U.S. Treasury, Procedures and Minimum Requirements for Loans to Air Carriers, Eligible Businesses and National Security Businesses (Mar. 30, 2020)

Summary

Procedures and Minimum Requirements for Loans to Air Carriers and Eligible Businesses and National Security Businesses under Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act, issued by the Department of the Treasury and dated March 30, 2020. The procedures state that they are preliminary and will be supplemented with a loan application form. It lists the aggregate amounts under section 4003(b) of the Act: up to $25 billion for passenger air carriers, certain eligible businesses and ticket agents, up to $4 billion for cargo air carriers and up to $17 billion for businesses critical to maintaining national security. It also sets out statutory loan terms, including a term of not longer than five years, no stock buybacks or dividends until 12 months after the loan is no longer outstanding, and a prohibition on loan forgiveness.

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  Procedures and Minimum Requirements for Loans to Air Carriers and Eligible
Businesses and National Security Businesses under Division A, Title IV, Subtitle A of
              the Coronavirus Aid, Relief, and Economic Security Act

                                      March 30, 2020

INTRODUCTION

These procedures and minimum requirements provide information regarding loans the
Department of the Treasury (Treasury Department) will make to passenger and cargo air carriers
and eligible businesses and businesses critical to maintaining national security that have
experienced losses as a result of coronavirus. These procedures are issued pursuant to the
Coronavirus Aid, Relief, and Economic Security Act (Act). They are intended to allow potential
borrowers to begin preparing to submit an application.

These procedures and requirements are preliminary. They will be supplemented promptly with
additional terms and a loan application form. Further, they may be updated, revised, or modified
at any time, and the requirements contained herein may be waived by the Treasury Department
in its sole discretion to the extent permitted by law.

General Authority. Section 4003(a) of the Act authorizes the Department of the Treasury to
make loans, loan guarantees, and other investments to provide liquidity to eligible businesses,
states, and municipalities related to losses incurred as a result of coronavirus. Section
4003(c)(1)(A) of the Act authorizes the Treasury Department to make such loans, loan
guarantees, and other investments in such form and on such terms and conditions and containing
such covenants, representations, warranties, and requirements (including requirements for audits)
as the Treasury Department determines appropriate.

Aggregate Amounts for Loans. Section 4003(b) of the Act provides that:
    up to $25 billion is available for passenger air carriers; eligible businesses certified to
      perform inspection, repair, replace, or overhaul services; and ticket agents;
    up to $4 billion is available for cargo air carriers; and
    up to $17 billion is available for businesses critical to maintaining national security.

DEFINITIONS

Following are definitions that the Treasury Department will apply for purposes of these
procedures and minimum requirements. These definitions supplement and interpret certain terms
in the Act.

“Act” means the Coronavirus Aid, Relief, and Economic Security Act (S. 3548, 116th Cong.).

“Air carrier” has the meaning given to such term under 49 U.S.C. § 40102.




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“Borrower” means a passenger air carrier; cargo air carrier; eligible business certified by the
Department of Transportation under 14 C.F.R. part 145 to perform inspection, repair, replace, or
overhaul services; ticket agent; or business critical to maintaining national security, in each case
that has applied to the Treasury Department for a loan under Section 4003(b)(1) of the Act or to
which the Treasury Department makes a loan under Section 4003(b)(1) of the Act. “Borrower”
includes the relevant entity’s subsidiaries, as the context requires.

“Cargo air carrier” will be construed to mean an air carrier that, during the time period from
April 1, 2019 to September 30, 2019, derived more than 50% of its air transportation revenue
from the transportation of property or mail, or both.

“Covered loss” includes losses incurred directly or indirectly as a result of coronavirus, as
determined by the Treasury Department.

“Employee,” except where the context otherwise requires, has the meaning given in Section 2 of
the National Labor Relations Act (29 U.S.C. § 152) and includes any individual employed by an
employer subject to the Railway Labor Act (45 U.S.C. § 151 et seq.).

“Passenger air carrier” will be construed to mean an air carrier that, during the time period from
April 1, 2019 to September 30, 2019, derived more than 50% of its air transportation revenue
from the transportation of passengers.

“Ticket agent” has the meaning of such term under 49 U.S.C. § 40102.

