Major economic stabilization funds are made available to U.S. businesses (including nonprofits), states and municipalities under Title IV of the CARES Act. Title IV itself is titled the “Coronavirus Economic Stabilization Act of 2020” (referred to in this summary as “CESA”).^[1]

The categories of available funds are:

• $25 billion to passenger air carriers and certain associated business such as those that perform, inspection, repair and replacement services of passenger airlines, and ticket agents
• $4 billion for cargo air carriers
• $17 billion for business important to maintaining national security
• $454 billion plus any excess from the above categories for direct loans, loan guarantees and investments to Eligible Businesses, states and municipalities (through purchases of obligations and other interests on the primary and secondary debt markets and the making of direct loans, including secured loans, through debt programs and facilities).

CESA does not specify how funds are to be allocated among businesses, states and municipalities. Loans, loan guarantees or other investments must be issued on or before December 31, 2020.^[2] Unlike as provided for Paychex Protection Program provided to small businesses pursuant to Title I of the Cares Act, the CESA does not provide for the forgiveness of any of the loans, loan guarantees or other investments provided pursuant to Title IV. If a business has received loans or loan guarantees under another part of the CARES Act, it will need to show those funds were not “adequate” in order to qualify for financing under CESA.^[3]

Not a Carrier or National Security Business?

CESA authorizes the Treasury Department to provide loans, loan guarantees and other investments to businesses that are not passenger or cargo carriers or national security businesses. This authorization falls into two categories that leave considerable room open for further definition and structure:

• Treasury can participate in loans and loan programs designed by the Federal Reserve subject to certain special rules for the purpose of providing “liquidity.to the financial system that supports lending to eligible businesses, States, or municipalities” (“(b)(4) Programs”).^[4] Although no details are currently available, we expect that loans will be made available to small and mid-sized businesses (and CESA refers to the Main Street Lending Program that the Federal Reserve announced on around Monday, March 23, 2020).
• Treasury is instructed to endeavor to create its own program for mid-sized businesses with 500-10,000 employees.

Special provisions for Mid-sized Businesses & Non-profits (500-10,000 employees)

CESA requires the Treasury Secretary to endeavor to implement financing arrangements that are made directly to businesses and nonprofit organizations with 500-10,000 employees.  The mandatory loan terms are:

• an interest rate that does not exceed 2% per year.
• no principal or interest payments shall be required during the first 6 months or a longer period as the Treasury Secretary determines.

The following criteria apply to the loans and loan guarantees under this mid-sized business program:^[5]

• The business must certify that it needs the loan to support ongoing operations which are affected by uncertainty or economic conditions at the time of the loan application.
• No public company stock buybacks (unless it was already contractually obligated) or dividends payments are allowed until one year after the loan or loan guarantee has been repaid.
• The business must retain at least 90% of its current workforce (presumably measured at March 24, 2020) until September 30, 2020.
• The business must intend to restore at least 90% of the workforce it had as of February 1, 2020 and retain that workforce within 4 months after the federal government terminates its coronavirus emergency declaration.
• The business must be domiciled in the US and have “significant operations and employees located in the U.S.”
• The business must agree to the executive compensation limitations (discussed below).
• The business cannot be the subject of a bankruptcy proceeding.
• The business cannot outsource or offshore jobs during the loan and for 2 years after loan repayment.
• The business cannot abrogate existing collective bargaining agreements for the term of the loan plus an additional two years.
• The business must remain neutral in any union organizing effort for the term of the loan.

Funds Available to Carriers & National Security Businesses

The Treasury Department will administer direct loans or loan guarantees to passenger or cargo carriers and national security businesses with similar criteria as other businesses but the outsourcing/offshoring, collective bargaining and union organizing restrictions do not apply.^[6] The Treasury Secretary has 10 days to publish procedures for application and minimum requirements for making loans, loan guarantees or other investments for these loans.

Employee Compensation^[7]

While a business has a CESA loan or loan guarantee outstanding and for 1 year thereafter:

• No officer or employee whose total compensation exceeded $425,000 in 2019 can receive any compensation increase or severance pay that exceeds twice their 2019 total compensation.
• No officer or employee whose total compensation exceeded $3 million in 2019 can receive total compensation that exceeds $3 million + 50% of the amount above $3 million that they received in 2019. This applies for any 12 consecutive month period.

Total compensation includes salary, bonuses, stock awards and other financial benefits.

_{[1] You can find our more detailed summary of Title IV here.}

_{[2] CESA Section 4029.}

_{[3] Carriers and national security businesses will face a higher burden because they also have to show actual or expected losses that “jeopardize” their business under Section 4002(c)(2)(I).}

_{[4] CESA 4003(b)(4).}

_{[5] CESA Section 4003(c)(3)(D).}

_{[6] CESA Section 4003(c)(2), 4003(d).}

_{[7] CESA Section 4004.}