, LLC (NRP), our parent company, is structured as a state law limited liability
company ("LLC") that is treated as a partnership for federa l income tax purposes. This is a
common structure in the real estate business and in some other industries.
I am seeking guidance as to how the various limitations associated with the Main Street Lending
Program will be applied to so-called "flow through entities," including partnerships and LLCs that
are taxed as partnerships, which are not themselves subject to federal income taxes, but which
"pass through" their income and other tax items to their owners.
Section 4003{c){3){A)(ii)(II) of the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") provides that until the date that is 12 months after the date on which the direct loan is no
longer outstanding, no dividends or other capital distributions with respect to the common stock
of the eligible business are to be paid. Partnerships and LLCs do not issue stock, but they do make
distributions to their partners and members (hereinafter, collectively referred to as "partners").
I understand and can implement a limitation on the distribution of profits to partners which are
similar to dividend payments made by corporations. However, there should be an exception to
allow partnerships and LLCs taxed as partnerships (hereinafter, collectively referred to as
"partnerships") to distribute cash to partners to enable the partners to pay the tax liability
associated with the income that is allocated to the partners on their Schedule K-1 each year.
Since a corporation is not a flow through entity, the tax liability is paid by the corporate entity
and funds from operations can be used to pay such liability. Contrast this with a partnership
where an entity level tax is not imposed, but rather, the tax is imposed at the partner level as
income is allocated to the partner. Not allowing for income tax distributions to cover federal,
state and sometimes local tax liabi lities will be a hardship on partners who may not be otherwise
able to satisfy their tax obligations.
Section 4004 of the CARES Act provides for a limit on compensation paid to certain officers and
employees whose total compensation exceeds either $425,000 in calendar year 2019 or
$3,000,000 in calendar year 2019. Guidance is needed to understand how these limitations will
apply, if at all, to a partner in a partnership. Guaranteed payments for services understandably
could reasonably be included in determining compensation paid to a partner. However, for
partnerships that do not pay guaranteed payments (and for amounts of partnership income that
are in excess of guaranteed payments), it would not be appropriate to treat a partner's share of
distributable income as compensation as the re is no way to apply a limit to this income allocation
under current partnership law.
Thank you for your consideration of these items. Please contact me at (216) 584-0969 if you
should have any questions or need any additional information.
Sincerely,
James W. Finnerty
Vice President - Tax
Error! Unknown document property name.
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:51 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200416152528424693_attachment0000.docx.final.pdf
----- Forwarded Message -----
From: "Wiles, David R." [DWiles@GOULSTONSTORRS.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 3:25:30 PM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
Attached for your consideration are some questions, issues and comments regarding the new Main Street Lending
Facilities.
Thank you.
David R. Wiles
(212) 878-5150 (office)
Cell Phone Number
1
Questions and Issues on the Main Street Lending Facilities program.
In counseling business clients on the new Main Street Lending Facilities program (the Program),
and in discussions with other industry participants including the LSTA, we have encountered a
number of issues that raise the need for guidance and flexibility. These issues include the
following:
1. Who is the Borrower. How will a "borrower" be decided or determined in each loan?
E.g., will each bank be able to use its customary credit practices to determine whether
one or more entities qualify as a "borrower" or, collectively, as "borrowers" together?
a. In many loan transactions, there may be several borrowers (who may be jointly
and several liable), and/or a principal borrower with a parent entity guarantor and
subsidiary guarantor. If there are such guarantors, would they be included in the
concept of "borrower" - for purposes of calculating EBITDA, for example?
b. In addition, in many businesses may operate through multiple legal entities with
different regions, lines of business or service roles in the group.
2. Distributions for Taxes. Many business entities, including LLCs, partnerships and
S-corporations, are disregarded entities for tax purposes, and thus pass-through entities
that do not pay taxes (and they pass through distributions to cover all taxes due and
payable by their investors). Will such pass-through entities be permitted to make
distributions to their investors to cover tax liabilities? This seems critical to make this
Program work in practice, and effectively function for many of the real businesses that
will be in dire need of additional business funding due to the current pandemic.
3. Interest. Are there limitations on how interest will accrue and be paid on Program loans?
Can borrowers "PIK" some interest, by adding them to the loan principal, if that is agreed
with the bank lender(s)?
4. Calculation of EBITDA for Loan Size. Will EBITDA in each calculation be limited
strictly to "earnings before interest, taxes, depreciation and amortization"? Or, as is very
common in business loan agreements, or will other add-backs or adjustments be
permitted - such as for unusual, non-recurring or similar costs or losses?
5. Calculation of Debt. How will the Fed calculate or define "debt" for purposes of the
Program, including in determining the maximum loan size?
6. Use of Proceeds. Other than a prohibition on usage of proceeds to repay existing debt,
there is no express restriction on how a borrower may use loan proceeds under the
Program. Will the Fed be providing further guidance on how loan proceeds may be used?
7. Intercreditor Agreements. Will the SPY plan to address intercreditor agreements in
either new or expanded loans?
a. For any new loan to a Borrower, if that Borrower has other existing loans or lines
of credit, the existing bank lenders will insist on an intercreditor agreement to
work out any issues - especially if the existing loan is secured by collateral, and
the new loan is unsecured.
b. The same could be true for expanded loans as well. Banks will need to address
intercreditor issues, unless perhaps the expanded loan is made by the identical
bank lenders that hold the existing loan (to be upsized).
8. Banks and other Lenders. If there is a syndicate of lenders, which includes both U.S.
banks and other non-bank lenders (or foreign banks) in the syndicate, would that lender
group be considered eligible, as an "Eligible Lender," to make a new or expanded loan
under the Program? Does it matter if the majority of the existing or new loans are held
by U.S. banks?
9. Banks holding 5% interest. Can a bank se11 its 5% interest in a Program loan?
10. Documentation of Program loans. Will the SPY be involved in the documentation of
each new or expanded loan under the Program - that is, in the key terms and negotiation
of each loan agreement or credit agreement?
11. Participation Agreements. How will the 95% participation of the SPY in each Program
loan be documented? Will there be standard form or forms of participation agreement to
be used for all loans?
12. Voting Rights and Management of the Loans. Will the SPY be involved in day to day
decisions affecting each new or expanded loan under the Program? Will the SPV
exercise any voting rights under a participation agreement, and will it be involved in loan
defaults and enforcement matters?
13. Real Estate Businesses. In many real estate related transactions, there are management
companies that collect fees and help manage various real estate projects (each of which
may be owned by a separate single-use entity), and those management companies will
have some employees. There may also be service companies involved, which provide
2
employees and their services to various affiliated projects. Is there any reason that a real
estate management company, or service company, could not be a Borrower under a
Program loan?
14. Employees and Affiliation rules. Will there be any affiliation rules or aggregation of
related entities, when it comes to counting the number of employees of, or involved in, a
certain business?
3
ALTERNATIVE
CREDIT COUNCIL
LENDING
FOR GROWTH
Submitted via email to: regs.comments@federalreserve.gov
16 April 2020
Main Street Lending Program and Term Asset-Backed Securities Loan Facility
The Alternative Credit Council 1 welcomes the Fede ral Reserve's announcement of the Main Street
Lending Program (MSLP)2 and recent broadening of t he Term Asset-Backed Securities Loan Facility
(TALF)3 • We commend the speed at whi ch the Federal Reserve's has initiated these programs to
mitigate the immediate li quidity needs faced by some firms due to the public health measures
enacted in response to the COVID-19 pandemic. The MLSP and TALF will provide U.S. businesses
and their workforces with great assurance that they will be able to access the financial support they
need to get through the COVID-19 crisis.
Our members are significant providers of credit to mid-market businesses and, based on
discussions with those firms, we wish to offer the fo llowing comments to ensure the MSLP and TALF
will successfully achieve their objectives.
Main Street Lending Program
Eligible lenders:
• Non-bank lenders are significant lenders to businesses across the U.S., however the definition
of "eligible lender"4 does not appear to include these entities. This wi ll potential ly restrict the
ability of borrowers to benefit fro m the scheme where their primary le nding relationship is w ith
a non-bank entity. We would therefore recommend that the definition of eligible lender is
amended to allow non-bank lenders to participate in the scheme either directly or indirectly by
col laborating with eligible lenders as their agents.
• While a borrower with an existing credit agreement with non-bank lenders could simply invite
an eligible lender to join the lending syndicate (making the Expanded Loan Facility avai lable),
any rights of first offer or similar provisions that require any incremental term loan be offered
to existing lenders prior to being offered to new lenders, might restrict this option.
• It is unclear how the "eligible lender" requi rement wou ld affect bo rrowers with syndicated term
loans that have been arranged by eligible lenders but have been sold, al l or in part, to ultimate
holders that are not eligible lenders.
Eligible loans·
• Our members would welcome greater clarification on how EBITDA should be calculated for the
purposes of the maximum loan size for eligible loans. This should confirm that the calcu lation
1
The ACC currently represents over 170 members that manage over $400bn of private credit assets. The ACC's core
objectives are to provide direction on policy and regulatory matters, support w ider advocacy and educational efforts, and
generate industry research with the view to strengthening the sector's sustainability and wider economic and financial
benefits.
2
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm
3
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm
4
Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding
companies.
ALTERNATIVE
CREDIT COUNCIL
LENDING
FOR GROWTH
of EBITDA can incorporate any adjustments that the lender and borrower would normally make
to reflect the unique facts and circumstances of that businesses. Any EBITDA 'certification' can
be done through auditors, last filed accounts or certificates from CFOs.
• A secondary issue re lates to the reference to "bank debt" within the definition of eligible loans.
A narrow interpretation of this term wou ld preclude any borrower whose credit facilities are
with non-bank lenders from participating in this program. This is un likely to be the intention
but clarification on this point would be helpful.
Eligible Borrowers·
• Clarification should be provided on how the definition of "eligible borrowers" should be applied
to international businesses with large U.S. subsidiaries or branches. Such businesses should
not be undu ly restricted from accessing the scheme to ease their immediate liquidity needs.
Amortization·
• The required level of amortization has not been specified in the definition of eligible loans. This
may create an issue for borrowers with existing credit agreements that have a longer weighted
average life to maturity than the loans to be obtained under the Expanded Loan Facility.
Accordion provisions wi ll typica lly require that any incremental term loan have a weighted
average life to maturity that is no shorter than the weighted average life to maturity of the
existing term loans. As a result, if the amortization of the loans results in a shorter weighted
average life to maturity than any existing term loan, participation in the Expanded Loan Facil ity
will like ly not be permitted absent an "inside maturity'' basket or consent of the borrower's
existing lenders.
Faci lity Termination:
• Clarification on the timing of and how any decision to extend the Facility wou ld be confirmed by
the Board and the Treasury Department wou ld be he lpful.
Term Asset-Backed Loan Facility (TALF)
Eligible Borrower and Issuers
• The latest term sheet describes Eligible Borrowers as needing to be "a U.S. company is defined
as a business that is created or organized in the United States or under the laws of the United
States and that has significant operations in and a majority of its employees based in the United
States." On a narrow reading of this definition, many customary investment fund arrangements
managed by U.S. entities would not fall within the definition of an eligible borrower. We would
therefore welcome a clarification that the Eligible Borrower category also includes investment
funds that are U.S.-organized and managed by an investment manager that has its principal
place of business in the U.S. Similarly, we would argue that limiting eligible issuers to narrowly
defined U.S. companies would preclude a large number of issuers from participating in the
program.
2
ALTERNATIVE
CREDIT COUNCIL
LENDING
FOR GROWTH
Eligible Collateral
• The term sheet states that "to be eligible collateral, all or substantially all of the underlying credit
exposures must be newly issued". We believe that this restriction will significantly reduce the
effectiveness of the program as there are many pre-existing loans that may need to be included
in newly issued CLOs. We would suggest that the Federal Reserve provides for an appropriate
look-back period to allow such existing loans to qua lify.
CLO loan substitution
• We strongly support the inclusion of leveraged loans and CLOs in the category of Eligible
Col lateral. However, we would argue that actively managed CLOs, should be also considered
for inclusion in the program. Managed CLOs are the predominant form of securitization in the
market. Active management is genera lly restricted and permits only limited discretion on the
part of the CLO manager with a view to ensure better risk management of the CLO. As a
minimum, we wou ld ask that the Federal Reserve clarifies that sales of problem or defaulted
loans and reinvestment of the proceeds of such sa les is possible under the program.
We believe that clarification on these points wi ll ensure that the MSLP and TALF wil l meet their
objectives. We would we lcome the opportunity to discuss these comments further at your
convenien ce.
Yours sincerely,
Jiri Krol
Globa l Head
Alternative Credit Council
3
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:52 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main St Lending Advocacy
Attachments: 20200416160037451425_attachment0000.docx.final.pdf
‐‐‐‐‐ Forwarded Message ‐‐‐‐‐
From: Arthur Hughes [awhughesiii@gmail.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 4:00:39 PM
Subject: Main St Lending Advocacy
NONCONFIDENTIAL // EXTERNAL
1
The non-profit agency I help lead has a 100 year history of helping families in Massachusetts. Last year,
we delivered home visiting services to over 15,000 infants and toddlers. Our skilled staff of 864
professionals made this possible. And yet, because there are more than 500 of us, we were left without
support for sick leave, paycheck protection, and forgivable loans. We are held to different criteria for the
employee retention credit. We are left out of the economic stimulus that is essential for our
organization's survival.
The lack of cash flow to our agency, and others like ours, is leading to job loss. Without revenue from
service delivery, we cannot pay staff. The longer term impact is that families and our service sector will
suffer for decades. Across the country, programs like ours are closing, furloughing staff, and stopping
services to children who need our help.
With access to favorable lending terms and with the same stimulus funding that was offered to smaller
non-profits, we can continue to employ our staff of nurses, therapists, speech-language pathologists,
educators, and other skilled specialists. We can continue to support children and families. We can avoid
an erosion of our social service sector. We need immediate action. Non-profit agencies of our size must
be included in the Main Street Lending Program and any subsequent mid-size loan programs.
THE USLNG ASSOC I ATION
April 16, 2020
Board of Governors
Federal Reserve System
Washington , DC 20551
Re: Main Street Lending
To Whom It May Concern:
LNG Allies (1be USLNG Association) represents numerous U.S. firms that are developing facilities for the liquefac-
tion and export of n atural gas from th e United States. Several of these firms urgently require financing due to the
exigent circumstances presented by the coron avirus disease 2019 ("COVID-19") pandemic and desire to receive
loans from eligible lenders under the new "Main Street Lending" program to maintain payroll and retain employees
during this difficult time. These are also businesses that are created or organized in, or under the laws of, the United
States, with significant operations in and with a majority of employees based in the United States.
Unfortunately, one of the requirements in the Main Street Lending program could be problematic for certain U.S.
LNG export project d evelopers. As stated in the term sheet, the maximum loan size is based on a formula that factors
in a company's earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2019. As currently stat-
ed, this formula does not allow for additional adjustments to EBITDA, including the exclusion of various non -cash
or non -recurring charges (such as stock-based compensation) which startup companies often do when reporting
their metrics. Moreover, the formula factors in a company's existing outstanding b ut undrawn debt. Because most
U.S. LNG development companies are not EBITDA positive (and many also have outstanding indebtedness), this
formula is particularly problematic and could cause them not to qualify for a Main Street loan.
The U.S. LNG export industry is still in a start-up stage. While six projects are operating and another two are under
construction, a dozen more projects (and three existing project expansions) have received their requisite federal au-
thorizations but have not yet taken a final investment decision . These 15 new and expanded projects could expand
the existing U.S. LNG industry by as much as 165% and would create hundreds of thousands ofjobs and trillions of
economi.c activity. It would be truly tragic if some of the pre-revenue or early revenue U.S. LNG project developers
were not able to survive the COVID-19 pandemic because of an inability to tap into the Main Street Lending pro-
gram. For this reason, we urge you to modify the program accordingly.
Specific recommendation: Provide flexibility in EBITDA limitations for small companies, where EBJTDA could be
replaced with "tangible net worth" metrics, allowing growth businesses to qualify for reliefyet also protect the fiscal
basisfor the loan. Other metrics are also available to give these businesses the flexibility needed.
Thank you for the opportunity to present these comments.
Sincerely,
Fred I-I. Hutchison
President & CEO
700 12TH STREET NW • SUITE 700 • WASHINGTON DC 20005 • (240) 8 13 -9564 • WWW.LNGALLIES.COM
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:54 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200416161024807559_attachment0000.pdf.final.pdf
----- Forwarded Message -----
From: "Ivashina, Victoria" [vivashina@hbs.edu]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 4:10:32 PM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
Please find attached comments concerning Main Street Lending Program.
Best regards,
Victoria
Victoria Ivashina
Lovett-Learned Professor
Harvard Business School
Baker Library 233, Boston, MA 02163
Phone: (617) 495-8018
http ://www. hbs.edu/vivashina
1
When a Pandemic Collides with a Leveraged Global Economy
Mike Harmon and Victoria lvashina1
April 16, 2020
Over the decade since the end of the Global Financial Crisis, a low interest rate environment has attracted
both borrowers and investors to aggressively participate in buoyant leveraged credit markets. TI1is
resulted in these markets reaching an unprecedented level ofsize and risk that had largely avoided
disruption for many years. COVJD-19 and the associated global response has delivered a severe economic
shock, which is novel in its nature including the depth, breadth, and speed ofits impact. Its collision with
a highly leveraged corporate sector has created unique financial problems that remain largely unaddressed
by the current proposals for federal assistance.
Financial frictions were at the heart of the 2008 crisis. Then, a relatively small initial shock
triggered a devastating chain reaction that a year later brought to a halt a weak, interdependent
and obscure banking system. The shock we experience today is fundamentally more economic,
directly impacting virtually all firms, consumers, and investors at their very core and with
u nprecedented speed. While the role of financial fragility is not the centerpiece of today's
challenges, there are important financial frictions that are affecting a significant part of the
corporate sector and, if not addressed, could amplify the initial economic shock and slow down
economic recovery.
The problem is that the global corporate sector has been caught in the COVID-19 shock with
unprecedented levels of financial leverage. This has emerged over more than a decade long
environment of low interest rates and elevated risk-taking. Global debt on non-financial
corporations was $71 trillion at the end of 2018, according to S&P, up 15% from 2008 and
representing 93% of globaJ GDP. Of this, we estimate that almost $6 trillion sits on the balance
sheets of companies that would be characterized as highly leveraged.2 This segment represents
the most troubling financial battleground of the pandemic crisis, as high leverage threatens to
amplify distress and impede access to new capital.
1 Mike Ham1on (gaviotaadvisors@gmail.com) is the Managing Partner at Gaviota Advisors, LLC; his
previous experience includes over twenty years as a special situations investor with Oaktree Capital
Management. Victoria Ivasllina (vivasllins@hbs.edu) is the Lovett-Learned Professor at Harvard
Business School and a research associate at the National Bureau of Economic Research.
We are very grateful to several colleagues and professionals at Credit Suisse, Debtwire, Harvard
University, Latham & Watkins, Lazard, Morgan Stanley, LST A, Oaktree Capital Management,
Reorg.com, Stanford University, and UBS for their comments and assistance with this article.
2 Includes leveraged loans, high yield debt, and private debt and is based on estimates provided by UBS
research.