FORM OF ASSISTANCE

Borrowers will be able to apply for a loan directly from the Treasury Department, which will
disburse a loan directly to borrowers whose applications are approved by the Treasury
Department.

ELIGIBLE BORROWERS

Entities eligible to apply for a loan are:

(1) passenger air carriers;
(2) cargo air carriers;
(3) businesses certified by the Department of Transportation under 14 C.F.R. Part 145 and
    approved to perform inspection, repair, replace, or overhaul services that have not otherwise
    received adequate economic relief in the form of loans or loan guarantees under other
    programs authorized by the Act;
(4) ticket agents that have not otherwise received adequate economic relief in the form of loans
    or loan guarantees under other programs authorized by the Act; and
(5) businesses critical to maintaining national security.




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STATUTORY ELIGIBILTY CRITIERA AND TERMS AND CONDITIONS

Under section 4003(c)(2) of the Act, the Treasury Department may enter into an agreement to
make a loan to a borrower if the Treasury Department makes the following determinations, in its
sole discretion.

   No Credit Elsewhere. The borrower is an eligible business for which credit is not reasonably
    available at the time of the transaction.

   Prudent Borrowing. The intended obligation by the borrower is prudently incurred.

   Security/Interest Rate. The loan is sufficiently secured or is made at a rate that reflects the
    risk of the loan and that is, to the extent practicable, not less than an interest rate based on
    market conditions for comparable obligations prevalent prior to the outbreak of the
    coronavirus disease 2019.

   Term. The duration of the loan is as short as practicable, and in any case not longer than five
    years.

   No Stock Buybacks. The agreement provides that, until the date 12 months after the date the
    loan is no longer outstanding, neither the borrower nor any affiliate of the borrower may
    purchase an equity security that is listed on a national securities exchange of the borrower or
    any parent company of the borrower, except to the extent required under a contractual
    obligation in effect as of March 27, 2020.

   No Dividends. The agreement provides that, until the date 12 months after the date the loan
    is no longer outstanding, the borrower will not pay dividends or make other capital
    distributions with respect to the common stock of the borrower.

   Employment Levels. The agreement provides that, until September 30, 2020, the borrower
    will maintain its employment levels as of March 24, 2020, to the extent practicable, and in
    any case will not reduce its employment levels by more than 10 percent from the levels on
    such date.

   U.S. Business. The agreement includes a certification by the borrower that it is created or
    organized in the United States or under the laws of the United States and has significant
    operations in and a majority of its employees based in the United States.

   Covered Losses. The borrower has incurred or is expected to incur covered losses such that
    the continued operations of the business are jeopardized.

Loans will also be subject to the following terms and conditions set forth in the Act.

   Financial Protection of the Government. The Treasury Department may not issue a loan to
    (1) a borrower that has issued securities that are traded on a national securities exchange
    unless the Treasury Department receives a warrant or equity interest in the borrower, or (2)

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    any other borrower unless the Treasury Department receives, in the discretion of the
    Secretary of the Treasury, a warrant or equity interest in the borrower, or a senior debt
    instrument issued by the borrower. The Treasury Department is prohibited from exercising
    voting power with respect to any shares of common stock acquired under Section 4003 of the
    Act.

   Prohibition on Loan Forgiveness. Under section 4003(d)(3) of the Act, the principal amount
    of a loan cannot be reduced through loan forgiveness.

   Limitation on Certain Employee Compensation. Under Section 4004 of the Act, the Treasury
    Department may only enter into an agreement to make a loan if the borrower agrees to
    specified limitations on the total compensation of certain employees.

   Continuation of Certain Air Service. Under Section 4005 of the Act, a borrower that is an air
    carrier must comply with requirements to maintain scheduled air transportation service that
    the Secretary of Transportation deems necessary to ensure services to any point served by
    that air carrier before March 1, 2020.

   Conflicts of Interest Certification. Under Section 4019 of the Act, the principal executive
    officer and the principal financial officer, or individuals performing similar functions, of a
    borrower must certify, before the transaction is approved, that the borrower is eligible to
    enter into that transaction, including that the borrower is not a covered entity, as defined in
    Section 4019(a)(2).

APPLICATION INFORMATION REQUIREMENTS

As part of the loan application process, borrowers will be required to provide certain
information. Following is an initial list of information that will be required. Additional required
information will be set forth in the supplemental procedures to be issued by the Treasury
Department. Prospective borrowers are encouraged to begin compiling this information in order
to expedite their ability to submit a loan application.