1
Notably, the risk profile of debt in the leveraged credit segment has increased since the last
downturn, as reflected in higher leverage ratios and lower credit ratings. (Figure 1 summarizes
some of the key metrics in the U.S. leveraged loan market.) During prior cycles, such a
deterioration forced the weakest companies to restructure, mostly due to actual or impending
breaches in credit agreement covenants.3 But the last decade of robust debt markets came hand-
in-ha nd w ith looser creditor governance terms and weaker covenants. Among other signs of
contractual weakness, the share of so-called "covenant-lite" leveraged loans roughly quadrupled
to about 80%, essentially stripping the early warning system away from most credit agreements.
Borrowers have also been able to artificially inflate their earnings for loan tests and debt
incurrence through more liberal "EBITDA addbacks". Thus, in this up-cycle, even as credit
quality has deteriorated, defaults have remained below long-term averages and many weaker
firms were able to avoid restructuring their debt w hen they underperformed. 4 These so-called
"zombie firms", w hich are overleveraged and in some cases insolvent, are significantly more
vulnerable to a shock like the one we face today.
This i s the background against which the firms are facing the main financial challenge of an
unforgivingly severe and rapid pandemic: how to source enough liquidity, and how to source it
quickly.
Step one for many firms has been to d raw as much as they ca n from their revolving lines of credit
to fund a portion of these needs. According to JP Morgan, as of the end of March, over $207
billion (77% of the funds available in the facilities) had been borrowed by large companies
through revolver drawdowns, of which borrowings by below investment grade firms accounted
for about half.5, 6 For structural reasons, revolving lines are mostly funded by banks. Thanks to
better governance, and stricter regulatory and supervisory pressures from the last decade, banks
are confronted this shock from a much more stable position. In 2008, given the fragility of the
banking sector, a key motive for drawdowns on revolving lines was the lack of confidence in the
continuity of the banking system.7This time around, the large drawdowns are more of a reflection
of the depth of the economic problem. But will the revolver draws be enough to bridge these
3 "European Restructuring Report: Default, Restructuring and Recoveries in 2008-2010," by A. Takacs,
Debtwire.
4 In the recent years, aU of these factors have raised red flags for economists, global leaders and regulatory
bodies. In December 2019, before the virus emerged as a serious economic threat, the Financial Stability
Board issued a warning regarding the increased vulnerabilities of the leveraged loan markets to
macroeconomic shocks. See "Vulnerabilities associated with leveraged loans and collateralized loan
obligations (CLOs)", Financial Stability Board, December 18, 2019.
5 https:/ / www.zerohedge.com/ markets/ revolver-run-banks-suffer-record-200bn-outflows-frenzied-
companies-draw-down-revolvers.
6
Note however that effective drawdown capacity is also capped below the line limit by several
constraints. For example, for a large fraction of firms, significant draws could activate maintenance
covenants.
7 Ivashina, V. and Scharfstein D., 2010, "Bank Lending during the Financial Crisis of 2008," Journal of
Financial Economics, p. 319-338.
2
leveraged borrowers through the crisis? If these drawdowns are insufficient, the structure of the
leveraged credit markets presents several challenges for those firms facing large and prolonged
liquidity needs.
One factor to consider is that a decade of weakening lending standards wj]l all ow some leveraged
companies to take advantage of the flexibility afforded to them by their liberal credit agreements.
This may enable the transfer of assets into new entities outside of their collateral pool to secure
new financing arrangements, like the 2017 restructuring of JCrew, and several others that
followed. However, this technology has practical relevance only in those bespoke situations
where valuable collateral can be separated from the business.
Overall, many firms require considerable cash investments within a short period of time to bridge
them through supply chain disruptions, demand shocks, and wholesale operational shut-downs
that are occurring in conjunction with the pandemic response. Some of this investment may come
from equity owners, but significant capital will likely be required from lenders. One barrier to
raising this capital is the challenge of producing financial forecasts, given the extreme economic
uncertainty. Additionally, as we will illustrate, the sheer levels of debt, as well as certain technical
and structural issues associated with it, might challenge firms' ability to resolve impending
liquidity needs in a timely and cost-effective manner. If highly leveraged companies are unable
to source sufficient capital out-of-court, it may force many of them into more expensive and
economically damaging "free-fall" bankruptcy processes as a means to raise the required capital.
CLO Constraints
The rise of speculative-grade corporate leverage in the past ten years to a large degree has been
fueled by the leveraged loan market, which is a corporate debt segment funded primarily by non-
bank financial institutions. The largest institutional group in this segment is collateralized loan
obligations (CLOs), which are structured credit vehicles that use funds received from the issuance
of multiple tranches of debt and equity to acquire a diverse portfolio of leveraged loans.
According to S&P, between 2015 and 2019, 58.4% of the primary origination was funded by CLOs
and 18.7% by mutual funds specializing in investing in high-yield loans. As CLOs currently
comprise close to 60% of the leveraged loan market outstanding, any assessment of the impact of
the pandemic on this market requires an understanding of the contractual incentives that drive
CLO managers.
CLO structures have evolved over the years, but at their core, they are designed to protect their
investors, with preference to those at the senior end of their capital hierarchy. To accomplish this,
CLO agreements contain a series of protective covenants that place guardrails on portfolio
construction, and control risk-taking by the manager whose incentives are otherwise aligned with
equity performance. The net effect of all of these provisions is to establish strong disincentives
for CLO managers to hold or invest in non-conforming assets, such as CCC+ or lower rated loans,
defaulted loans, bridge loans, subordinated debt, or equity.
3
For example, eligibility requirements and collateral quality tests control the investments that
CLOs can make. If a CLO runs afoul of these, the covenants guide any future investments until
the collateral pool is in compliance. Of particular relevance in the current context is the maximum
CCC loan rating bucket which is typically set at 7.5% of the portfolio. Coverage tests measure the
amount of collateral and cash flow coverage they have, relative to their obligations. Here, there
are generally stiffer penalties for violations. Cash flows will typically get redirected from the
equity tranche (typically about 8.5% of the structure8) to the most senior tranches until the
structure is back in compliance. Importantly, the excess amount of CCC collateral is marked-to-
market for purposes of the overcollateralization test. Once the overcollateralization tests become
binding, any drop in market price would be effectively taken out of equity value.
As we have entered the pandemic crisis, CLO managers have found themselves overweight in
the lower quality end of the market. Where single-B rated loans comprised 56% of the U.S.
leveraged loan market in 2019, they comprised 70% of syndicated CLO portfolios. Single B- loans
comprised approximately 29% of these loans.9 As the pandemic has unfolded, the rating agencies
have been downgrading at an unprecedented pace, and S&P has already issued 547 negative
rating actions related to the coronavirus in the speculative grade market across the globe.lo This
has pushed many of these B- loans into the CCC category, and now CCC assets have increased to
9% across CLO structures on average, putting many CLOs in violation of the 7.5% threshold.11
When companies seek liquidity, as we expect they will on an increasing basis during the current
crisis, they typically look to their existing lenders to provide it. This is because current lenders
already have access to the company's information, and they own the rights to the company's
collateral. However, with the largest category of leveraged lenders, CLOs, pressured against
covenant constraints, many of their managers may be reluctant, if not prohibited, to extend any
additional capital which does not conform to their eligibility requirements. Deluxe Entertainment
and Acosta are two recent debt restructuring transactions requiring capital where CLOs declined
to participate proportionately.
In addition, CLOs can be both the cause and the victim of lower loan prices. In the instances
where they dominate the ownership of a lower-rated credit, and may be net sellers due to
concerns with their covenants, this can put downward pressure on the loan prices of that credit.
The lower loan prices can, in turn, further impair their coverage test, making it more difficult for
them to recover equity value and potentially leading to a debt overhang problem.
8 "Understanding Collateralized Loan Obligations", Guggenheim Investments, May 2019.
9 Morgan Stanley research.
10 Through April 2, 2020.
11 "S&P puts 48 triple C-beavy CLOs on negative watch," Creditflux, April 6, 2020.
4
Overall, downgrades of a subset of borrowers have implications for the broader universe of the
leveraged loan borrowers, as the effect of these downgrades is amplified through the balance
sheet of the CLO structures.
Effects of Un certainty and Price Pressure in the Loan Market
As of April 15, prices in the U.S. leveraged loan market are down an average of 9% year-to-date,
with the CCC portion of the market down an average 21 %.12 To a large degree, this is expected,
as markets factor in future uncertainty and economic disruption. Our concern is that certain
structural and contractual aspects of these loans and their holders may amplify the supply-
demand imbalance, pushing loan prices down in a way that may impede efficient restructuring
11
and capital raising efforts. (In this context, supply" refers to the supply of investment
opportunities in both the secondary market and new capital, and" demand" refers to demand for
investments in these opportunities.)
Part of the supply pressure may come from selling off CLOs exiting positions to avoid triggering
the internal covenants described previously. Patient CLO managers may elect to wait the cycle
II
out, but others may not. One helpful factor is that, compared with 2008, fewer CLOs have mark-
to-market" warehouse lines of credit that could trigger forced loan sales. That said, the
unprecedented volume of CLO holdings of lower rated assets causes concern that their selling
activity could continue to put considerable downward pressure on the prices of leveraged loans.
Another culprit on the supply side is leveraged loan funds, who have experienced approximately
$14 billion of outflows since the beginning of the year.13 Although these funds are not leveraged,
and represent a smaller percentage of the market than they did in 2008, the largely illiquid nature
of their assets makes them fundamentally fragile. This is a problem we have been well aware of,
but had diminished in importance as multiple instances of funds' outflows and subsequent forced
sales in the past decade were easily absorbed by the thriving CLO market. Until now.
On the demand side, we note that there is over $1.5 trillion of dry powder within funds that could
access thfo opportunity, including private debt, debt-oriented hedge strategies, distressed debt,
and private equity. We also expect that new flexible vehicles will be raised to respond to the crisis.
While some of these players can be disruptive in restructuring situations, they typically have
more flexibility than CLOs, banks, or mutual funds to provide creative debt and equity capital to
restructuring companies in need of liquidity. These funds have grown considerably over the last
decade, but the question remains whether their dry powder will be sufficient to meet the size of
the emerging opportunity.
For investors in both secondary market loans and new liquidity, there is also the issue of timing.
As we have seen in past recoveries, capital will eventually flow to where there is economic
opportunity and the potential for financial returns. The question is whether it will happen rapidly
12 S&P Global Market Intelligence, LCD News, April 15, 2020.
13 S&P Global Market Intelligence, LCD News via Twitter, April 9, 2002.
5
enough to meet the u rgent needs of borrowers in this crisis. As loans and their issuers are very
complex and diverse, investments in this area will require substantial due diligence and review.
This process may be facilitated in some instances w here private equity funds, CLOs, and flexible
capital funds are managed under common control. Yet, even in an unlikely scenario w here
capital managers have perfect visibility into loan quality, the additional capital they m ight be
w illing to deploy in the loan market might not be sufficient to offset the supply pressure in the
short term.
Loan prices have implications for companies that are restructuring or raising capital. In a
nuts hell, if loan p rices for an issuer are near par, lenders are more likely to lend to that company
at a reasonable cost. If loans are volatile and trade at a steep discount, lenders are less likely to
lend money to the compan y unless the capital can be structured senior to the discounted loans,
w hich is difficult to accomplish without going into an expensive bankruptcy process. Several
factors contribute to this. First, as already mentioned, discounted loans erode CLO incentives to
participate in restructuring related capital. Second, many leveraged loans are comprised of large
dis parate groups. According to S&P, in the primary loan market, an average leveraged loan has
about fifty different non-bank creditors. While some creditors might see low loan valuations as
temporary dislocation, reaching broad agreement among the creditors of a w idely-syndicated
loan might be difficult. Finally, lenders are reluctant to commit capital worth 100 cents to a new
loan w hen they have an opportunity to buy loans with equal priority at discounted levels.
The Middle Market
Small and mid-cap enterprises (SMEs) have also participated in the global leverage binge, but
they are less visible due to the p rivate nahire of the bulk of this market. CLOs are n ot a major
player in this segment, however over the past decade, a desire for yield has attracted other
providers of risky debt capital to the balance sh eet of SMEs. By the end of 2019, business
development companies (BDCs) - publicly quoted investment funds specializing in loans to
SMEs-were holding about $110 billion in SME d ebt. 14 An even larger amount-$600 billion by
some informal estimates-is held by a wide variety of private investment funds.
Although it is difficult to obtain d ata on SME balance sheets, we would expect a proportion of
these companies to be reason ably highly leveraged, given the environment and the availability
of credit. It is also unclear whether existing creditors h ave the funds and flexibility to inject
additional capital; given the inevitable d ownturn in the value of their existing loans to SMEs
following the pandemic, at least some of these in vestment funds w ill be facing p ressures that
would stand in the way of them acting as liquidity providers to their stranded borrowers. In
any event, many SMEs w ill h ave little available collateral to offer lenders and face more
14 S&P Global Market Intelligence, U.S. Middle Market Coverage.
6
uncertain commercial futures than their larger competitors, who benefit from relatively large
and stable market shares and can access more efficient capital markets.
The U.S. Government Response
On March 27, President Trump signed the CARES Act, a bill which includes, among other central
provisions, up to $849 billion- $349 billion Small Business Administration's Paycheck Protection
Program (PPP), and up to $500 billion of assistance to large and mid-sized companies-to back
emergency loans and assistance to businesses impacted by the pandemic. In connection with the
CARES Act, on April 9, the Federal Reserve and the Treasury Department announced the Main
Street Lending Program (MSLP) to ensure credit flows to mid-sized businesses during the crisis.15
The CARES Act and associated programs represent a swift and bold response which should bring
liquidity to many important parts of the economy. However, as the details of this legislation are
being finalized, we raise several concerns and propose potential solutions to ensure that the Act
and its associated programs function as they are intended.
Shortcomings of the CARES programs
There are three broad areas where we believe the CARES programs should be improved: (1) they
should provide more liquidity assistance to the companies facing fewer financing choices, (2) they
should use less taxpayer money, where private capital is available, and (3) they should better
address the "moral hazard" problem that comes from a government bailout of shareholders in
leveraged companies. We elaborate on these in detail below.
First, the limitations of the CARES programs as they pertain to reaching the most leveraged
companies are as follows:
• The MSLP program excludes borrowers with revenues over $2.5 billion, and a mechanism
under Title IV of the CARES Act to reach larger companies has yet to be defined.
• The Act contains affiliate restrictions in the PPP portion of the package, which effectively
exclude most small companies that are backed by private equity firms from the $349
billion of unsecured aid.
• Loans under the MSLP are constrained to 6x EBITDA total leverage, which excludes the
most leveraged companies that are already exceeding this level.
• The MSLP effectively limits the amount of assistance to the amount of "baskets", that is,
remaining secured leverage capacity under the current credit agreements.
• Companies must not be undergoing solvency proceedings to access most of these
programs.
15
See https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
7
• The only lenders eligible to participate in the MSLP are financial institutions supervised
by the Federal Reserve System.
Second, we are concerned about the significant direct government financing associated with these
programs. The U.S. Treasury Department and the Federal Reserve are commjtting an
unprecedented $4.5 trillion to support the CARES Act and related lending and loan-buying
programs. Additional fiscal stimulus and Fed involvement will almost certainly be necessary
over the corning months, with the magnitude being heavily reliant upon the length of the
government pandemic response. While it is hard to know where the "limits" of government
intervention lie, we do know that there are limits, or- at the very least- significant consequences
of unmeasured government spending. With that as a backdrop, we are concerned that, in areas
where the programs do apply, they may unnecessarily direct scarce government capital into areas
where private capital can help solve the problem. For example, under the MSLP, eligible lenders
are only putting 5% of the capital, requiring Treasury and the Fed to fund the balance. In addition,
the criteria for the MSLP favors healthier companies, which may already have access to solutions
where they could source 100% of their capital needs in the private market.
Finally, the current design of the CARES programs does little to mitigate the "moral hazard"
problem. As highlighted earlier, the widespread leverage spree is one of the hallmark problems
of the past decade which now amplifies the current pandemic effect. The equity holders of many
companies chose to overJeverage their balance sheet during the up cycle in order to buy back
shares or pursue acquisitions. They did so with the purpose of increasing equity profits in an
upside scenario, while increasing the probability of peril for the overall businesses in the event of
a downturn. Current proposals under CARES sort companies in two categories. The first of these
are qualifying firms which face no direct costs for equity holders who might have taken on
aggressive leverage in the past and who elect to utilize these programs. In fact, for these
qualifying companies, the MSLP provides an equity bailout by enabling the borrower to receive
credit terms that would not be available from private solutions. It also allows shareholders to
avoid putting up their own capital to solve the problem. The second category are non-qualifying
firms, in which case all of their stakeholders are forced to endure the consequences of facing the
pandemic shock with high leverage.
Praposed solutions
In light of these considerations, we believe that several amendments should be considered:
• Expand the use of bank and private capital. The program should leverage the abundance
of capital and expertise available in bank and private markets by: (1) opening the
programs to non-banks and (2) allowing banks and private capital providers to take the
lead on negotiating and providing capital solutions. This way, the government would be
a true emergency liquidity provider, filling capital gaps or providing credit enhancement
in financing processes that fall short of target. This would significantly reduce the level
of direct government funding into these CARES programs, while facilitating the flow of
8
capital into situations where the m arket otherwise might not sufficiently meet a
borrower's needs due to the timing, complexity, and uncertainty.
• Relax certain requirements of the programs. For certain large businesses (over $2.5
billion in revenue), inclusion in the MSLP should be considered on a case-by-case basis.
As Figure 2 illustrates, over 40% of the borrowers that issued leveraged loan debt in 2019
would not qualify under t his constraint, thus a significant share of the firms in need would
be left without liq uidity assistance.16
The program should also be expanded to incJude loans on a junior lien basis in certain
circumstances, in order to navigate the legal barriers associated with secured cred itor's
rights. This w ill enable the flow of capital to those highly leveraged companies that do
not have unp ledged collateral, and have limited capacity to raise additional secured debt
under their current credit agreements.
For small companies backed by private equity, the affiliate exclusion from the Small
Business Assistance provisions of the Act should be removed, subject to certain conditions
described below. These companies are as much part of the fabric of the US economy,
employing people and generating economic growth, as any other small companies.
Singling out firms backed by private equity is an arbitrary rule that makes businesses and
their employees casualties in a campaign to punish the private equity industry for the past
negative actions of some of its players.
• Recognize and address the moral hazard problem. To ensure that this assistance does
not amount to a bail out of those equity holders which elected to leverage the companies
in the first place, access to Joans in these programs should have a real direct cost for them.
Under the PPP, the program could require that- when applied to private equity backed
companies- such loans be matched w ith an equal amount of new equity capital provided
by the owners. To further limit abuse of the assistance, repayment of the loans could be
required, rather than forgiven as with other SBA provisioned loans. Defaults on payment
could result in a forced conversion into a majority of the equity of the company.
Under the MSLP, by allowing the private sector to negotiate terms, which may include
higher interest rates and equity warrants, it w ill impose costs upon the equity holders of
companies that elect to use these programs.
• Extend the program to companies in bankruptcy. Government does not tend to lend to
companies in bankruptcy proceedings. That said, companies often enter Chapter 11
bankruptcy proceedings as part of a standard, pre-planned capital restructuring, from
which they can exit in as little as a few days. Some loans made to the company while it is
in Chapter 11 can be structured as super senior debt, taking precedence over all other
company obligations. As an alternative to subordinated lend ing, therefore, we suggest
16 This estimate was constructed using S&P LCD and Compustat data.
9
that the Fed be permitted to participate alongside the private capital in loans to companies
that are entering bankruptcy as part of an orderly capital restructuring. For this to be a
feasible source of liquidity financing, the Act would need to enable streamlining of the
bankruptcy process so as to permit more "pre-packaged" bankruptcy proceedings that
could be filed and confirmed quickly.
One downside of the approach that we recommend is that it will require significantly more active
management by the U.S. Treasury Department than contemplated by the current programs. As
our proposal does not apply a strict formulaic approach, active management would be important
in determining which financing processes should be eligible for the government participation
provided by the programs. While this is not ideal, we want to also highlight that by engaging
private capital on a competitive basis, and by structurally mitigating the risk of the resulting
government portfolio throu gh correctly aligned incentives, the costs of internal management
should be substantially mitigated.
The pandemic is a rapid and severe external shock that affects nearly every company. But the
economic shock is not the only factor that is creating stress among U.S. businesses. The structures
that channeled yield-searching capital to the companies over the past decade, are not the
structures that can necessarily assist them with the urgent and deep liquidity needs. At the same
time, debt markets are complex and heavily segmented. Relying on private markets alone in the
short-term will only put more companies out of business and more people o ut of jobs. However,
the government should also stop short of trying to replace private markets. The interventions we
advocate here are intended to leverage the resources and skills available in the financial markets,
while facilitating their ability to reach the most severe problems more quickly. This will enable
the economy to emerge less damaged as the shock subsides and markets retu rn to normal.
10
Figure 1- U.S. Leverage Loan Market, Core Statistics
US Leveraged Loans YE 2008 March 2020
Outstanding $594 billion $1,173 billion
LTM CLO AlJocations 52% 71 %
Covenant Lite 15% 82%
Rated B and Below 36% 64%
Leverage 5.0x 5.4x
Note: Data is compiled from S&P Global Market Intelligence.
Figure 2- Revenue Distribution of Borrowers in the Leveraged Loan Market, 2017-2019
Density of Previous Year Revenues for Borrowers Taking a Loan In 2017, 2018 and 2019 (Tr1mmed at S20B)
000020
'
!rot•t R•v•,,v• ::. $2 5B
,. ,
000015
Loan_Year
0000,0 § ,.,,
,.,.
000005
000000
2000 ,ooo 0000 8000 10000 12000 1◄000 10000 18000
To<al - ( $MI
Note: Data for the graph is compiled from S&P, LCD Loan Pipeline and Compustat.
11
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:54 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: MAIN STREET FW: additional comment letter we filed on behalf of OTG
Attachments: 20200416161051142207_attachment0000.DOCX.final.pdf; 20200416161051142207
_attachment0001.png.final.pdf
‐‐‐‐‐ Forwarded Message ‐‐‐‐‐
From: Jennifer Gallagher [jennifer.c.gallagher@frb.gov]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 4:10:56 PM
Subject: MAIN STREET FW: additional comment letter we filed on behalf of OTG
NONCONFIDENTIAL // EXTERNAL
From: Ellis Rochkind, Dina [dinaellis@paulhastings .com]
Sent: Thursday, April 16, 2020 3:53 PM
To: Jennifer Gallagher [jennifer.c.gallagher@frb.gov]; Madelyn Marchessault [madelyn.s.marchessault@frb.gov];
Mackenzie Gross [mackenzie.a.gross@frb.gov]
Subject: additional comment letter we filed on behalf of OTG
NONCONFIDENTIAL // EXTERNAL
Fyi – would be great if you can forward this as well. Thank you, Dina
________________________________
[logoredesign][http ://www. paulhastings .com/]
Dina Rochkind | Of Counsel, Corporate Department Paul Hastings LLP | 875 15th Street, N.W., Washington, DC 20005 |
Direct: +1.202.551.1938 | Main: +1.202.551.1700 | Fax: +1.202.551.0438 | dinaellis@paulhastings .com[mailto
:dinaellis@paulhastings .com] | www. paulhastings .com[http ://www. paulhastings .com/]
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1
We write to provide feedback sought by the Federal Reserve in its announcement of additional actions
on April 9, 2020 to address the significant unmet needs of mid-sized companies, many of which will
suffer catastrophic effects from the COVID-19 crises.
Mid-sized companies frequently cannot obtain credit from banks, which often seek to minimize their risk
profile by lending only to established organizations or entities not engaged in activities that many
mid-sized entities engage in. As a result, many mid-sized companies need to obtain credit from
non-bank specialty finance companies that have emerged to meet the unmet demand for credit.
Limiting participation in the Main Street programs to only banks fails to address the financial needs of
many mid-size companies.
Similarly, given that the terms of the facilities require a bank to retain a 5% participation in any loan it
originates, banks with credit policies that preclude lending to mid-sized companies or those engaged in
specific industries will not be willing to originate loans under the program , failing to address the financial
needs of mid-sized companies.
Accordingly, we request the Federal Reserve modify the Main Street Facilities to (i ) allow non-banks to
participate; and (ii} eliminate the need for originating lenders to retain 5% of any loan originated under
the program. Both modifications will preserve mid-sized companies and their employees.
blueport
The following comments are submitted on behalf of Furniture.com, Inc. d/b/a Blueport
Commerce. Blueport is an ecommerce platform that enables retail furniture chains to serve and
sell to their customers online.
Blueport is at risk of being existentially damaged by the COVID-19 crisis. While our
mission to provide digital channels to retailers has never been more vital - we are currently the
only revenue channel for most of the retailers using our platform - these customers' ability to
pay the fees that fund our business is critically compromised. Indeed, a significant Blueport
customer, a 100-year-old family-owned furniture retailer in Pennsylvania and Ohio has already
filed for liquidation.
Confidential Business
Blueport is in every way a small business - 52 employees in a company Information
fees annually by supporting hundreds of millions of dollars in online and offline sales for brick and
mortar retailers. The Paycheck Protection Program (PPP) appeared to us to be a well-targeted
and much needed bridge, allowing us to retain our staff and serve our retailers until their
businesses and our revenue streams retu rn to stability.
As it stands, we are ineligible. We have taken investment from family offices related to
some of the retail businesses we serve. As such, we fall afoul of the SBA's affiliation rules,
despite the fact that these investors' resources are already strained by the challenge of keeping
their retail businesses alive.
It is unfathomable that we are not eligible for small business aid while some of t he
largest fast food or hotel companies - each of which has many hundreds of t imes our revenue -
have been granted a waiver from the SBA's t radit ional affiliation rules.
The existing affiliation guidance creates a dangerous void. Companies like ours fuel
significant parts of the economy, drive innovation, and account for many jobs in the U.S.,
providing flexible, good paying employment for local workers. While we understand the desire
not to fund companies that have alternative sources of funding, the current affiliation rules are a
poor test of whether this is the case, Blueport being a prime example.
From this perspective, we submit the following commentary on the matters currently
under consideration:
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program
(PPP) was conceived to provide direct funding to small businesses to keep their workers
on t he payroll. Unfortunately, the SBA's affiliation rules prevent many small businesses
from accessing this program. While there has been significant discussion about how
these rules exclude many investments in small business made by private equity and
venture capital firms, there has been little or no discussion about family-owned
businesses that cannot apply for relief. Stores are not making sales, property owners are
500 Harrison Ave I Boston, MA 02118 I (617) 275-7200 , blueport.com
blueport
not receiving rents, vendors are not being paid, businesses are seeking relief from
lenders, and employees are being asked to take pay reductions or furloughs until we can
recover and reopen.
Families own many small businesses. In fact, many families own multiple small
businesses that operate independently of one another despite common family ownership
or officers. Many of these families structure their ownership in businesses through
trusts. The SBA affiliation rules cause family-owned businesses to be aggregated although
there is no practical way for capital to be shared by those businesses. Each business has a
duty to its stakeholders - its workers, its customers, and its owners. These businesses do
not have a duty to each other. Trust ownership of business presents a unique problem in
a crisis such as t his. The fiduciary of the trust has a duty to t he trust first. Should a family
that owns (via trust or otherwise) multiple small businesses and is an active job creator in
each of these businesses be penalized by having these businesses precluded from
accessing the PPP funding designed specifically to maintain and preserve jobs? Absent a
modification, the affiliation rules as presently written do just that by aggregating
commonly owned but independent small businesses resulting in an inability for these
businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
We ask our leaders to get relief for as many as possible as soon as possible. Accessing
PPP funding will allow small businesses to prepare for the "New Reality." Workers can be
put back to work cleaning and preparing for business to reopen. The affiliation rules must
be relaxed for small businesses to provide funding for a reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet the size standards for each NAICS code. We also
ask that the SBA allow subsidiaries and divisions of a parent corporation to consider
the function performed by each to determine the proper NAICS code to apply for a PPP
loan.
In addition, the size and length of the program will need to be increased and extended
should these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street
Lending (MSL) Program is to " [e]nsure credit flows to small and mid-sized businesses."
However, in order to meet that goal, the following clarifications should be provided in
the Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using the
borrower's 2019 EBITDA. In order to maximize the amount of credit available to
eligible businesses, borrowers should receive the benefit of non-GAAP add-backs
500 Harrison Ave I Boston, MA 02118 I (617) 275-7200 , blueport.com
blueport
to EBITDA, including equity in earnings of unconsolidated affiliates as well as
adjustments for one-time and non-recurring items.
B. How to count employees. The Program refers to "reasonable efforts" to
maintain payroll and retain workers, but many organizations were forced to
f urlough or lay-off employees weeks ago. Therefore, the relevant employee
retention level should be as of the date of the loan application, if at all. Further,
an entity that does not have employees but otherwise satisfies the definition of
an eligible borrower also should be permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain
from using MSL f unds to repay other " debt of equal or lower priority." This
restriction on payment of debt should not include mortgages existing as of March
13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a
maximum of $25 million or four times 2019 EBITDA for the Main Street New Loan
Facility or six times 2019 EBITDA for t he Main Street Expanded Loan Facility
(when aggregated with the borrower's existing outstanding and committed but
undrawn debt). Borrower's existing outstanding and committed but undrawn
debt should not include mortgages or capitalized lease obligations when
calculating maximum loan size. These items should be considered operating costs
for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve press
release notes that this program is available for businesses that were "in good
financial standing before the crisis." The rules should make clear t hat borrowers
satisfy this condition as long as they were not a debtor in a bankruptcy
proceeding as of March 13, 2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program
must agree to the compensation, stock repurchase, and dividend restrictions that
apply to direct loan programs under the CARES Act. However, the rules should
clarify that capital distributions for flow-through entities who must make
distributions to owners for taxes are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net Operating
Losses (NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently
structured, those refunds will be received by companies in mid- to late-2021. That is, the
relief will arrive in 12-15 months - not now, when that liquidity is urgently needed.
Further, companies that did well in prior years are at a material disadvantage through no
fault of their own. For companies that may have recorded a loss in 2019 with profits in
500 Harrison Ave I Boston, MA 02118 I (617) 275-7200 , blueport.com
blueport
earlier years, they have an ability to request a refund and are allowed to use the IRS
digital filing system to expedite such refund. Without the fixes below, companies that
have done well in prior years are unfairly denied the same immediate access to cash. To
resolve these inherent inequities, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable
income to immediately file for 2020 loss carrybacks, gaining immediate access to
approximately 80% of the funds. Drawing 80% of the funds provides the
government a buffer to use against quarterly true-ups with actual 2020 net
operating losses reconciled as a part of 2020 tax filings; or
B. Allow funds already allocated to be lent to companies at attractive rates as an
advance on estimated NOL carryback refunds.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted,
Carl Prindle
CEO and Founder
April 16, 2020
500 Harrison Ave I Boston, MA 02118 I (617) 275-7200 , blueport.com
girl scout~
April 16, 2020
Girl Scouts of the USA (GSUSA) and our 111 councils have been hit hard by
Girl Scouts of the USA
Public Policy & Advocacy COVID-19. Social distancing has derailed troop meetings, council events,
816 Connecticut Ave NW
and plans for summer camp. GSUSA and our councils have quickly
Third Floor launched virtual activities for girls and their families, but the pandemic has
Washington, DC 20006 interrupted a primary source of revenue - Girl Scout Cookie sales - as well
202-659-3780 as fundraising and sponsorships. Without greater access to capital, GSUSA
advocacy@girlscouts.org
and our councils will be forced to slash programming, staff, and
scholarships just as communities need Girl Scouts the most.
Many nonprofits have been unable to access the Paycheck Protection
Program and its loan forgiveness that would allow us to provide services
during the crisis and support our nation's recovery. Further, as the full
impact of the pandemic is realized, nonprofit borrowers will need more
flexibility and coverage than the Paycheck Protection Program provides.
As the Treasury Department works to make loans available to nonprofits
and mid-sized businesses under section 4003(c)(3)(D) of the CARES Act,
including the Main Street Lending Program, we respectfully request the
following:
• Eliminate the 500-employee minimum for 50l{c)(3) organizations
seeking mid-sized business loans;
• Open the Main Street Lending Program to 501(c)(3) organizations
contributing to COVID-19 relief efforts;
• Include a 0.50% interest rate for 50l(c)(3) organizations with a
minimum 5-year amortization;
• Defer payments until at least two years after a direct loan is made;
and
• Base any employee retention provisions on the date of the loan's
origination.
Our recommendations will allow nonprofits to meet the immediate needs
of our communities as well as plan for the future when many of our
services will be needed most.
Sincerely,
Sue Santa
Vice President
Public Policy and Advocacy
PACE UNIVERSITY
ONE PACE PLAZA NEW YORK, NY 10038
Marvin Krislov (212) 346-1098
President Fax: (212) 346-1384
mkrislov@pace.edu
April 16, 2020
Board of Governors of the Federal Reserve System
20th Street and Constitution A venue NW
Washington, DC 20551
Re: Comments on the Main Street Lending Program
To whom it may concern:
On behalf of Pace University, I write to ask that the Federal Reserve update guidance to clarify
that private, not-for-profit colleges and universities are eligible for the Main Street Lending
program. In addition, I ask that guidance be updated so that student workers are exempted for the
purpose of the employee threshold (under 10,000 employees).
Pdvate, not-for-profit colleges and universities like Pace are major employers with significant
economic impact in their communities. We are facing a major cash flow crisis caused by reduce
revenue and increased spending resulting from the COVID-19 pandemic. Pace has a more than
$1 billion economic impad on our community and we support 3,300 jobs.ii
Room and board adjustments alone are a significant new expense. Pace anticipates that we will
send over $6 million to students, a huge cost that could not have been anticipated. Additionally,
we have seen our auxiliary sources of revenue dry up as campus events and summer programs
are cancelled.
Meanwhile, costs related to the pandemic are rising. Our pivot to remote instruction required an
unanticipated investment in technology and we are also facing costs including deep cleaning
campus buildings and increased security expenses.
Low-cost loans like the Main Street Le nding program would help Pace address the financial
impact of the COVID-19 crisis. However, there are two major baniers to our ability to access
this and other loan programs offered by the federal government:
• Although private, not-for-profit colleges and universities, includi ng Pace, are often some
of the largest employers in their communities, there is confusion about whether non-
profits are eligible for the Main Street Lending program. We ask that the Federal Reserve
update the guidance to clatify that public and private non-profi t colleges and universities,
with direct borrowing authority, are eligible for the Main Street Lending program.
• We ask that student workers be exempted for the purpose 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 institutions like ours can exempt student
workers from the employee count. Pace employs student workers across campus as a part
of their overall financial support to help pay for college and to provide students with
valuable work experiences. With campus closed for the spring semester, these employees
have left campus and should not be counted toward the employee threshold.
Low-interest loans will provide vital suppo1t to private, not-for-profit colleges and universities
like Pace that are working to continue to fulfill their educational missions and suppo1t their
communities despite the severe financial impacts of the pandemic. We look fo1ward to working
wi.th you on this and other loan programs as the Federal Reserve responds to the COVID-19
crisis.
Sincerely,
Marvin Krislov
President
i , ii Making a n Impact in the Community. Pace University, 2019. www.pace.edu/sites/defaulr/files/files/economic-
impact-report/pace-impact-in-the-community-2019 .pdf
TECHNET 805 15th Street, NW, Suite 708, Washington, D.C. 20005
Telephone 202 .650 .5100 I Fax 202 .650 .5118
THE VOICE OF THE www.technet.org I @TechNetUpdate
INNOVATION ECONOMY
TECHNET OFFICIAL COMMENTS ON THE FEDERAL RESERVE'S MAIN STREET LOAN
FACILITIES
April 16, 2020
Thank you for the Federal Reserve's dedication to providing emergency economic relief to
employers of all sizes during this challenging time.
Since the Fed's Main Street New Loan and Expanded Loan Facility programs were
announced on April 9, several of Tech Net's smaller member companies have raised concerns
that need to be addressed, including the requirement that applicants need to have
been "EBITDA-positive" in 2019 in order to qualify. This would indiscriminately
exclude many promising, high-quality, and credit-worthy businesses, including
fast growing startups.
To illustrate the problem. here are a few examples of why the "EBITDA-positive in
2019" requirement would leave out many worthy businesses that are now being
challenged by the coronavirus' impact:
• A company that had been profitable from 2015-2018 but decided to expand into new
work in 2019 and was intentionally EBITDA negative in 2019.
• A new business that required significant investment at the start of 2019 but grew to
profitability by the end may not have been EBITDA positive for all of 2019.
• An investor-backed start-up that decided 2019 was a year to invest in growth and
may not have been EBITDA positive in 2019 .
To fix this and other concerns with these vital emergency loan programs. we
encourage the Federal Reserve to consider the following suggestions:
1. Set loans at a fraction of 2019 gross profit.
• For companies that were not EBITDA-positive in 2019, something would need to
replace the loan maximum that is currently a multiple of 2019 EBITDA. Gross
profit reflects a company's profit before operating expenses, such as salaries and
rent, and for some companies, it therefore more reasonably reflects the amount
of a loan that would be helpful to cover exactly those operating expenses during
this challenging time .
2. Increase the maximum loan size.
• The "New Loan" term sheet should say: "Maximum loan size that is the greater of
(i) $25 million or (ii) an amount that, when added to the Eligible Borrower's
existing outstanding and committed but undrawn debt minus cash on hand
(restricted and unrestricted), does not exceed four times the Eligible Borrower's
2019 earnings before interest, taxes, depreciation and amortization ("EBITDA'' ),
adjustment for non-cash items (e.g. stock-based compensation) is allowed."
Washington, D.C. • Silicon Valley • San Francisco • Sacramento • Austin • Boston • Chicago • Olympia • Albany • Tallahassee
TECHNET
THE VOICE OF THE
INNOVATION ECONOMY
• The "Expanded Loan" term sheet should say: "Maximum loan size that is the
greater 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,
minus cash on hand (restricted and unrestricted), does not exceed six times the
Eligible Borrower's 2019 earnings before interest, taxes, depreciation, and
amortization ("EBITDA"), adjustment for non-cash items (e .g. stock-based
compensation) is allowed."
3. Expand eligible loans to bonds issued on or prior to April 8, 2020.
4. Remove limitation to repay or refinance existing debt. Companies' inability to tap
this facility to repay debt, especially near-term maturities, would have the same
impact to the companies in terms of having sufficient liquidity to run their businesses
and maintain employment in the U.S.
In closing, we again thank you for your efforts and for considering our perspective on this
important issue. If you have any questions or if we can be a resource going forward, please
do not hesitate to reach out to Alex Burgos (Senior Vice President of Federal Policy,
Government Relations, and Communications) at aburgos@technet.org or Peter Chandler
(Director of Federal Policy and Government Relations) at pchandler@technet.org .
TechNet is the national, bipartisan network of technology CEOs and senior executives that
promotes the growth of the innovation economy. Our diverse membership includes dynamic
American businesses ranging from startups to the most iconic companies on the planet and
represents over three million employees and countless customers in the fields of information
technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity,
venture capital, and finance .