   Debt. A description of the borrower’s existing secured and unsecured debt, bank and other
    credit lines with outstanding and maximum balances, and major classes of existing
    security holders and creditors.

   Debt Service. A description of the borrower’s scheduled debt service for the next three
    years.

   Employment Levels. The borrower’s employment levels, by head count and total
    compensation amount, as of March 24, 2020, and any proposed changes to the borrower’s
    employment levels, relative to March 24, 2020, during 2020.




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   Financial Statements. The consolidated financial statements of the borrower and any
    corporate parents for the previous three years, including, if available, financial statements
    that have been audited by an independent certified public accountant, including any
    associated notes, and any interim financial statements and associated notes for the current
    fiscal year.

   Covered Losses. A description of the covered losses that the borrower has incurred or will
    incur as a result of coronavirus, by line items detailing the cause of the loss, such as
    reduced demand, unavailability of credit, unbudgeted medical expenses, or other causes.

   Lack of Credit Elsewhere. Evidence based on factors such as market conditions, the
    borrower’s circumstances, or relationships with existing and potential creditors that the
    borrower cannot reasonably obtain credit elsewhere.

   Passenger Service Operations. For borrowers that are passenger air carriers, the borrower’s
    available seat miles, revenue per seat mile, and cost per available seat mile for 2019, and a
    forecast of the same for 2020 that was prepared by or for the air carrier no earlier than
    October 1, 2019, including any assumptions underlying the forecast.

   Cargo Service Operations. For borrowers that are cargo air carriers, the borrower’s available
    ton miles, revenue per ton mile, and cost per available ton mile for 2019, and a forecast of the
    same for 2020 that was prepared by or for the air carrier no earlier than October 1, 2019,
    including any assumptions underlying the forecast.

   Security. A description of the type and general value of all security, including but not
    limited to assets, property, and revenue streams, available to be pledged by the borrower
    and its subsidiaries to secure the loan, on both a senior and a subordinated basis.

   Use of Proceeds. The purposes for which the borrower will use the loan proceeds.

   Financial Needs. Quantitative information on the borrower’s financial needs for the
    remainder of 2020, including expected revenues, operating costs, and credit, and how the
    loan will address those needs together with other sources of funding and financing, such as
    Air Carrier Worker Support payments under Division A, Title IV, Subtitle B of the Act.

   Operating Plan. A discussion of the borrower’s operating plan for the remainder of 2020 if
    the loan is approved, including how the proposed loan fits within the borrower’s business
    plan and an analysis showing that the loan is prudently incurred.

   Cost Restructuring. A description of any plans the borrower has to restructure its
    obligations, contracts, staffing, or organization to improve the borrower’s financial condition.

FINANCIAL PROTECTION OF THE GOVERNMENT

As stated above, the Treasury Department may not issue a loan to (1) a borrower that has issued
securities that are traded on a national securities exchange unless the Treasury Department

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receives a warrant or equity interest in the borrower, or (2) any other borrower unless the
Treasury Department receives, in the discretion of the Treasury Department, a warrant or equity
interest in the borrower, or a senior debt instrument issued by the borrower. The purpose of
these financial instruments is to provide for a reasonable participation by the Treasury
Department, for the benefit of taxpayers, in equity appreciation or a reasonable interest rate
premium.

Each borrower will be required to identify the financial instruments it proposes to issue to the
Treasury Department.

SUPPLEMENTAL PROCEDURES

The Treasury Department will promptly issue supplemental procedures that will include,
among other information:

   Additional program rules and policies.
   Certifications and disclosures to be required of all borrowers.
   Loan terms and conditions.
   Information regarding how the principal amount of individual loans will be determined.
   An application form and instructions.
   Application evaluation criteria.

APPLICATION DECISIONS

Under Section 4006 of the Act, the Treasury Department may disclose any information
submitted as part of an application to the Department of Transportation, and may consult
with the Department of Transportation on any aspect of application screening or
evaluation.

The Secretary of the Treasury may reject applications that do not comply with the final
procedures or applicable statutes or regulations, and will approve or deny applications, based
on the published evaluation criteria, in his sole discretion.




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