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:56 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Lending
Attachments: 20200416164006055875_attachment0000.jpg.final.pdf; 20200416164006055875
_attachment0001.docx.final.pdf
----- Forwarded Message -----
From: "Roman, Brandon" [brandon.roman@squirepb.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 4:40:08 PM
Subject: Main Street Lending
NONCONFIDENTIAL // EXTERNAL
To Whom It May Concern:
By way of follow-up to our comments submitted at 4:30pm today, April 16, 2020, please find attached additional
information on behalf of the non-bank financial firm industry in support of their comments on the Main Street Lending
Program.
Many thanks,
Brandon
[cid:image001.jpg@01D51D22.763ADB80]
Brandon C. Roman
Senior Associate
Squire Patton Boggs (US) LLP
2550 M Street, NW
Washington, DC 20037
T +1 202 457 5330
O +1 202 457 6000
F +1 202 457 6315
brandon.roman@squirepb .com[mailto :brandon.roman@squirepb .com] | squirepattonboggs .com[http ://www.
squirepattonboggs .com/]
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2
A new 13(3) facility is required to assist non-bank financial firms (NBFFs) in
continuing to extend credit to millions of Americans. The terms of the MSLP
effectively prevent NBFFs from accessing the liquidity they desperately need,
and none of the other current 13(3) facilities meet NBFFs' unique liquidity
needs.
• The maximum loan size limitations of 4x MSNLF and 6x MSELF EBITDA
minus outstanding debt and committed, undrawn facilities provide no
incremental capital to NBFFs. NBFFs require significantly more debt for
each dollar of equity to fund consumer loans efficiently.
• The $25M MSNLF/$150M MSELF maximum loan limitations are
inadequate for NBFFs whose primary capital need is for continued
funding of consumer loans.
• The requirement that MSELF loans be in place prior to April 8
significantly limits the utility of the program. NBFFs typically fund their
business with receivables-based loans, with limited, or no, corporate
indebtedness.
• The 5% participation requirement for MSLP eligible lenders limits
expansion of borrowing capacity. Most companies will have fully drawn
on existing credit capacity in anticipation of a business disruption, and
lenders are unlikely to increase their exposure to facilitate new loans.
• Including undrawn lines of credit in the maximum loan size calculation
further limits NBFFs total borrowing capacity and ignores that these
lines are at significant risk of being terminated.
• The term loan structure requires companies to draw funds today
without regard to the timing of the need for capital. This increases the
borrowing cost and limits the ability of the facility to meet future needs
as they arise.
• Consumer loan funding is NBFFs' principal need for capital and is
inadequately addressed by the MSLP.
s\\£LTERI1\fc
ARMS
Children and Family Services
Embracing Hope and Building Futures far Generntions
As the Treasury Department works to create a program as directed under the CARES Act section
4003(c)(3)(D) to provide financing to banks and other lenders to make loans to nonprofits and other
mid-size business of between 500-10,000 employees, we request that the program:
• Include a 0.50% interest rate (SO basis points) for 501(c)(3) charitable nonprofits at a 5 year
amortization
• Provide priority to 501(c)(3) charitable nonprofits responding to COVID-19 relief efforts
• Payments shall not be due until two years after a direct loan is made
• Employee retention provisions should begin on the date that loan funding is received by the
borrower
• In implementing any workforce restoration and retention provisions, "workforce" should be
defined as full-time employees or full-time equivalents
Sheltering Ar ms is one of the City's largest providers of education, youth development, and community
and fam ily well-being programs in New York City. We serve nearly 15,000 children and families each
year, and employ more than 1,200 staff, making us ineligible for the federal Paycheck Protection
Program that is currently available to nonprofit organizations.
Federal support through the Main Street Lending program m ust be made available to large nonprofits
like Sheltering Arms in order to ensure that we can continue to meet the immediate needs of our
communities while planning for the future when our services will be needed most. The
recommendations above will help to keep organizations like Sheltering Arms financially strong and
ensure we are setup to help our communities through the long recovery to come.
Charitable nonprofits are the third largest employer in our nation's economy and are valued problem
solvers. Nonprofit organizations are our country's only institutions solely focused on making
communities stronger. In the toughest t imes, we do the toughest work. When it's time to restore and
repair our communities' well-being, community-based institutions like Sheltering Arms need to be
equipped to do that, and our unique needs cannot be overlooked.
Sincerely,
Elizabeth McCarthy
Chief Executive Officer
main. 212.675.1000 fa:x:: 212.989.1132 305 7th Avenue. New York NY 10001
SheltermgArmsNYorg IJ ShelteringArmsNY W @SheltenngArmsNY
From: Office_of_Secretary@FRB.GOV
Sent: Friday, April 17, 2020 10:57 AM
To: Main-Street-Business-Lending-Program
Subject: Fw: Main Street Loan Comments and Exhibits-Enesco, LLC
Attachments: 20200416164436080083_attachment0000.pdf.final.pdf; 20200416164436080083
_attachment0001.pdf.final.pdf
‐‐‐‐‐ Forwarded Message ‐‐‐‐‐
From: Matt Myren [mmyren@enesco.com]
To: Office_of_Secretary@FRB.GOV
Date: 4/16/2020 4:44:42 PM
Subject: Main Street Loan Comments and Exhibits‐Enesco, LLC
NONCONFIDENTIAL // EXTERNAL
Enesco, LLC provided comments through the Main Street Loan website at https ://www.
federalreserve.gov/apps/contactus/feedback.aspx?refurl=/main/. The below is an expansion on those comments, and
attached are exhibits that will serve as background/conformational data regarding the website submission and the
extended commentary and requests provide below. If there are comments or questions please reach out to me at my
contact information below, or to Robin Nourmand (copied) by email or by phone at 310‐963‐4499.
CONTEXT: Enesco, LLC is a 62‐year‐old, profitable, gift wholesaler. Confidential Business Information
In 2019, its then‐dormant subsidiary acquired the assets of a 53‐year‐old retailer of engraved gifts Things Remembered,
Inc. (TR) out of bankruptcy in a transaction that saved 1000+ jobs (Ex1) and merited a Distressed Transaction of the Year
award (Ex2). Enesco capitalized TR with no debt of its own.
The first comment is to ensure Enesco can receive a loan (TR lost money in 2019, the year it emerged from BK; it too has
been decimated by Covid‐19.) The second is to include appropriate nuance in the definition of "debt" to account for the
dramatic seasonality in net working capital (and therefore, debt) in businesses that are in the retail industry, weather
sensitive, etc.:
1. ALLOW PARENT TO DECONSOLIDATE A SUBSIDIARY THAT INCURRED STARTUP LOSSES IN 2019: Please confirm a
Parent (Enesco's) ability to exclude a subsidiary (TR) or sister company, which incurred startup losses in 2019, from the
EBITDA/leverage analysis (as opposed to requiring Enesco + TR to submit one application on a consolidated basis.) If TR
is consolidated with its parent, its startup losses would disqualify Enesco from receiving a loan. Please confirm that
Enesco can apply without giving effect to TR's losses.
2. ADJUST FOR SEASONAL FLUCTUATIONS IN DEBT: For the purpose of calculating debt in seasonal businesses, please
allow for factoring in the timing of the loan application within the calendar year. We propose an alternative concept (to
the notion of debt at the time of application) in businesses affected by consumer/retail, weather, etc: Replace the debt
calculation with the (i) average debt balance over the last 12 month ends +/‐ (ii) the change in the applicant's net
working capital the borrower vs 12 months prior to the application date. This would prevent distortions where leverage
ratios may vary dramatically depending on whether an application is filed in May vs. in September.
Respectfully submitted,
1
Matt Myren
Legal Counsel
Enesco, LLC
225 Windsor Dr., Itasca, IL 60143
Email: mmyren@enesco .com[mailto :mmyren@enesco .com], Phone: (630) 875‐5447, Cell Phone Number
CONFIDENTIALITY WARNING: This email and its contents and attachments may be confidential and/or privileged, and
are for the sole use of the intended recipient(s). Any unauthorized use or disclosure of this communication is
prohibited. If you believe you have received this message in error, please notify the sender immediately and delete it
from your system. Thank you.
From: Robin Nourmand [rnourmand@balmoralfunds .com]
Sent: Thursday, April 16, 2020 2:14 PM
To: Todd Mavis [todd.mavis@enesco .com]; Bruce Myers [bmyers@enesco .com]; Matt Myren [mmyren@enesco .com]
Cc: Jonathan Victor [jvictor@balmoralfunds.coFrom mmyren@enesco .com Thu Apr 16 16:44:36 2020
Return‐Path: [mmyren@enesco .com]
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2
CONTEXT:
Confidential Business Information
Enesco is a 62-year-old, profitable, gift wholesaler.
In 2019, its then-dormant subsidiary acquired a 53-year-old retailer of engraved gifts (TR) out of
bankruptcy in a transaction that saved 1000+ jobs (THIS IS THE SOURCE DOCUMENT*) and merited a
Distressed Transaction of the Year award (SEE NEXT ATTACHMENT).
Enesco capitalized TR with no debt of its own. TR (the subsidiary) lost money in 2019.
Confidential Business Information
JOB-SAVING TURNAROUNDS:
We respectful ly request that applicants be permitted to either:
1) use "3 x ( 2019 avg mo. payroll + 2019 avg mo. rent )" instead of 2019 EBITDA or
2) add back "6 x 2019 avg mo. payroll" to its EBITDA to account for the social benefit of the jobs it has
saved.
We propose this alternative only in the limited cases where 2 conditions are met:
A) Company was a bona fide purchaser of third-party assets in a bankruptcy that can be demonstrated
to have saved 500+ jobs in 2019 and incurred startup losses in so doing and/or
B) Majority of the subject company's operations have been substantially shut down in March through
May 2020 due to a stay at home orders (e.g., retail cannot open).
ALLOW PARENT TO DECONSOLIDATE A SUBSIDIARY THAT INCURRED STARTUP LOSSES IN
2019:
Please confirm a Parent (Enesco's) ability to exclude a subsidiary (TR) or sister company, which incurred
startup losses in 2019, from the EBITDNleverage analysis (as opposed to requiring Enesco + TR to
submit one application on a consolidated basis.) If TR is consolidated with its parent, its startup losses
would disqualify Enesco from receiving a loan. Please confirm that Enesco can apply without giving effect
to TR's losses.
* Source: http://www.tmajcr.org/journalofcorporaterenewal/nov_dec_2019/MobilePagedReplica.action?
pm=2&folio=6#pg8
ntinwed from pu
THINGS REMEMBERED:
Navigating Rough Waters
in Chapter 11
BY BOB DUFFY. MANAGING DIRECTOR & BRETT WITHERELL.
DIRECTOR. BRG CORPORATE FINANCE
he tt• 1111nctus1,y cc,ainucs 10 I«! w.ason1he~dllquld.t•..o,1-
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company tOf c;o-1orwaii:1 tram!onnatlon Buslne$S Plans hOrscbuyu ranscooooary~ore •by·
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boa1'1.aM c,ompany ll'lllll49Cmcnt ~btW'llng I.Ile minimum store
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llrm ass.l!eCI lhe COll'IJMtlY 1tuouqh sold and to sun1\'C A mechanmn 1n
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\he Cmplcr 11 process mv:cd lo:w•rd procca.. Illus m:rumlZlnfl the oo 10 the Thang: Rtmembcrcd pro· cd
aoq-,11:er , nd t11C.1e,111nq !he lll:c!ihood ~c:.vice and ou•pborrnc:r.l wvlta
..,=uany. lnd1vj.ju.).:S !romlht, ol l.'le d~' Clos:.ng It iOOlt just :SO &ys to employtts whO lo:t ilielf j0b$ In
,rm h."1cd ll-.e toles of CRO and ! ro, n ba!\buptcy lllli'Q lO 363 sale close the t:ansl!IOr~ the c-ornp,.ny avo:ded
ro The ,11onv ret.tior.s.'ilpS wmc se-.·c:,11",Cc arid vnn:!:iown
INI ~ •lre,dy ~ n dl!·,liopcd Store-by-Store Due 01hgenc:e
allowed them IOSlepqu:cl<ty tl\lO A key cb!«U :e in \he Things conunuod on - 16
"
https://maadvisor.com/D ITA/2020-D ITA/14th_ Annual_ Turnaround_ Award_ Winners_ List.pdf
.Aftft..
THE M&A ADVISOR
14TH ANNUAL TURNAROUND AWARD WINNERS
I. SECTOR AWARD CATEGORY
CONSUMER DISCRETIONARY DEAL OF THE YEAR
Sale of Sawmill Creek
MelCap Partners, LLC Allen Stovall Neuman Fisher & Ashton, LLC
Sawmill Creek Resort Meaden & Moore
Cedar Fair LP
CONSUMER STAPLES DEAL OF THE YEAR
The Sale of Lucky Vitamin, LLC
SSG Capital Advisors LLC RAS Management Advisors, LLC
Holland & Knight LLP Womble Bond Dickinson (US) LLP
Ropes & Gray LLP
ENERGY DEAL OF THE YEAR
Restructuring of Integrated Equipment's existing debt and the private placement of a credit facility with Veritas
Financial Partners and placement of equity with private investors
Chiron Financial
Integrated Equipment Veritas Financial Partners
FINANCIALS DEAL OF THE YEAR
Restructuring of Ditech Holding Corporation
Epiq Alix Partners
Pachulski Stang Zeihl & Jones LLP Houlihan Lokey Capital, Inc.
Weil, Gotshal & Manges LLP
INDUSTRIALS DEAL OF THE YEAR
Acquisition of Systron Donner Inertial by an Affiliate of Resilience Capital Partners
Resilience Capital Partners KippsDeSanto & Co.
Carlyle Group CliftonLarsonAllen
PAI Partners Aon
lnnoVista Sensors Zieleniec HR Solutions
Tucker Ellis LLP Ramboll
INFORMATION TECHNOLOGY DEAL OF THE YEAR
Acquisition of Windward Software by Volaris Group a subsidiary of Constellation Software
Madison Street Capital Volaris Group
1
v.
Stifel Financial Balmoral Funds
Miller Buckfire Kirkland & Ellis LLP
Landis Rath & Cobb LLP
Things Remembered, Inc. Province
Pachulski Stang Ziehl & Jones Keen-Summit Capital Partners
Berkeley Research Group, LLC
DISTRESSED M&A DEAL OF THE YEAR ($25MM to $50MM)
Sale of Kane Beef to JOH Capital
Gordian Group Kirkland & Ellis LLP
The Claro Group Okin Adams
JOH Capital Judge Richard Schmidt
DISTRESSED M&A DEAL OF THE YEAR ($50MM to $75MM)
Acquisition of B&G Crane Services by Maxim Crane Works
FTI Consulting Stifel Financial
Weil, Gotshal & Manges LLP PwC
Apollo Management Paul Weiss
DISTRESSED M&A DEAL OF THE YEAR ($75MM to $1 00MM)
Acquisition of Open Road Films by Raven Capital Management
FTI Consulting Klee Tuchin Bogdanoff & Stern
Raven Capital Management Greenberg Traurig
DLA Piper
DISTRESSED M&A DEAL OF THE YEAR ($100MM or more)
Sale of Payment Alliance International to Further Global Capital Management
Raymond James Inverness
Further Global Capital Management
SEC.363 SALE OF THE YEAR ($1 0MM to $25MM)
Sec.363 Sale of Schramm Inc.
FocalPoint Partners FocalPoint Securities
Pepper Hamilton LLP Young Conaway Stargatt & Taylor, LLP
SEC.363 SALE OF THE YEAR ($25MM to $50MM)
Sec. 363 Sale of Restaurants Unlimited
Configure Partners NXTCapital
Cole Schotz Grant Thornton
Carl Marks Klehr Harrison
Fortress Investment Group Restaurants Unlimited
4
R• E• D Retail Entertainment Design
1008 Western Avenue Suite 407
Seattle, WA 98104
The following comments are submitted on behalf of Retail Entertainment Design LLC
Retail Entertainment Design LLC (R-E-D), founded in 2005, is a service company based in the state of
Washington that primarily offers services in background music and foreground video to clients in the
retail industry across the United States. R-E-D currently employs 8 full time employees with annual
revenues of Confidential Business Information
R-E-D is experiencing significant disruption in revenue due to t he fact its client base is concentrated in
t he retail industry which has been significantly impacted in a negative way by Coronavirus. Many of our
clients have already experienced a sharp decline in sales which will directly impact our ability to meet
our pre-Coronavirus projected level of revenues. Given our expectation of a sharp decline in revenue
and the resulting cash depletion that comes with it, R-E-D will be forced to reduce payroll expenses
through furloughs, reduced compensation and the like. It is clearly in R-E-D's best interest to participate
in any aid available under the CARES Act to help avoid staff reductions and protect jobs.
As it stands, the existing legislation creates a dangerous void t hat leaves small and mid-level businesses
unable to access capital/liquidity that they all desperately need right now. Small businesses, like ours,
are integral parts of the communities they belong to, providing flexible employment for local workers
(significantly for women and minorities) and making contributions to local initiatives. The following
comments are intended to start to level the playing field for small and mid-market companies and
provide the liquidity that will allow small businesses like R-E-D to invest in our people and business
now so that when we are permitted to return to our offices, we can do so safely and effectively.
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program (PPP)
was conceived to provide direct f unding to small businesses to keep their workers on the
payroll. Unfortunately, the SBA's affiliation rules prevent many small businesses from accessing
this program. While there has been significant discussion about how t hese rules exclude many
investments in small business made by private equity and venture capital firms, there has been
little or no discussion about family-owned businesses that cannot apply for relief. Stores are not
making sales, property owners are not receiving rents, vendors are not being paid, businesses
are seeking relief from lenders, and employees are being asked to take pay reductions or
furloughs until we can recover and reopen.
Families own many small businesses. In fact, many families own multiple small businesses that
operate independently of one another despite common family ownership or officers. Many of
these families structure their ownership in businesses through trusts. The SBA affiliation rules
cause family-owned businesses to be aggregated although there is no practical way for capital to
be shared by those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other. Trust ownership
of business presents a unique problem in a crisis such as this. The fiduciary of the trust has a
duty to the trust first. Should a family that owns (via trust or otherwise) multiple small
R• E• D Retail Entertainment Design
1008 Western Avenue Suite 407
Seattle, WA 98104
businesses and is an active job creator in each of these businesses be penalized by having these
businesses precluded from accessing the PPP funding designed specifically to maintain and
preserve jobs? Absent a modification, the affiliation rules as presently written do just that by
aggregating commonly owned but independent small businesses result ing in an inability for
these businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
We ask our leaders to get relief for as many as possible as soon as possible. Accessing PPP
funding will allow small businesses to prepare for the "New Reality." Workers can be put back to
work cleaning and preparing for business to reopen. The affiliation rules must be relaxed for
small businesses to provide funding for a reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet t he size standards for each NAICS code. We also ask that
the SBA allow subsidiaries and divisions of a parent corporation to consider the funct ion
performed by each to determine the proper NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and extended should
these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street Lending
(MSL) Program is to "[e]nsure credit flows to small and mid-sized businesses." However, in
order to meet that goal, the following clarifications should be provided in t he Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using the
borrower's 2019 EBITDA. In order to maximize the amount of credit available to eligible
businesses, borrowers should receive the benefit of non-GMP add-backs t o EBITDA,
including equity in earnings of unconsolidated affiliates as well as adjustments for one-
time and non-recurring items.
B. How to count employees. The Program refers to "reasonable efforts" to maintain
payroll and retain workers, but many organizations were forced to furlough or lay-off
employees weeks ago. Therefore, the relevant employee retention level should be as of
the date of the loan application, if at all. Further, an entity that does not have
employees but otherwise satisfies the definition of an eligible borrower also should be
permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain from using
MSL funds to repay other "debt of equal or lower priority." This restriction on payment
of debt should not include mortgages existing as of March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a maximum of
$25 million or four times 2019 EBITDA for the Main Street New Loan Facility or six times
2019 EBITDA for the Main Street Expanded Loan Facility (when aggregated with the
borrower's existing outstanding and committed but undrawn debt). Borrower's existing
outstanding and committed but undrawn debt should not include mortgages or
R• E• D Retail Entertainment Design
1008 Western Avenue Suite 407
Seattle, WA 98104
capitalized lease obligations when calculating maximum loan size. These items should be
considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before t he crisis." The Federal Reserve press
release notes that t his program is available for businesses that were "in good financial
standing before t he crisis." The rules should make clear that borrowers satisfy t his
condition if they were not a debt or in a bankruptcy proceeding as of March 13, 2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program must agree
to the compensation, stock repurchase, and dividend restrictions that apply to direct
loan programs under the CARES Act. However, the rules should clarify that capital
distributions for flow-through entities who must make distributions to owners for taxes
are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net Operating Losses
(NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently structured, those
refunds will be received by companies in mid- to late-2021. That is, the relief will arrive in 12-15
months - not now, when that liquidity is urgently needed. Further, companies that did well in
prior years are at a material disadvantage through no fault of their own. For companies that
may have recorded a loss in 2019 w ith profits in earlier years, they have an ability to request a
refund and can use the IRS digital filing system to expedite such refund. Without the fixes below,
companies t hat have done well in prior years are unfairly denied t he same immediate access to
cash. To resolve these inherent inequit ies, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carrybacks, gaining immediate access to approximately
80% of t he funds. Drawing 80% of t he funds provides the government a buffer to use
against quarterly true-ups wit h actual 2020 net operating losses reconciled as a part of
2020 tax filings, or
B. Allow funds already allocated to be lent to companies at attractive rates as an advance
on estimated NOL carry back refunds.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted,
Brian Strayton
CFO
April 16, 2020
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The following comments are submitted on behalf Tincati USA Inc.
Tincati USA Inc. (Tincati), a New York Corporation founded in 2010, owns and operates a single retail
store in New York City that sells men's clothing including suits, slacks, jackets, shirts, sweaters,
outerwear, shoes, knits and a host of accessories. Tincati currently employs 6 full time employees and
has annual revenues of Confidential Business Information
Tincati has experienced a significant disruption in its business due to the Coronavirus pandemic. New
York City has been the epicenter of the pandemic in t he U.S. and the Tincati store t here has been closed
for weeks. Tincati is a traditional small business and with a lack of any incoming revenue due to the
temporary closure, the company has seen its daily sales decline to zero. It will not meet its budgeted
level of sales for the year and is presently not in a position to pay its employees or vendors without
incoming cash flow. Tincati has been forced to furlough all of its employees. It is clearly in Tincati's best
interest to participate in any aid or relief program available under t he CARES Act in order to preserve the
jobs of its furloughed employees and to prepare to get them back to work when the store can reopen.
However, the existing legislation of the CARES Act creates a dangerous void that is leaving out
businesses from getting the very aid that they need so desperately to preserve jobs. Small businesses,
like Tincati, are integral parts of the communities in which they have grown, providing flexible
employment for local workers (including predominantly minorities) and making contributions to local
initiatives. Tincati is providing the following comments in an effort to level the playing field for small
and mid-market companies and provide the liquidity that will allow small businesses like Tincati to
invest in our people and business now so that when we are permitted to return to our offices, we can
do so safely and effectively. Tincati would like to see:
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program (PPP)
was conceived to provide direct funding to small businesses to keep their workers on the
payroll. Unfortunately, the SBA's affiliation rules prevent many small businesses from accessing
this program. While there has been significant discussion about how t hese rules exclude many
investments in small business made by private equity and venture capital firms, there has been
little or no discussion about family-owned businesses t hat cannot apply for relief. Stores are not
making sales, property owners are not receiving rents, vendors are not being paid, businesses
are seeking relief from lenders, and employees are being asked to take pay reductions or
furloughs until we can recover and reopen.
Families own many small businesses. In fact, many families own multiple small businesses that
operate independently of one another despite common family ownership or officers. Many of
these families structure their ownership in businesses through trusts. The SBA affiliation rules
cause family-owned businesses to be aggregated although there is no practical way for capital to
be shared by those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other. Trust ownership
of business presents a unique problem in a crisis such as this. The fiduciary of the trust has a
duty to the trust first. Should a family that owns (via t rust or otherwise) multiple small
businesses and is an active job creator in each of these businesses be penalized by having these
businesses precluded from accessing the PPP funding designed specifically to maintain and
20 E 67th St, New York, NY 10065
-
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preserve jobs? Absent a modification, the affiliation rules as presently written do just that by
aggregating commonly owned but independent small businesses resulting in an inability for
these businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
We ask our leaders to get relief for as many as possible as soon as possible. Accessing PPP
funding will allow small businesses to prepare for the "New Reality." Workers can be put back to
work cleaning and preparing for business to reopen. The affiliation rules must be relaxed for
small businesses to provide funding for a reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet the size standards for each NAICS code. We also ask that
the SBA allow subsidiaries and divisions of a parent corporation to consider the function
performed by each to determine the proper NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and extended should
these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street Lending
(MSL) Program is to "[e]nsure credit flows to small and mid-sized businesses." However, in
order to meet that goal, the following clarifications should be provided in t he Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using the
borrower's 2019 EBITDA. In order to maximize the amount of credit available to eligible
businesses, borrowers should receive the benefit of non-GAAP add-backs to EBITDA,
including equity in earnings of unconsolidated affiliates as well as adjustments for one-
time and non-recurring items.
B. How to count employees. The Program refers t o " reasonable efforts" to maintain
payroll and retain workers, but many organizations were forced to furlough or lay-off
employees weeks ago. Therefore, t he relevant employee retention level should be as of
the date of the loan application, if at all. Further, an entity that does not have
employees but otherwise satisfies the definition of an eligible borrower also should be
permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain from using
MSL funds to repay other "debt of equal or lower priority." This restriction on payment
of debt should not include mortgages existing as of March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a maximum of
$25 million or four times 2019 EBITDA for the Main Street New Loan Facility or six times
2019 EBITDA for the Main Street Expanded Loan Facility (when aggregated with the
borrower's existing outstanding and committed but undrawn debt). Borrower's existing
outstanding and committed but undrawn debt should not include mortgages or
capitalized lease obligations when calculating maximum loan size. These items should be
considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve press
release notes that this program is available for businesses that were "in good financial
standing before the crisis." The rules should make clear that borrowers satisfy this
20 E 67th St, New York, NY 10065
-
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condition as long as they were not a debtor in a bankruptcy proceeding as of March 13,
2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program must agree
to the compensation, stock repurchase, and dividend restrictions that apply to direct
loan programs under the CARES Act. However, the rules should clar ify that capital
distributions for flow-through entities who must make distributions to owners for taxes
are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net Operating Losses
(NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently structured, those
refunds will be received by companies in mid- to late-2021. That is, the relief will arrive in 12-15
months - not now, when that liquidity is urgently needed. Further, companies that did well in
prior years are at a material disadvantage through no fault of t heir own. For companies that
may have recorded a loss in 2019 with profits in earlier years, they have an ability to request a
refund and are allowed to use the IRS digital filing system to expedite such refund. Without the
fixes below, companies that have done well in prior years are unfairly denied the same
immediate access to cash. To resolve t hese inherent inequities, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carrybacks, gaining immediate access to approximately
80% of the funds. Drawing 80% of the funds provides the government a buffer to use
against quarterly true-ups with actual 2020 net operating losses reconciled as a part of
2020 tax filings; or
B. Allow funds already allocated to be lent to companies at attractive rates as an advance
on estimated NOL carryback refunds.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted,
Antonio Tincati
President
April 16, 2020
20 E 67th St, New York, NY 10065
April 16, 2020
Federal Reserve
VIA electronic form
Dear Sir or Madam:
Thank you for your leadership and work to implement the CARES Act provisions that
provide financial support to the nation's businesses and nonprofits.
In a normal year, CAMBA serves more than 65,000 New Yorkers by taking a
comprehensive approach to address poverty across six program areas: Economic Development,
Education/Youth Development, Family Support, Health, Housing, and Legal Services. CAMBA
Housing Ventures, Inc. (CHV) is an affiliated nonprofit supportive and affordable housing
development corporation that has completed more than 2,000 units since 2005.
The number of New Yorkers in need of our services has grown significantly with the
pandemic. Before COVID-19 hit, CAMBA employed approximately 2,000 individuals. To meet
demand for services, we will need to hire 500 more.
With our state and local government partners facing dire shortfalls, accessing private
capital will be even more important, but due to CAMBA's size, we cannot currently access the
Paycheck Protection Program. That makes a workable Main Street Lending Program incredibly
important. To ensure we can stretch our dollars as far as possible, we respectfully ask that you:
• Allow loan forgiveness for nonprofits or offer these organizations a 0% interest rate at a 5
year amortization;
• Ensure payments are not due until two years after a direct loan is made;
• Allow nonprofits maximum flexibility regarding the labor and collective bargaining-
related certifications outlined for the program;
• Ensure employee retention provisions begin on the date the borrower receives loan
funding and, in implementing workforce restoration/ retention provisions, define
workforce as full-time employees; and
• Give priority to 501 ( c)(3) nonprofits responding to COVID-19 relief efforts.
Nonprofit organizations are our country's only institutions solely focused on making
communities stronger. In the toughest times, we do the toughest work. When it's time to restore
and repair our wellbeing, nonprofits need to be equipped to do that and their unique needs should
not be overlooked. These provisions will ensure CAMBA can continue to provide services
during and after the crisis. They will help keep nonprofits financially strong, allowing us to
continue to meet the immediate needs of our communities while planning for the future.
CAMBA has served New York City for more than 40 years. Our model has been, and
remains, to identify emerging needs and to quickly scale programs to tackle those problems. We
are working every hour to ensure the health, safety, and security of thousands of Americans and
we appreciate your thoughtful consideration of our request.
Sincerely,
Joanne M. Oplustil
President and CEO
CAMBA and CAMBA Housing Ventures
The following comments are subm itted on behalf of Equiant Financial Services, Inc.
Equiant Financial Services Inc. (Equiant), an Arizona Corporation founded in 2004, is a service company
t hat primarily offers services in loan and HOA receivables portfolios on behalf of originators in the
hospitality industry in exchange for fees Equiant currently employs 79 full time employees with annual
revenues of Confidential Business Information
Equiant expects significant disruption in receipts due to the concentration of its business in t he
hospitality industry that has been significantly impacted by Coronavirus. Many of our clients have
already experienced a sharp decline in sales which will impact our abiiity to maintain our projected
revenues prior to Coronav)rus. Given the expectation of a sharp decline in revenue causing cash
depletion, Equiant will be forced to reduce compensation or furlough employees. It is clearly in
[quiant's best interest to participate in any aid or relief availabie under the CARES Act to help avoid st aff
reductions.
The existing legisla tion creates a dangerous void . Small businesses, like us, are integral parts of the
communities in which they have grown, providing flexible employment for local workers {predominantly
women and significantly people ot color) and making contributions to local initiatives. While we appear
to be small, we are noc eligible to participate in many of the relief programs currently offered due to
restrictions on affiliations, distributions, and other ambiguities. Further, although widespread relief is
provided to businesses operating in NAICS cod e 72, companies such as Equiant who provide services to
gather the revenue needed to operat e the hospitality industry may not survive. The following
comm ents are int ended to start t o level the playing field for all compa nies and provide t he liquidity
that w ill allow sma ll businesses like Equia nt to invest in our people and business now so that when
we are permitted t o return to our offices, we can do so safely and effectively.
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program (PPP)
was conceived to provide direct f unding to small businesses to keep their workers on t he
payroll. Unfortunately, the SSA's affiliation rules prevent many small businesses from accessing
this program. While there has been significant discussion about how these rules exclude many
investmen ts in sma ll business rnade by private equity and venture capital firms, there has been
little or no discussion about family-owned businesses that cannot apply for relief. Stores are not
making sales, property owners are not receiving rents, vendors are not being paid, businesses
are seeking relief from lenders, and employees are being asked to take pay reductions or
furloughs until w e can recover and reopen.
Families own many small businesses. In fact, many familtes own multiple small businesses t hat
operate independently of one another despite common family ownership or officers. Many of
these famil ies structure their ownership in businesses through trust s. The SBA affiliation rules
cause fa m ily-owned businesses to be aggregat ed although there is no practical way for capital to
be shared by those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other. Trust ownership
of business presents a unique problem in a crisis such as this. The fid uciary of the trust has a
duty lo t he trust first. Should a family that owns (via trust or otherwise} mult iple small
businesses and is an active job creator in each of these businesses be penalized by having these
businesses precluded from accessing the PPP funding designed specifically to maintain and
500 N. Juniper Drive, Suite 100 • Chandler, Arizona 85226 • www.Equiant.com
preserve jobs? Absent a modification, the affiliation rules as presently written do just that by
aggregating commonly owned but independent small businesses resulting in an inability for
these businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
We ask our leaders to get relief for as many as possible as soon as possible. Accessing PPP
funding will allow small businesses to prepare for the "New Reality." Workers can be put back to
work cleaning and preparing for business to reopen. The affiliation rules must be relaxed for
small businesses to provide funding for a reopening.
We ask that the SBA waive a!I affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet the size standards for each NAICS code. We also ask that
the SBA allow subsidiaries and divisions of a parent corporation to consider the function
performed by each to determine the proper NAICS code to apply for a PPP loan .
In addition, t he size and length of the program will need to be increased and extended should
these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street Lending
(MSL) Program is to " [e]nsure credit flows to small and mid-sized businesses." Hm,vever, to
meet that goa l, t he following clarifications should be provided in the Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using the
borrower's 2019 EBITDA. To maximize the amount of credit available to eligible
businesses, borrowers should receive the benefit of non-GAAP add-backs to EBITDA,
including equity in earnings of unconsolidated affiliates as well as adjustments for one-
t ime and non-recurring items.
B. How to count employees. The Program re fers to "reasonJble efforts" to maintain
payroll and retain workers, but many organizations were forced t o furlough or lay-off
employees weeks ago. Therefore, t he reievant employee retention level should be as of
the date of the loan application, if at all. Further, an entity that does not have
employees but otherwise satisfies the definit ion of an eligible borrower also should be
permitted to pa rticipate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain from using
MSL funds to repay other "debt of equal or lower priority." This restriction on payment
of debt should not include mortgages existing as of March 13, 2020.
0. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a maximum of
$25 million or four times 2019 EBITDA for the Main Street New Loan Facility or six times
2019 EBITDA for the Main Street Expanded loan Facility {when aggregated with the
borrower's existing outstanding and committed but undrawn debt). Borrower's existing
outst anding and committed but undrawn debt should not include mortgages or
capitalized lease obligations when calculating maximum loan size. These items should be
considered operating costs for ca lculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve press
release notes that this program is available for businesses that were "in good financial
standing before the crisis." The rules should make clear that borrowers satisfy this
condition if they were not a debtor in a bankruptcy proceeding as of March 13, 2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program must agree
to the compensation, stock repurchase, and dividend restrictions that apply to direct
loan programs under the CARES Act. However, the rules should clarify that capital
distributions for flow-through entities who must make distributions to owners for taxes
are permitted.
3. Net Operat ing Loss Carryback. The CARES Act allows compa nies to use Net Operating Losses
{NOL} recorded during 2020 to reclaim taxes paid in prior years. As currently structured, t hose
refunds will be received by comp,rnies in mid- to late-2021. That is, the relief will arrive in 12-15
months - net now, when that liquidity is urgently needed. Further, companies that did well in
prior years are at a material disadvantage through no fault of their own. For companies that
may have recorded a loss in 2019 with profits in earlier years, they have an ability to request a
refund and can use the IRS digital filing syste m to exped ite such refund. Without the fixes below,
companies that have done well in prior years are unfairly denied the same immediate access to
cash. To resolve these inherent inequities, we propose :
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carrybacks, gaining immediate access to approximately
80% of the funds. Drawing 80% of the funds provides the government a buffer to use
against quarterly true ups with actual 2020 net operating losses reconciled as a part of
2020 tax filings, or
B. Allow funds already allocat ed to be lent to companies at attractive rates as an advance
on estimated NOL carryback refunds.
For questions contact srossetti@me .com at {240)401 -4521.
Resg.ec;til.Jily .sLJbm itted,
C~ C l,>---
Frank Morrisroe
President
April 16, 2020
The following comments are submitted on behalf of Kroehler Furniture Manufacturing
Company, Inc.
Kroehler has been manufacturing upholstered living room furniture by hand since 1969.
Located in Conover, North Carolina, the company employs 200 workers. Due to a drastic
drop in retail demand, all operations have been suspended and nearly all 200 workers have
been furloughed without pay.
Kroehler Furniture Manufacturing Company, Inc. is at risk of being permanently shuttered
by the COVID-19 shutdowns - not only because retail revenue has been abruptly shut off
but also because the government relief provided to date fails to adequately account for our
circumstances. Put simply, some small businesses were extended aid, large businesses
were extended loans, and many like us were left out.
The problem is material, es ecially in discretionary and retail manufacturing segments. We
Confidential Business
had revenue more than _ _ _ _ _ _ _ and employ a considerable number of people in
Information
our community - both of which we are proud but seem to have removed us from the
analysis for those needing relief to date. Our profit margins are not large enough to
weather this storm and bring our people back to work without additional support.
Companies like us are the companies and brands that customers see every day. The
reopening of stores will be a major milestone in the return to normalcy for Americans.
In the CARES Act, though , some small businesses have been left out. We are not even
eligible for the same aid as the largest fast food or hotel companies - each of which has
many times our revenue - simply because hotels and restaurants were granted a waiver
from the traditional affiliation rules applicable to SBA loans under the Paycheck Protection
Program (PPP).
Kroehler Furniture 1800 Conover Blvd., Conover NC 28613 (828) 459-9865 Page 1
The existing legislation creates a dangerous void. Companies like us fuel significant parts
of the economy and account for many jobs in the U.S. Small businesses have become
integral parts of the communities in which they have grown, providing flexible employment
for local workers (predominantly women and significantly people of color) and making
contributions to local initiatives.
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection
Program (PPP) was conceived to provide direct funding to small businesses to keep
their workers on the payroll. Unfortunately, the SSA's affiliation rules prevent many
small businesses from accessing this program. While there has been significant
discussion about how these rules exclude many investments in small business made
by private equity and venture capital firms, there has been little or no discussion
about family-owned businesses that cannot apply for relief. Stores are not making
sales, property owners are not receiving rents, vendors are not being paid,
businesses are seeking relief from lenders, and employees are being asked to take
pay reductions or furloughs until we can recover and reopen .
Families own many small businesses. In fact, many families own multiple small
businesses that operate independently of one another despite common family
ownership or officers. Many of these families structure their ownership in
businesses through trusts. The SBA affiliation rules cause family-owned businesses
to be aggregated although there is no practical way for capital to be shared by
those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other.
Trust ownership of business presents a unique problem in a crisis such as this. The
fiduciary of the trust has a duty to the trust first. Should a family that owns (via trust
or otherwise) multiple small businesses and is an active job creator in each of these
businesses be penalized by having these businesses precluded from accessing the
PPP funding designed specifically to maintain and preserve jobs? Absent a
modification, the affiliation rules as presently written do just that by aggregating
commonly owned but independent small businesses resulting in an inability for these
businesses to access the PPP capital needed, and intended for, the very purpose of
job preservation.
We ask our leaders to get relief for as many as possible as soon as possible.
Accessing PPP funding will allow small businesses to prepare for the "New Reality."
Kroehler Furniture 1800 Conover Blvd., Conover NC 28613 (828) 459-9865 Page 2
Workers can be put back to work cleaning and preparing for business to reopen.
The affiliation rules must be relaxed for small businesses to provide funding for a
reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or
more unrelated NAICS codes but who meet the size standards for each NAICS
code. We also ask that the SBA allow subsidiaries and divisions of a parent
corporation to consider the function performed by each to determine the proper
NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and
extended should these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main
Street Lending (MSL) Program is to "[e]nsure credit flows to small and mid-sized
businesses." However, to meet that goal, the following clarifications should be
provided in the Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using
the borrower's 2019 EBITDA. To maximize the amount of credit available to
eligible businesses, borrowers should receive the benefit of non-GAAP add-
backs to EBITDA, including equity in earnings of unconsolidated affiliates as
well as adjustments for one-time and non-recurring items.
B. How to count employees. The Program refers to "reasonable efforts" to
maintain payroll and retain workers , but many organizations were forced to
furlough or lay-off employees weeks ago. Therefore, the relevant employee
retention level should be as of the date of the loan application, if at all.
Further, an entity that does not have employees but otherwise satisfies the
definition of an eligible borrower also should be permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain
from using MSL funds to repay other "debt of equal or lower priority." This
restriction on payment of debt should not include mortgages existing as of
March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a
maximum of $25 million or four times 2019 EBITDA for the Main Street New
Loan Facility or six times 2019 EBITDA for the Main Street Expanded Loan
Facility (when aggregated with the borrower's existing outstanding and
committed but undrawn debt). Borrower's existing outstanding and
Kroehler Furniture 1800 Conover Blvd., Conover NC 28613 (828) 459-9865 Page 3
committed but undrawn debt should not include mortgages or capitalized
lease obligations when calculating maximum loan size. These items should
be considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis. " The Federal Reserve
press release notes that this program is available for businesses that were "in
good financial standing before the crisis." The rules should make clear that
borrowers satisfy this condition if they were not a debtor in a bankruptcy
proceeding as of March 13, 2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program
must agree to the compensation , stock repurchase, and dividend restrictions
that apply to direct loan programs under the CARES Act. However, the rules
should clarify that capital distributions for flow-through entities who must
make distributions to owners for taxes are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net
Operating Losses (NOL) recorded during 2020 to reclaim taxes paid in prior years.
As currently structured, those refunds will be received by companies in mid- to late-
2021. That is, the relief will arrive in 12-15 months - not now, when that liquidity is
urgently needed. Further, companies that did well in prior years are at a material
disadvantage through no fault of their own. For companies that may have recorded
a loss in 2019 with profits in earlier years, they have an ability to request a refund
and can use the IRS digital filing system to expedite such refund. Without the fixes
below, companies that have done well in prior years are unfairly denied the same
immediate access to cash. To resolve these inherent inequities, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable
income to immediately file for 2020 loss carrybacks , gaining immediate
access to approximately 80% of the funds . Drawing 80% of the funds
provides the government a buffer to use against quarterly true ups with
actual 2020 net operating losses reconciled as a part of 2020 tax filings, or
B. Allow funds already allocated to be lent to companies at attractive rates as
an advance on estimated NOL carryback refunds .
4. Duty Deferral & Extended Repayment. There exists strong bipartisan support for
duty deferral, ranging from 90 to 180 days. As the shutdowns linger, the need for
deferral grows. However, to be effective, any deferral must come with a reasonable
repayment structure; otherwise, deferral merely creates an overwhelming bill due in
just a few months, when consumer confidence and discretionary spending habits
Kroehler Furniture 1800 Conover Blvd., Conover NC 28613 (828) 459-9865 Page 4
may not have returned to pre-COVID- 19 levels. A repayment structure that allows
deferral over two years - much like the payroll tax deferral - is a necessary and
appropriate companion to duty deferral.
For questions contact srossetti@me.com at (240)401 -4521 .
Respectfully submitted,
Eric Jackson
CFO
April 16, 2020
Kroehler Furniture 1800 Conover Blvd., Conover NC 28613 (828) 459-9865 Page S
LUXURY DELIVERY SERVICE, INC.
4300 East Fifth Avenue, Columbus OH 43219
The following comments are submitted on behalfof Luxury Delivery Service, Inc.
Luxury Delivery Service, Inc. has been operating as an over-the-road trucking and logistics
company for over 20 years. The company employs over 80 drivers and moves over 27,000
trailers of cargo annually. The retail closures based on stay-at-home orders have led to a
drastic reduction in volume, resulting in unpaid furloughs for 25% of the company's
employees.
Luxury Service, Inc. is at risk of being excessively damaged by the COVID- 19 shutdowns -
not only because retail revenue has been abruptly shut off, but also because the
government relief provided to date fails to adequately account for our circumstances. Put
simply, some small businesses were extended aid, large businesses were extended loans,
and many like us were left out.
The problem is material, especially in discretionary and retail transportation segments. We
had revenue of Confidential Business Information and employ a sizeable number of people in our
community - both of which we are proud but seem to have removed us from the analysis
for those needing relief to date. Our profit margins are not large enough to weather this
storm and bring our people back to work without additional support. Companies like us are
the businesses that people rely on every day. The reopening of stores will be a major
milestone in the return to normalcy for Americans.
In the CARES Act though , some small businesses have been left out. We are not even
eligible for the same aid as the largest fast food or hotel companies - each of which has
many times our revenue - simply because hotels and restaurants were granted a waiver
from the traditional affiliation rules applicable to SBA loans under the Paycheck Protection
Program (PPP).
The existing legislation creates a dangerous void. Companies like us fuel significant parts
of the economy and account for many jobs in the U.S. Small businesses have become
integral parts of the communities in which they have grown, providing flexible employment
for local workers (predominantly women and significantly people of color) and making
contributions to local initiatives.
1 . Paycheck Protection Program and Affiliation Rules. The Paycheck Protection
Program (PPP) was conceived to provide direct funding to small businesses to keep
their workers on the payroll. Unfortunately, the SBA's affiliation rules prevent many
small businesses from accessing this program. While there has been significant
discussion about how these rules exclude many investments in small business made
by private equity and venture capital firms, there has been little or no discussion
about family-owned businesses that cannot apply for relief. Stores are not making
sales, property owners are not receiving rents, vendors are not being paid,
businesses are seeking relief from lenders, and employees are being asked to take
pay reductions or furloughs until we can recover and reopen .
Families own many small businesses. In fact, many families own multiple small
businesses that operate independently of one another despite common family
ownership or officers. Many of these families structure their ownership in
businesses through trusts. The SBA affiliation rules cause family-owned businesses
to be aggregated although there is no practical way for capital to be shared by
those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other.
Trust ownership of business presents a unique problem in a crisis such as this. The
fiduciary of the trust has a duty to the trust first. Should a family that owns (via trust
or otherwise) multiple small businesses and is an active job creator in each of these
businesses be penalized by having these businesses precluded from accessing the
PPP funding designed specifically to maintain and preserve jobs? Absent a
modification, the affiliation rules as presently written do just that by aggregating
commonly owned but independent small businesses resulting in an inability for these
businesses to access the PPP capital needed, and intended for, the very purpose of
job preservation.
We ask our leaders to get relief for as many as possible as soon as possible.
Accessing PPP funding will allow small businesses to prepare for the "New Reality."
Workers can be put back to work cleaning and preparing for business to reopen.
The affiliation rules must be relaxed for small businesses to provide funding for a
reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or
more unrelated NAICS codes but who meet the size standards for each NAICS
code. We also ask that the SBA allow subsidiaries and divisions of a parent
corporation to consider the function performed by each to determine the proper
NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and
extended should these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main
Street Lending (MSL) Program is to "[e]nsure credit flows to small and mid-sized
businesses." However, to meet that goal, the following clarifications should be
provided in the Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using
the borrower's 2019 EBITDA. To maximize the amount of credit available to
eligible businesses, borrowers should receive the benefit of non-GAAP add-
backs to EBITDA, including equity in earnings of unconsolidated affiliates as
well as adjustments for one-time and non-recurring items.
B. How to count employees. The Program refers to "reasonable efforts" to
maintain payroll and retain workers , but many organizations were forced to
furlough or lay-off employees weeks ago. Therefore, the relevant employee
retention level should be as of the date of the loan application, if at all.
Further, an entity that does not have employees but otherwise satisfies the
definition of an eligible borrower also should be permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain
from using MSL funds to repay other "debt of equal or lower priority." This
restriction on payment of debt should not include mortgages existing as of
March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a
maximum of $25 million or four times 2019 EBITDA for the Main Street New
Loan Facility or six times 2019 EBITDA for the Main Street Expanded Loan
Facility (when aggregated with the borrower's existing outstanding and
committed but undrawn debt). Borrower's existing outstanding and
committed but undrawn debt should not include mortgages or capitalized
lease obligations when calculating maximum loan size. These items should
be considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve
press release notes that this program is available for businesses that were "in
good financial standing before the crisis." The rules should make clear that
borrowers satisfy this condition if they were not a debtor in a bankruptcy
proceeding as of March 13, 2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program
must agree to the compensation , stock repurchase, and dividend restrictions
that apply to direct loan programs under the CARES Act. However, the rules
should clarify that capital distributions for flow-through entities who must
make distributions to owners for taxes are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net
Operating Losses (NOL) recorded during 2020 to reclaim taxes paid in prior years.
As currently structured, those refunds will be received by companies in mid- to late-
2021 . That is, the relief will arrive in 12-15 months - not now, when that liquidity is
urgently needed. Further, companies that did well in prior years are at a material
disadvantage through no fault of their own. For companies that may have recorded
a loss in 2019 with profits in earlier years, they have an ability to request a refund
and can use the IRS digital filing system to expedite such refund. Without the fixes
below, companies that have done well in prior years are unfairly denied the same
immediate access to cash . To resolve these inherent inequities, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable
income to immediately file for 2020 loss carrybacks, gaining immediate
access to approximately 80% of the funds. Drawing 80% of the funds
provides the government a buffer to use against quarterly true ups with
actual 2020 net operating losses reconciled as a part of 2020 tax filings, or
2. Allow funds already allocated to be lent to companies at attractive rates as an
advance on estimated NOL carryback refunds.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted ,
Jeff Swanson
President
April 16, 2020
J \_.. GLOBAL
, ( BUSINfSS lnv~sting l.n America
, "' .ALUANCE
April 16, 2020
Submitted electronically.
Re: Comments on the Main Street Lending Program
The Global Business Alliance ("GBA") exclusively represents the U.S. operations of many of the
world's leading international companies. International companies operating in the United States
support millions of high-paying U.S. jobs, produce over a quarter of U.S. goods exports, and
help broaden America's economy and open new markets.
GBA's mission is to ensure that policymakers at the federal, state and local level understand the
critical role that foreign direct investment plays in America's economy. GBA advocates for fair,
non-discriminatory treatment of foreign-headquartered companies and promotes policies that
will encourage them to establish U.S. operations.
Under the April 9, 2020 term sheets for the Main Street New Loan Facility (" MSNLF") and the
Main Street Expanded Loan Facility ("MSELF"), "Eligible Lenders" in each facility were
defined as "U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings
and loan holding companies."
Further, under the March 23, 2020 term sheet for the Term Asset-Backed Securities Loan Facility
("TALF"), "Eligible Borrowers" were described as follows: "All U.S. companies that own
eligible collateral and maintain an account relationship with a primary dealer are eligible to
borrow under the TALE A U.S. company would be defined as a U.S. business entity organized
under the laws of the United States or a political subdivision or territory thereof (including such
an entity that has a non-U.S. parent company), or a U.S. branch or agency of a foreign bank."
However, as revised on April 9, 2020, the TALF term sheet no longer includes the explicit
reference to "a U.S. branch or agency of a foreign bank."
GBA requests that the Federal Reserve confirm that U.S. branches and agencies of non-U.S.
banks (collectively referred to as "U.S. branches") qualify as "U.S. businesses" and are able to
act as intermediaries for their customers with regard to these facilities. The Federal Reserve
appears to have read the U.S. business provision in CARES Act§ 4003(c)(3)(C) as also applying
to an intermediary that is facilitating a loan to or purchase from a U.S. business. That
interpretation is inconsistent with congressional intent expressed in Section 4003. Regardless,
U.S. branches of non-U.S. banks would still qualify as U.S. businesses that meet the
requirements of Section 4003(c)(3)(C).
U.S. branches are U.S. operating businesses that engage in financial transactions, provide
financial services to U.S. customers and jobs to U.S. workers. Further, a branch is "created"
under either federal or state law via a state or federal license which allows it to be established as
an entity and to exist. Likewise, U.S. branches have "significant operations ... in the United
States". The operations of a U.S. branch are in the United States and operations outside the
United States of other branches or affiliates are not part of the operations of the U.S. branch.
Finally, a U.S. branch has "a majority of its employees based in the United States." Employees
are hired and compensated by the U.S. branch and are U.S. taxpayers.
If U.S. branches are excluded from the Federal Reserve's implementation of Title IV programs
and facilities, it would unnecessarily hamper American businesses that are severely affected by
the economic slowdown from reaching the capital they need to survive this crisis. This outcome
would undermine the effectiveness of the CARES Act programs and place a burden on those
U.S. customers (and their employees) who have well established pre-existing banking
relationships with U.S. branches.
GBA supports the longstanding U.S. policy and principles of national treatment and equality of
competitive opportunity. These overarching principles dictate equal treatment for foreign and
domestic banks in like circumstances. We therefore request that the Federal Reserve confirm that
U.S. branches and agencies of non-U.S. banks qualify as "U.S. businesses" and are able to act as
intermediaries for their customers with regard to these facilities.
Sincerely,
Nancy McLemon
President and CEO
Global Business Alliance
2
DESIGNER
BRANDS
The following comments are submitted on behalf of Designer Brands Inc. ("DBI"). DBI is a leading
designer, producer and retailer of footwear and accessories. DBI operates more than 500 DSW
Designer Shoe Warehouse retail locat ions in 44 states and supplies footwear to more than 100
department stores in the United States through its Affiliated Business Group. Through its Camuto
Group division, DBI designs and produces footwear and accessories sold in more than 5,400 retail
locations. Unfortunately, DBI has been forced to shutter more than 500 stores in the United
States. As a result, more than 10,000 full- and part-time employees have been placed on
temporary leave without pay.
DBI is a mid-market "non-essential" specialty and discretionary retailer. In the CARES Act, mid-
market retailers like DBI are forced to compete against the biggest companies in the largest
sectors for Exchange Stabilization Fund loans. These large businesses can have more than 100
times the revenue of mid-market retailers and at least five times the number of employees. At
the same time, mid-market retailers are not even eligible for the same aid as the largest fast food
or hotel companies - each of which has more than five times the revenue as the smallest mid-
market retailer - simply because hotels and restaurants were granted a waiver from the
traditional affiliation rules applicable to SBA loans under the Paycheck Protection Program (PPP).
Thus, through no fault of our own, we (and potentially every other mid-market retailer) is at risk
of being exponentially damaged by the COVID-19 shutdowns - not only because revenue has
been abruptly shut off but also because the government relief provided to date fails to
adequately account for mid-market companies' circumstances. Put simply, small businesses
were extended aid, large businesses were extended credit facilities, and mid-sized businesses
were left out.
The problem for mid-market retailers like DBI is material, especially in discretionary and specialty
segments. DBI had revenue in 2019 in Confidential Business Information and can employ more than 13,000
full-time and part-time employees at peak holiday season. Although those numbers are
significant, given that we operated at a 3-5% operating profit margin before the pandemic, DBI
simply does not compete with larger retailers even in the best-of-times. Now, as a result of the
current pandemic, we are operating at a loss and will struggle to weather this storm and bring our
people back to work without additional support.
The existing legislation creates a dangerous void. M iddle-market companies fuel one-third of the
economy and account for nearly 60% of the jobs in the U.S. Much like small businesses, middle-
market companies have become integral parts of the communities in which they have grown,
providing flexible employment for local workers (predominantly women and significantly people
Designer Brands I 810 DSW Drive I Columbus, Ohio 43219
DSW Designer Shoe Warehouse I The Shoe Company I Shoe Warehouse I Affiliated Business Group I Camuto Group
www.DesignerBrands.com
DESIGNER
BRANDS
of color) and making contributions to local initiatives. The following comments are intended to
start to level the playing field for mid-market companies and provide the liquidity that will
allow mid-market retailers like DBI to invest in our people and businesses now so that when
we are permitted to re-open, we can do so safely and effectively.
1. Expedite NOL Carryback Relief. The CARES Act allows companies to use Net Operating
Losses (NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently
structured, those refunds will be received by companies in mid- to late-2021. That is, the
relief will arrive in 12-15 months - not now, when that liquidity is urgently needed.
Congress already made the determination that companies are entitled to this relief, but
it is up to Treasury to ensure that the companies are able to obtain that relief when we
actually need it (which is now). At present, there are no other government liquidity
programs targeted at middle market companies (>$2.5B / >10,000 employees), increasing
the odds of a sizeable increase in corporate debt issuances at a time of limited investor
demand and uncertainty in f uture cash flows, creating inflated borrowing rates for these
employers. Further, companies that did well in prior years are at a material disadvantage
through no fault of their own. For companies that may have recorded a loss in 2019 with
profits in earlier years, they have an ability to request a refund and are allowed to use the
IRS digital filing system to expedite such refund. Without the fixes below, companies that
have done well in prior years are unfairly denied the same immediate access to cash. To
reso lve that inherent inequity, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income
to immediately file for 2020 loss carrybacks, gaining immediate access to
approximately 80% of the funds. Drawing 80% of the funds provides the
government a buffer to use against quarterly true-ups with actual 2020 net
operating losses reconciled as a part of 2020 tax filings; or
B. Incorporate language into the next legislative action that permits the $500B
already allocated to the U.S. Treasury's Exchange Stabilization Fund to be lent to
mid-sized companies (between $2.5-$10B in revenue with 10K+ employees) at
attractive rates as an advance on estimated NOL carryback refunds.
2. Employee Retention Tax Credit. The CARES Act did not provide any material assistance
to mid-sized retail employers to preserve jobs. When the CARES Act was signed by
President Trump, the majority of "non-essential" retail stores already had been shuttered
for more than a week, and plans already had been implemented for workers to be
furloughed or laid off. Instead of assisting employers in returning unemployed workers
to work, employers with over 100 employees effectively were penalized because the
Designer Brands I 810 DSW Drive I Columbus, Ohio 43219
DSW Designer Shoe Warehouse I The Shoe Company I Shoe Warehouse I Affiliated Business Group I Camuto Group
www.DesignerBrands.com
DESIGNER
BRANDS
Employee Retention Tax Credit (ERTC) is available only if individuals are paid not to work.
Some of our employees can earn as much or more through enhanced unemployment
compensation. However, if employers with more than 100 employees were permitted to
receive the ERTC for employees who are performing services - just as smaller employers
can - we are far more likely to bring employees back sooner. which will assist us in
preparing the stores for a safe and comfortable re-open and simultaneously relieve the
overwhelming burden on state UI programs. In addition, the maximum wages allowed for
the credit should be increased to $20,000 per quarter.
3. Duty Deferral & Extended Repayment. There exists strong bipartisan support for duty
deferral, ranging from 90 to 180 days. This deferral is a straightforward fix that can help
retai lers like DBI, which already has reduced orders for the remainder of the year. As the
shutdowns linger, the need for deferral for specialty and discretionary retailers grows.
However, to be effective. any deferral must come with a reasonable repayment structure;
otherwise, deferral merely creates an overwhelming bill due in just a few months, when
consumer confidence and discretionary spending habits may not have returned to pre-
COVID-19 levels. A repayment structure that allows deferra l over two years - much like
the payroll tax deferral - is a necessary and appropriate companion to duty deferral.
4. Provide relief to impacted commercial property owners on the condition that such relief
be shared with retail tenants. Implementing the CARES Act's relief for homeowners and
renters, the Federal Home Financing Authority provided multifamily borrowers
forbearance of their mortgage payments with the condition that they also agree to the
suspension of all evictions for renters unable to pay rent due to of COVID-19. Under the
terms of Fannie Mae's program, for example, mortgage loan payments are suspended for
a period up to 90 days and affected tenants must be pe rmitted to repay missed payments
over a period of no more than 12 months, without late charges (in addit ion to the tenant's
regular monthly rent). In Ohio, Governor Mike DeWine signed Executive Order 2020-08D,
which requests that landlords and lenders provide Ohio commercial borrowers and small-
business tenants facing "financial hardship due to the COVID-19 pandemic" with a 90-day
reprieve on rent or mortgage payments and evictions. Municipalities in California have
issued restrictions on commercial eviction and foreclosure actions. Multiple other states'
courts have simply suspended all foreclosure and eviction proceedings. This patchwork
approach adds tremendous uncertainty to the markets and heightened inequality among
retail tenants, commercial property owners, and lenders resulting entirely from state and
local leaders' attention to the issue.
Designer Brands I 810 DSW Drive I Columbus, Ohio 43219
DSW Designer Shoe Warehouse I The Shoe Company I Shoe Warehouse I Affiliated Business Group I Camuto Group
www.DesignerBrands.com
DESIGNER
BRANDS
The impact of COVID-19 does not discriminate between residentia l and commercial
properties or property owners, and the relief available should not either. According to
analysis from Fitch Ratings, more than 2,600 commercial real estate borrowers -
representing over $49 billion in mortgage loans - sought potential debt relief in the first
two weeks of the U.S. COVID-19 outbreak alone. Those relief requests reportedly have
been focused in large pa rt on loan payment forbearance. Retailers fully support these
forbearance efforts. However, the terms of any relief provided to commercial real estate
borrowers should be modeled after the CARES Act such that any relief must be provided
on the condition that all eviction and foreclosure action against retail tenants be similarly
suspended with repayment terms for the missed payments that can extend over no more
than 12 months.
5. Expanded PPP Eligibility. Many mid-market reta ilers with multiple locations would
benefit from changes to the PPP program that are entirely consistent with both the letter
and the spirit of the Program. Specifically:
A. Expand the multiple locations waiver granted to hotels and restaurants (NAICS 72)
with multiple physical locations but fewer than 500 employees per location to
retail trades (NAICS 44-45).
B. In the case of entities that operate in one or more unrelated NAICS codes, waive
affiliation rules for an entity that has fewer than 500 employees in a pa rticular
NAICS code.
For questions, please contact:
Designer Brands Inc.
William L. Jordan
Chief Growth Officer
810 DSW Drive
Columbus, Ohio 43219
614-237-7100
Designer Brands I 810 DSW Drive I Columbus, Ohio 43219
DSW Designer Shoe Warehouse I The Shoe Company I Shoe Warehouse I Affiliated Business Group I Camuto Group
www.DesignerBrands.com
AE01NC.
The following comments are submitted on behalf of American Eagle Outfitters, Inc. ("AEO"). AEO was
founded in 1977 as part of a family-owned and -operated retail business and has grown into a beloved
multi-brand specialty retailer. We offer a broad assortment of high quality, on-trend apparel, and
accessories at affordable prices for men and women under the American Eagle brand, and int imates,
apparel, and personal care products for women under t he Aerie brand. We sell directly to consumers
online and through our vibrant retail channel. Unfortunately, AEO has been forced to shutter every one
of its 900+ stores in t he United States. As a result, more than 33,000 employees have either been
furloughed or laid off.
AEO is a mid-market "non-essential" specialty and discretionary retailer. In the CARES Act, mid-market
retailers like AEO are treated like the biggest domestic companies. These large businesses can have
more t han 100 times the revenue of mid-market retailers and at least five times the number of
employees. At the same time, mid-market retailers are not even eligible for the same aid as the largest
fast food or hotel companies - each of which has more than five times the revenue as the smallest mid-
market retailer - simply because hotels and restaurants were granted a waiver from the traditional
affiliation rules applicable to SBA loans under the Paycheck Protection Program (PPP). Thus, through no
fault of our own, we (and potentially every other mid-market retailer) is at risk of being exponentially
damaged by the COVID-19 shutdowns- not only because revenue has been abruptly shut off but also
because the government relief provided to date fails to adequately account for mid-market companies'
circumstances. Put simply, small businesses were extended aid, large businesses were extended credit
facilities, and successful mid-sized businesses were left out.
The problem for mid-market retailers like AEO is material, especially in discretionary and specialty
Confidential
segments. AEO had revenue in 2019 in _ _ ___ Business
_ _ _nd can employ more than 40,000 full-time
Information 1
and part-time employees at peak holiday season. Although those numbers are significant, given that we
operated at a slim 3-4% profit margin before the pandemic, AEO simply does not complete with larger
retailers even in the best-of-times. Now, as a result of the current pandemic, we are operating at a loss
and will struggle to weather this storm and bring our people back to work without additional support.
The existing legislation creates a dangerous void. M iddle-market companies fuel one-third of t he
economy and account for nearly 60% of the jobs in the U.S. M uch like small businesses, middle-market
companies have become integral parts of the communities in which they have grown, providing flexible
employment for local workers (predominantly women and significantly people of color) and making
contributions to local initiatives. The following comments are intended to start to level the playing
field for mid-market companies and provide the liquidity that will allow mid-market retailers like AEO
to invest in our people and businesses now so that when we are permitted to re-open, we can do so
safely and effectively.
1. Expedite NOL Carryback Relief. Congress already made the determination that companies are
entitled to this relief, but it is up to Treasury to ensure that the companies are able to obtain
t hat relief when we actually need it (which is now). The CARES Act allows companies to use Net
Operating Losses (NOL) recorded during 2020 to reclaim t axes paid in prior years. As currently
structured, those refunds will be received by companies in mid- to late-2021. That is, the relief
will arrive in 12-15 months - not now. when that liquidity is urgently needed. At present, t here
1 of 4
AE01NC.
are no other government liquidity programs targeted at middle market companies (>$2.5B /
>10,000 employees), increasing the odds of a sizeable increase in corporate debt issuances at a
t ime of limited investor demand and uncertainty in future cash flows, creating inflated
borrowing rates for these employers. Further, companies that did well in prior years are at a
material disadvantage through no fault of their own. For companies that may have recorded a
loss in 2019 with profits in earlier years, they have an ability to request a refund and are allowed
to use the IRS digital filing system to expedite such refund. Without the fixes below, companies
t hat have done well in prior years are unfairly denied the same immediate access to cash. To
resolve that inherent inequity, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carry backs, gaining immediate access to approximately
80% of t he funds. Drawing 80% of the funds provides the government a buffer to use
against quarterly true-ups with actual 2020 net operating losses reconciled as a part of
2020 tax filings; or
8. Incorporate language into the next legislative action that permits the $5008 already
allocated to the U.S. Treasury's Exchange Stabilization Fund to be lent to mid-sized
companies (between $2.5-$108 in revenue with lOK+ employees) at attractive rates as
an advance on estimated NOL carryback refunds.
2. Employee Retention Tax Credit. The CARES Act did not provide any material assistance to mid-
sized retail employers to preserve jobs. When the CARES Act was signed by President Trump,
the majority of "non-essential" retail stores already had been shuttered for more than a week,
and plans already had been implemented for workers to be furloughed or laid off. Instead of
assisting employers in returning unemployed workers to work, employers with over 100
employees effectively were penalized because t he Employee Retention Tax Credit (ERTC) is
available only if individuals are paid not to work. Some of our employees can earn as much or
more through enhanced unemployment compensation. However, if impacted employers with
more than 100 employees were permitted to receive the ERTC for employees who are
performing services - just as impacted smaller employers can - we are far more likely to bring
employees back sooner, which will assist us in preparing the stores for a safe and comfortable
re-open and simultaneously relieve the overwhelming burden on state UI programs. In addition,
the maximum wages allowed for the credit should be increased to $20,000 per quarter.
3. Duty Deferral & Extended Repayment. There exists strong bipartisan support for duty deferral.
ranging from 90 to 180 days. This deferral is a straightforward fix that can help retailers like
AEO, which already has reduced orders at least for t he remainder of the year. We have no
intent, let alone ability, to increase inventory purchases during a limited deferral period, and we
agree that no business should take advantage of any deferral period. However, a targeted
deferral period to impacted businesses is entirely consistent with other deferrals t he
Administration already has extended to impacted groups, including payroll tax and student loan
deferrals.
As the shutdowns linger, the need for deferral for specialty and discretionary retailers who have
been impacted grows. However, to be effective, any deferral must come with a reasonable
2 of 4
AE01NC.
repayment structure; otherwise, deferral merely creates an overwhelming bill due in just a few
months, when consumer confidence and discretionary spending habits may not have returned
to pre-COVID-19 levels. A repayment structure that allows deferral over two years - much like
t he payroll tax deferral - is a necessary and appropriate companion to duty deferral.
4. Provide relief to impacted commercial property owners on the condition that such relief be
shared with retail tenants. Implementing the CARES Act's relief for homeowners and renters,
the Federal Home Financing Authority provided multifamily borrowers forbearance of their
mortgage payments with the condition t hat t hey also agree to the suspension of all evictions for
renters unable to pay rent due to of COVID-19. Under the terms of Fannie Mae's program, for
example, mortgage loan payments are suspended for a period up to 90 days and affected
tenants must be permitted to repay missed payments over a period of no more than 12 months,
without late charges (in addition to the tenant's regular monthly rent). In Ohio, Governor Mike
DeWine signed Executive Order 2020-080, which requests that landlords and lenders provide
Ohio commercial borrowers and small-business tenants facing "financial hardship due to t he
COVID-19 pandemic" with a 90-day reprieve on rent or mortgage payments and evictions.
Municipalities in California have issued restrictions on commercial eviction and foreclosure
actions. Multiple other states' courts have simply suspended all foreclosure and eviction
proceedings. This patchwork approach adds tremendous uncertainty to the markets and
heightened inequality among retail tenants, commercial property owners, and lenders resulting
entirely from state and local leaders' attention to the issue.
The impact of COVID-19 does not discriminate between residential and commercial properties
or property owners. and the relief available should not either. According to analysis from Fitch
Ratings, more t han 2,600 commercial real estate borrowers - representing over $49 billion in
mortgage loans - sought potential debt relief in the first two weeks of the U.S. COVID-19
outbreak alone. Those relief requests reportedly have been focused in large part on loan
payment forbearance. Retailers fully support these forbearance efforts. However, the terms of
any relief provided to commercial real estate borrowers should be modeled after the CARES Act
such that any relief must be provided on the condition that all eviction and foreclosure action
against retail tenants be similarly suspended with repayment terms for the missed payments
that can extend over no more than 12 months.
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5. Expanded PPP Eligibility. Many mid-market retailers with multiple locations would benefit from
changes to the PPP program that are entirely consistent with both the letter and the spirit of the
Program. Specifically:
A. Expand the multiple locations waiver granted to hotels and restaurants (NAICS 72) with
multiple physical locations but fewer than 500 employees per location to retail trades
(NAICS 44-45).
B. In the case of entities that operate in one or more unrelated NAICS codes, waive
affiliation rules for an entity that has fewer than 500 employees in a particular NAICS
code.
Respectfully submitted,
Jay L. Schottenstein
Chief Executive Officer & Execut ive Chairman
Please direct communications t o :
Beth Henke, Deputy General Counsel
412.432.3374
HenkeB@ae.com
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The following comments are submitted on behalf JS AOL LLC (d/b/a Artisan de Luxe).
Artisan de Luxe is a single-store clothing and accessories retailer located in Columbus, Ohio. Since the
beginning of the COVID-19 pandemic Artisan de Luxe has been forced to close its store and 6 of the 7
full-time and part-time employees have either been laid-off or had their hours significantly reduced.
Confidential
Business
Artisan de Luxe is in every way a small business- 7 employees in a company generating• • • •n
Information
revenue at our single store. The Paycheck Protection Program (PPP) appeared to us to be a well-
targeted and much needed bridge, allowing us to retain our staff until we could potentially re-open to
the pu blic. In the CARES Act though, some small businesses, such as ours, have been left out. We are
not even eligible for the same aid as the largest fast food or hotel companies - each of which has many
t imes our revenue - simply because hotels and restaurants were granted a waiver from the traditional
affiliation rules applicable to SBA loans under the Paycheck Protection Program (PPP).
The existing legislation creates a dangerous void. Small businesses, like us, are integral parts of the
communities in which they have grown, providing flexible employment for local workers (predominantly
women and college students) and making contributions to local in itiatives. The following comments are
intended to start to level the playing field for all companies and provide the liquidity that will allow
small businesses like Artisan de Luxe to invest in our people and business now so that when we are
permitted re-open our store, we can do so safely and effectively.
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program (PPP)
was conceived to provide direct funding to small businesses to keep their workers on the
payroll. Unfortunately, t he SBA's affiliation rules prevent many small businesses from accessing
this program. While there has been significant discussion about how t hese rules exclude many
investments in small business made by private equity and venture capital firms, there has been
little or no discussion about family-owned businesses t hat cannot apply for relief. Stores are not
making sales, property owners are not receiving rents, vendors are not being paid, businesses
are seeking relief from lenders, and employees are being asked to take pay reductions or
furloughs until we can recover and reopen.
Families own many small businesses. In fact, many families own multiple small businesses that
operate independently of one another despite common family ownership or officers. Many of
these families structure their ownership in businesses through trusts. The SBA affiliation rules
cause family-owned businesses to be aggregated although t here is no practical way for capital to
be shared by those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other. Trust ownership
of business presents a unique problem in a crisis such as this. The fiduciary of the trust has a
duty to the trust first. Should a family that owns (via trust or otherwise) multiple small
businesses and is an active job creator in each of these businesses be penalized by having these
businesses precluded from accessing the PPP funding designed specifically to maintain and
preserve jobs? Absent a modification, the affiliation rules as presently written do just that by
aggregating commonly owned but independent small businesses resulting in an inability for
these businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
We ask our leaders to get relief for as many as possible as soon as possible. Accessing PPP
funding will allow small businesses to prepare for the "New Reality." Workers can be put back to
work cleaning and preparing for business to reopen. The affiliation rules must be relaxed for
small businesses to provide funding for a reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet the size standards for each NAICS code. We also ask that
the SBA allow subsidiaries and divisions of a parent corporation to consider the function
performed by each to determine the proper NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and extended should
these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street Lending
(MSL) Program is to "[e]nsure credit flows to small and mid-sized businesses." However, in
order to meet that goal, the following clarifications should be provided in t he Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using the
borrower's 2019 EBITDA. In order to maximize the amount of credit available to eligible
businesses, borrowers should receive the benefit of non-GMP add-backs to EBITDA,
including equity in earnings of unconsolidated affiliates as well as adjustments for one-
time and non-recurring items.
B. How to count employees. The Program refers to " reasonable efforts" to maintain
payroll and retain workers, but many organizations were forced to furlough or lay-off
employees weeks ago. Therefore, the relevant employee retention level should be as of
the date of the loan application, if at all. Further, an entity that does not have
employees but otherwise satisfies the definition of an eligible borrower also should be
permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain from using
MSL funds to repay other "debt of equal or lower priority." This restriction on payment
of debt should not include mortgages existing as of March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a maximum of
$25 million or four times 2019 EBITDA for the Main Street New Loan Facility or six times
2019 EBITDA for the Main Street Expanded Loan Facility (when aggregated with the
borrower's existing outstanding and committed but undrawn debt). Borrower's existing
outstanding and committed but undrawn debt should not include mortgages or
capitalized lease obligations when calculating maximum loan size. These items should be
considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve press
release notes that t his program is available for businesses that were "in good financial
standing before the crisis." The rules should make clear that borrowers satisfy this
condition as long as they were not a debtor in a bankruptcy proceeding as of March 13,
2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program must agree
to the compensation, stock repurchase, and dividend restrictions that apply to direct
loan programs under the CARES Act. However, the rules should clarify that capital
distributions for flow-through entities who must make distributions to owners for taxes
are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net Operating Losses
(NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently structured, those
refunds will be received by companies in mid- to late-2021. That is, the relief will arrive in 12-15
months - not now, when that liquidity is urgently needed. Further, companies that did well in
prior years are at a material disadvantage through no fault of their own. For companies that
may have recorded a loss in 2019 with profits in earlier years, they have an ability to request a
refund and are allowed to use the IRS digital filing system to expedite such refund. Without the
fixes below, companies that have done well in prior years are unfairly denied the same
immediate access to cash. To resolve these inherent inequities, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carrybacks, gaining immediate access to approximately
80% of the funds. Drawing 80% of the funds provides the government a buffer to use
against quarterly true-ups with actual 2020 net operating losses reconciled as a part of
2020 tax filings; or
B. Allow funds already allocated to be lent to companies at attractive rates as an advance
on estimated NOL carryback refunds.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted,
Jared Rubin
CFO
April 16, 2020
COMPANY FINE WINE
The following comments are submitted on behalf Raconteur Fine Wines LLC {d/b/a Company Fine
Wine).
Company Fine Wine is a seller of wine and spirits located in Napa, CA. Company Fine Wine is at risk of
being existentially damaged by the COVID-19 crisis. Due to the crisis we have seen difficulty sourcing
inventory given our global supply chain as well as closure of most of our office severely affecting our
ability to operate.
Company Fine Wine is in every way a small business with only 10 employees. The Paycheck Protect ion
Program (PPP) appeared to us to be a well-targeted and much needed bridge, allowing us to retain our
staff until our revenue streams return to stability. As it stands, we are ineligible as we fall afoul of the
SSA's affiliation rules. It is unimaginable that we are not eligible for small business aid when some of
the largest fast food or hotel companies - each of which has many hundreds of times our revenue - have
been granted a waiver from the t raditional affiliation rules.
The existing legislation creates a dangerous void. Small businesses, like us, are integral parts of the
communities in which they have grown, providing flexible employment for local workers and making
contributions to local initiatives. The following comments are intended to start to level the playing
field for all companies and provide the liquidity that will allow small businesses like Company Fine
Wine to invest in our people and business now so that when we are permitted fully return to our
offices, we can do so safely and effectively.
1. Paycheck Protection Program and Affiliation Rules. The Paycheck Protection Program (PPP)
was conceived to provide direct funding to small businesses t o keep t heir workers on the
payroll. Unfortunately, t he SSA's affiliation rules prevent many small businesses from accessing
this program. While there has been significant discussion about how these rules exclude many
investments in sma ll business made by private equity and venture capital firms, t here has been
little or no discussion about family-owned businesses that cannot apply for relief. Stores are not
making sales, property owners are not receiving rents, vendors are not being paid, businesses
are seeking relief from lenders, and employees are being asked to t ake pay reductions or
furloughs until we can recover and reopen.
Families own many small businesses. In fact, many families own multiple small businesses that
operate independently of one another despite common family ownership or officers. Many of
these families structure their ownership in businesses through trusts. The SBA affiliat ion rules
cause family-owned businesses t o be aggregated although there is no practical way for capital to
be shared by those businesses. Each business has a duty to its stakeholders - its workers, its
customers, and its owners. These businesses do not have a duty to each other. Trust ownership
of business presents a unique problem in a crisis such as this. The fiduciary of the trust has a
duty to the trust first. Should a family t hat owns (via trust or otherwise) multiple small
businesses and is an active job creator in each of these businesses be penalized by having t hese
businesses precluded from accessing the PPP f unding designed specifically to maintain and
preserve jobs? Absent a modification, the affiliation rules as presently written do just that by
aggregating commonly owned but independent small businesses resulting in an inability for
these businesses to access the PPP capital needed, and intended for, the very purpose of job
preservation.
521 Alexis Court, Napa CA 94558
www.companyfinewine.com
COMPANY FINE WINE
We ask our leaders to get relief for as many as possible as soon as possible. Accessing PPP
funding will allow small businesses to prepare for the "New Reality." Workers can be put back to
work cleaning and preparing for business to reopen. The affiliation rules must be relaxed for
small businesses to provide funding for a reopening.
We ask that the SBA waive all affiliation rules for entities operating across one or more
unrelated NAICS codes but who meet the size standards for each NAICS code. We also ask that
the SBA allow subsidiaries and divisions of a parent corporation to consider the function
performed by each to determine the proper NAICS code to apply for a PPP loan.
In addition, the size and length of the program will need to be increased and extended should
these recommendations be considered and adopted.
2. Main Street Lending Program. The Federal Reserve's stated purpose of the Main Street Lend ing
(MSL) Program is to "[e]nsure credit flows to small and mid-sized businesses." However, in
order to meet that goal, the following clarifications should be provided in the Program rules:
A. Calculating EBITDA. Maximum loan amounts are calculated, in part, using t he
borrower's 2019 EBITDA. In order to maximize t he amount of credit available to eligible
businesses, borrowers should receive the benefit of non-GAAP add-backs to EBITDA,
including equity in earnings of unconsolidated affiliates as well as adjustments for one-
time and non-recurring items.
B. How to count employees. The Program refers to "reasonable efforts" to maintain
payroll and retain workers, but many organizations were forced to furlough or lay-off
employees weeks ago. Therefore, the relevant employee retention level should be as of
the date of the loan application, if at all. Further, an entity that does not have
employees but otherwise satisfies the definition of an eligible borrower also should be
permitted to participate.
C. Attestation by borrowers regarding debt. Borrowers must commit to refrain from using
MSL funds to repay other "debt of equal or lower priority." This restriction on payment
of debt should not include mortgages existing as of March 13, 2020.
D. Maximum Loan Size. Loan size ranges from a minimum of $1 million to a maximum of
$25 million or four times 2019 EBITDA for the Main Street New Loan Facility or six times
2019 EBITDA for the Main Street Expanded Loan Facility (when aggregated with the
borrower's existing outstanding and committed but undrawn debt). Borrower's existing
outstanding and committed but undrawn debt should not include mortgages or
capitalized lease obligations when calculating maximum loan size. These items should be
considered operating costs for calculating maximum loan size.
E. What constitutes "good prior credit before the crisis." The Federal Reserve press
release notes that this program is available for businesses that were "in good financial
standing before the crisis." The rules should make clear that borrowers satisfy this
condition as long as they were not a debtor in a bankruptcy proceeding as of March 13,
2020.
F. No additional restrictions on borrowers. Borrowers under the MSL Program must agree
to the compensation, stock repurchase, and dividend restrictions that apply to direct
loan programs under the CARES Act. However, the rules should clar ify that capital
521 Alexis Court, Napa CA 94558
www.companyfinewine.com
COMPANY FINE WINE
distributions for flow-through entities who must make distributions to owners for taxes
are permitted.
3. Net Operating Loss Carryback. The CARES Act allows companies to use Net Operating Losses
(NOL) recorded during 2020 to reclaim taxes paid in prior years. As currently structured, those
refunds will be received by companies in mid- to late-2021. That is, the relief will arrive in 12-15
months - not now, when t hat liquidity is urgently needed. Further, companies that did well in
prior years are at a material disadvantage through no fault of their own. For companies that
may have recorded a loss in 2019 with profits in earlier years, they have an ability to request a
refund and are allowed to use the IRS digital filing system to expedite such refund. Without the
fixes below, companies t hat have done well in prior years are unfairly denied the same
immediate access to cash. To resolve these inherent inequit ies, we propose:
A. Allow companies to use 1st quarter results and estimated full year taxable income to
immediately file for 2020 loss carrybacks, gaining immediate access to approximately
80% of the funds. Drawing 80% of the funds provides the government a buffer to use
against quarterly true-ups with actua l 2020 net operating losses reconciled as a part of
2020 tax filings; or
B. Allow funds already allocated to be lent to companies at attractive rates as an advance
on estimated NOL carryback refunds.
4. Duty Deferral & Extended Repayment. There exists strong bipartisan support for duty deferral,
ranging from 90 to 180 days. As t he shutdowns linger, the need for deferral grows. However, to
be effective, any deferral must come with a reasonable repayment structure; otherwise,
deferral merely creates an overwhelming bill due in just a few months, when consumer
confidence and discretionary spending habits may not have returned to pre-COVID-19 levels. A
repayment structure that allows deferral over two years - much like the payroll tax deferral - is
a necessary and appropriate companion to duty deferral.
For questions contact srossetti@me.com at (240)401-4521.
Respectfully submitted,
Matt Wilson
Manager
April 16, 2020
521 Alexis Court, Napa CA 94558
www.companyfinewine.com
April 16, 2020
Sent Via Email: regs.comments@federa lreserve.gov
Board of Governors of the Federal Reserve System
20 Constitution Ave NW
Washington, DC 20551
Re: Main Street Lending - Federal Reserve Comments Submission
To whom it may concern,
Background on Triple Five:
Triple Five is the developer, owner and operator of two of the most important world-class, tourist-
destination entertainment and retail complexes in the United States - Mall of America (located in
Minnesota) and American Dream (located in New Jersey). Due to the coronavirus (COVID-19)
pandemic, both complexes were closed in March.
These two properties combined employ over 30,000 people, generate in excess of $6 billion to the
economies of these two states/regions and generate over $300 million in taxes annually to state and
local governments. Both properties are economic engines which provide enormous fuel and power to
the tourism, hotel/hospitality, entertainment, retail and food and beverage industries of each state.
Combined, the properties: (i) draw an estimated 80 million visits each year with approximately 50% of
the visitors as tourists to these locations; and (ii) bring new revenues and economic activity to these
states with enormous multiplier effects in their economies.
Triple Five Assets Mall of America American Dream Total
Current Size 5.6M sf over SM sf over 10.6M sf
# Tenants/business over 500 over400 over900
Confidential Business Information
Impacts
Employment (on-site jobs) 15,000 16,000 over 30,000
Total Employment (on and off-site jobs) 20,000 23,000 over 45,000
Tax Revenue (annual) over $185 million over $200 million over $385 million
Visits over 40 million 40 - 50 million over 80 million
Economic Impact (annual) $2.5 billion $3 billion over $5.5 billion
..i=uture Exo.ansloo
Confidential Business Information
II
Employment (construction) 22,000 25,000 over 45,000
Employment (permanent) 8,000 10,000 over 18,000
One Meadowlands Plaza I 14th Floor IEast Rutherford, NJ 07073 I 201.340.2909 Page 1
Main Street Extended Lending Program:
Triple Five agrees with the Federal Reserve and the Treasury Department that businesses vary widely in
their financing needs. The size of the U.S. economy is almost $22 trillion. The Federal Reserve's lending
facilities must support as many businesses as possible at this critical time, which in turn supports the
economy as effectively and efficiently as possible and also safeguarding taxpayer funds.
Current Borrower Eligibility Requirement - Maximum EBITDA Test
The Extended Loan Facility Term Sheet issued on April 9, 2020 includes a loan eligibility criteria which
excludes an entire class of real estate assets that do not meet the six (6) times EBITDA requirement.
The recommended changes will help otherwise strong businesses who are experiencing even greater
challenges than companies with investment grade assets that would otherwise meet the test.
Triple Five recommends that the Federal Reserve modify this requirement to allow for participation of
large, institutional-quality real estate assets (which are also important regional economic generators)
with debt structures that exceed this multiple, but are otherwise eligible.
Proposed Alternative Criteria:
Common metrics to measure debt for commercial real estate include: Debt Yield (Net Cash Flow/Loan
Amount) and Loan to Value (Loan Amount/Asset Value). Based on input from The Commercial Real
Estate Finance Council (CREFC), one of the most important industry organizations focused on
Commercial Real Estate CMBS market, as well multiple commercial mortgage trading desks and
commercial real estate brokers, loan leverage on recent originations for institutional quality real estate
assets have the following characteristics, including:
Debt Yield: Minimum 6% debt yield (based on 2019 income in place)
Loan to Value: Up to 75% range, for strong, stable assets (based on 2019 value)
We propose that the Federal Reserve modify the current eligibility requirement and:
1. Adopt 6% Debt Yield and 75% Loan to Value criteria, which are within accepted industry norms for
premier quality real estate assets.
OR
2. Allow premier Commercial Real Estate Properties -- that produce substantial jobs, and other
economic impacts - to be considered and granted approval for participation, on an exception
basis. This should include recently completed assets that do not have historic cash flow.
Mall of America:
Mall of America (MOA) is one of the largest employers in the State of Minnesota with over 15,000
people working at the complex and thousands more working off-site in related jobs supporting the
property - thousands of hotel, transportation and business suppliers. Opened in 1992, Mall of America
has become the number one tourist destination in the U.S. per Time Magazine with over 40 million visits
per year. It generates over $185 million annua l in tax revenues - critical to Minnesota and the entire
metro area. Since 1992, the property has generated in excess of $3 billion in federal, state and local
taxes.
One Meadowlands Plaza I 14th Floor I East Rutherford, NJ 07073 I 201.340.2909 Page 2
Facility Request:
These loan proceeds will be critical to allow Mall of America to quickly reopen, maintain its position as
America's #1 retail & entertainment destination and to continue to be an important employment center
and critical economic engine for the State of n oesota_and the entire Minneapolis-St. Paul
1
Confidential Business
metropolitan area. More specifically, the addition of Information
.~ ~__,oan proceeds, provided through the
Main Street Extended Loan Facility program, are essent,a m oraer to allow the property to reopen
and: (a) rehire our employees (b) pay property taxes Confidential Business Information sales and other taxes;
(c) pay debt service on Confidential
____ Business Information
_ (d) other operating shortfalls during the period the
property is closed, and during period from re-opening to stabilization.
Mall of America is an excellent candidate to receive funds under this Program given:
1. MOA is an important asset for the State of Minnesota, and the Midwest -- as a job creator and
tax revenue generator; as well as an international tourist destination which supports the
extensive hospitality market and other surrounding businesses. It remains the most visited
tourist destination in the nation.
2. ½n
___
MOA's mor:.e than 27-year track record of success with stable income stream -- (approximately
Confidential
Business
Information
__,EBITDA in 2019) makes it one of the most important retail entertainment centers in
t e coun ry.
Confidential
3. Additional Economic Benefits -- Future expansion estimated at Business ill bring an
Information
additional 22,000 construction jobs and 8,000 permanent jobs, tax revenues, t ourism dollars
and other economic impacts to the state and region.
American Dream: Confidential
Opening initially in October 2019, this Business
Information
tlevelopment, has created over 23,000 construction
jobs on and off site, with over 8 million worRer-nours and $1.2 billion in wages paid to complete the
project. Scheduled to open its subsequent retail and water park phases on March 19, 2020, the
coronavirus (COVID-19) crisis plunged this world-class, state-of-the-art new entertainment and retail
complex into perilous uncertainty. More than 16,000 employees projected to be hired in 2020 for the
complex were furloughed or not hired due to the suspended opening. The center has existing debt
Confidential
facilities totaling ..__ ___ Business
___ Information
_ _ _ _ _ ____. to complete the opening and stabilization
period.
1. American Dream is an important asset for and designated project of the State of New Jersey -
which was on-track to generate over 16,500 jobs on-site and an additional 6,700 jobs off-site
prior to the coronavirus crisis. These jobs are projected to produce annual wage income for
New Jersey residents totaling over $1.08 billion. Further, this new property is conservatively
projected to generate over $2.9 Billion in annual economic output for the State and Region.
With a projected 40 to 50 Million annual visits, American Dream will unquestionably be a
leading tourist destination generating major economic growth for New Jersey and New York.
2. American Dream's projected annual Tax Revenue generation for the State of New Jersey and
its municipalities is slated at over $186 Million -- Over its first 20 years of operations,
American Dream is projected to generate over $4.4 Billion in State tax revenues alone.
3. Additional Economic Benefits -- Future expansion estimated at over $2.0 billion will bring an
estimated additional 25,000 construction jobs and 10,000 permanent jobs as well as additional
tax revenues and tourism dollars to the state and region.
One Meadowlands Plaza I 14th Floor I East Rutherford, NJ 07073 I 201.340.2909 Page 3
Confidential Business
The addition of- - - - - •~dditional loan proceeds provided through the Main Street Extended Loan
Information
Facility program will provide an essential "lifeline" that will enable the property to re-open and
complete its launch.
Thank you for your consideration of this urgent request.
Sincerely,
r~v'.\r~
Tony Armlin JP
Senior Vice President, Development
One Meadowlands Plaza I 14th Floor I East Rutherford, NJ 07073 I 201.340.2909 Page4
Federal Reserve Bank
April 16, 2020
Re: Main Street Lending
Elevation Resources LLC is an oil and gas exploration and production company based in Midland,
Texas. We have 20 full-time employees and when we are drilling wells, have over 150 contract
Confidential Business Information
employees helping to drill and complete the wells. We have paid over
-..,.....--~
to University Lands (UT System), severance taxes and ad valorem taxes to the State of Texas and
Texas Counties in our seven-year history.
Like so many other small businesses, we have been severely impacted by government restrictions
and changes in business behavior due to the coronavirus, as well as the overall weakened
economy. In particular, the stay at home orders across our nation have reduced gasoline and jet
fuel demand by 50% or more, which in turn has reduced oil demand and has driven the price of
oil at the wellhead below $20 per barrel. We have been paid effectively zero for our natural gas
and gas liquids for the past several months. These record low commodity prices in current dollars
is unsustainable and threatens the survival of our domestic oil and gas industry, including the
companies that serve operators in the well construction process.
In order to keep paying and providing benefits including full healthcare coverage and 401-k
matching to our employees so that they can support their families, we need access to lending
under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") that is
designed for businesses like ours and the Main Street Lending Program.
The recently passed Families First Coronavirus Response Act ("FFCRA") and the Coronavirus Aid,
Relief, and Economic Security Act ("CARES Act") both are, at their core, efforts to mitigate the
hardships that the necessary response to COVID-19 has caused small businesses and, more
importantly, their employees. However, due to the different legal underpinnings of these laws,
a discrepancy has arisen in the types of businesses (and their employees) who are able to take
advantage of the benefits Congress had intended that these laws provide to all small
businesses. One significant discrepancy relates to how the Department of Labor ("DOL") and the
SBA determine who qualifies as a "small business" for purposes of each act.
To date, the SBA has stated that it intends to apply the affiliation rules under CFR 121.301(f) for
the purposes of determining whether or not an employer has more than 500 employees. Under
that regulation, the SBA applies broad affiliation rules, which generally require a company to
aggregate employees or receipts with companies under common control with it. The SBA's
normal affiliation rules are appropriate when giving normal small business loans under normal
200 N. Loraine, Ste. 1010
Midland, Texas 7970 I
Page 2
Main Street Lending
circumstances, as these loans are focused on entities that need access to capital that may not be
available from other sources. However, as the SBA and the Department of the Treasury have
stated, the CARES Act and the PPP were intended to protect employees. The breadth of the SBA
affiliation rules will result in a large number of employees losing their jobs because the entities
they work for are disqualified from the PPP due to relationships those entities may have with
investors, despite the fact that they work for businesses with less than 500 employees.
Because of the application of the SBA affiliation rules, we and thousands of small businesses like
us are unable to access this program since one of the owners of our small business is a private
investment firm. In our case, our primary investor has and continues to be a very supportive
shareholder of our company. However, the economic impact of the current crisis is too great for
any one investor to address on its own, especially when you consider the many businesses such
firms invest in, each facing its own substantial financial challenges at this difficult time.
We would strongly urge Congress to, in this limited instance, adopt the same rules for
determining the applicability of the FFCRA and the PPP, and clarify that an employer who has less
than 500 employees under either the SBA affiliation rules or DOL integrated employer test may
qualify for a PPP loan. In the DOL's Question and Answer with respect to the FFCRA, the DOL
applies the "integrated employer test" under CFR 825.104 to determine whether two or more
entities are separate or combined for the purposes of determining the number of
employees. The integrated employer test is based on a significant body of case law rooted in
Title VII of the Civil Rights Act that provides clear guidance to employers. Adopting this standard
for purposes of the PPP would result in employers being able to count on one test , would
eliminate the confusion for certain businesses who would qualify under the DOL test but not
under the SBA test, and would benefit a larger number of employees, which at its root, is the
purpose of the PPP.
As a small business with employees who reside in Midland, we beseech you and your colleagues
to help us and thousands of other small businesses like us access this program. To penalize our
company and our employees for accessing private capital as we have sought to build our business
only hurts Texas and will extend the economic downturn. Given we are a mature business,
Elevation relies on our internally generated cash flow and our reserve base loan with a group of
national and local banks.
To that end, the Main Street Lending Program prohibits the use of the loan supported by the U.S.
Government to repay debt other than to pay mandatory principal payments. The nature of
reserve base loans which Elevation Resources and hundreds of other oil and gas producers rely
upon requires our collateral value to be redetermined at least every six months based on an
assessment of the reserve value that is impacted by both future volumes and costs, but
importantly, by oil and natural gas price forecasts determined solely by our lenders. Given the
collapse in oil and natural gas prices, oil and gas lenders have dramatically reduced their price
forecasts, thus reducing the collateral value of reserves often below that of what oil and gas
companies currently have borrowed. This places the borrower in a deficiency which has to be
reduced to the level of the lower collateral value within three to six months to avoid foreclosure.
A schedule of payments to reduce borrowings below the reduced loan commitment is developed
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Main Street lending
by the banks. I petition Congress, the Federal Reserve, the Office of the Comptroller of Currency,
or any relevant governing body to clarify the interpretation of the Main Street lending Program
to enable oil and gas borrowers with borrowing base deficiencies to qualify the subject loans for
use in curing borrowing base deficiencies with principal payments to enable our continued
operations, employment, and payment of taxes and royalties in our communities. Once the
COVID-induced petroleum product demand destruction ceases as our global economy recovers,
oil and natural gas prices will recover, the banks' price forecasts will improve, and the collateral
value of our oil and natural gas reserves will be restored to pre-COVID levels.
Thank you for your understanding and support. If you would like further information on our
company and our current circumstances, please contact me at 432-685-7744 or
spruett@elevationres.com.
very truly,~
enH £
President & CEO
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