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While the new $350 billion Paycheck Protection Program is aimed at businesses with 500 or fewer employees, language in the $2 trillion federal stimulus bill allows big restaurant and hotel chains to participate regardless of how many people they employ, the Wall Street Journal reported. Sean Kennedy, executive vice president for the National Restaurant Association, which lobbied for the restaurant-and-hotel exception, says that size shouldn’t matter. “The restaurant industry is uniquely affected by this pandemic,” he said. “It was the first industry shut down. We think we deserve a unique response from the federal government.” But John Lettieri, president of the Economic Innovation Group, a Washington, D.C., think tank, says big companies should rely more on their own resources or other federal stimulus programs. The small-business-loan program is “the only lifeline we’re offering to these classes of businesses,” he said. “It stretches the intent of statute beyond recognition to apply it to national entities.” Some smaller franchisees worry that the big firms could elbow them out for loans if the fund gets depleted. Trump administration officials have said that they would seek additional funding if the money runs out. Congressional support is likely, said an aide to Sen. Marco Rubio, the Florida Republican who chairs the Senate Committee on Small Business and Entrepreneurship. The loans are made by banks, credit unions and other lenders and have a 1% interest rate. They are designed to keep employees on the payrolls for eight weeks. If a borrower doesn’t lay off workers, the government plans to forgive the loan, including interest. Borrowers may also use the money for rent and utilities. The maximum loan is $10 million. In addition to the exemption for hotel and restaurant chains, a second exemption was granted for franchise owners in any line of business who employ more than 500 people, as long as no single outlet employs that many.

President Trump said yesterday that a $2 trillion infrastructure package should be part of Congress’s next response to the coronavirus pandemic, reviving a 2016 campaign pledge to ramp up construction projects despite public health guidance that Americans should stay home and isolated to the greatest extent possible, the Washington Post reported. Citing extraordinarily low interest rates that have reduced the cost of federal borrowing, Trump said on Twitter that now “is the time” to push forward with an infrastructure package in response to the severe economic downturn caused by the coronavirus that causes the disease COVID-19. Numerous House Democrats have also discussed in recent weeks advancing infrastructure legislation as part of their response to the coronavirus pandemic. But lawmakers, for more than three years now, have failed to break meaningful ground on bipartisan infrastructure talks. Some experts pointed out that a pandemic may be a poor time to ramp up construction projects, given that federal health officials are urging workers to stay home if possible and avoid personal contact. Read more.

In related news, House Speaker Nancy Pelosi suggested the next package include a retroactive rollback of a tax change that hurt high earners in states like New York and California, the New York Times reported. A full rollback of the limit on the state and local tax deduction (SALT) would provide a quick cash infusion in the form of increased tax rebates to an estimated 13 million American households — nearly all of which earn at least $100,000 a year. Read more.

Three days after passing a $2.2 trillion package aimed at easing the heavy economic blow of the coronavirus pandemic, the U.S. Congress was looking on Monday at additional steps it might take as the country’s death toll approached 3,000, Reuters reported. Democrats who control the House of Representatives were discussing boosting payments to low- and middle-income workers, likely to be among the most vulnerable as companies lay off and furlough millions of workers, as well as eliminating out-of-pocket costs for coronavirus medical treatment. House Speaker Nancy Pelosi (D-Calif.) said that she would work with Republicans to craft a bill that could also provide added protections for front-line workers and substantially more support for state and local governments to deal with one of the largest public health crises in U.S. history. Pelosi said that she did not expect new legislation to be completed until sometime after Easter, which is on April 12.

The bankruptcy system is not well-designed for a complete economic shutdown, according to a Wall Street Journal commentary by Profs. David Skeel of the University of Pennsylvania Carey Law School and Kenneth Ayotte of the UC Berkeley School of Law. Corporate reorganization depends on experienced lawyers and judges to manage its complexity, and these professionals are in limited supply. The system could easily be overwhelmed if entire industries file for bankruptcy. Absent federal assistance, corporate debtors might also be unable to obtain the funding they need to maintain their operations and protect current jobs during the case. By providing cash to companies that suddenly have no liquidity, Mnuchin may enable some to avoid bankruptcy altogether. Treasury could also adapt its administration of chapter 11 to suit the current crisis, much as the government helped transform auto companies into the “arsenal of democracy” during World War II. Mnuchin could encourage some companies to file “pre-packaged” bankruptcies that write down only the company’s largest obligations and can be approved by a bankruptcy judge in as few as 30 days. With larger companies, Mnuchin could make bankruptcy a condition of receiving a federal loan. Because bankruptcy enables an “automatic stay” on a company’s debt payments, it would provide more relief than a loan or grant outside bankruptcy. Temporary debt relief would buy companies time to sell assets and minimize their need for taxpayer support. Unfortunately, a curious provision in the CARES Act discourages regulators from making loans to “medium sized” companies with between 500 and 10,000 employees if they are in bankruptcy. Ideally, this provision would be removed or replaced with new language that allows loans to any company in bankruptcy. But as it stands, the provision wouldn’t prevent a loan followed by a subsequent pre-packaged bankruptcy.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

President Donald J. Trump on Friday afternoon signed the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) into law with provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which quickly passed the House of Representatives on a voice vote earlier on Friday and 96-0 in the Senate on Wednesday, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus.

“ABI commends Congress and the President for their prompt action on this stimulus package to provide needed financial relief due to the COVID-19 coronavirus pandemic,” said ABI Executive Director Amy Quackenboss. “Consumers and small businesses will have greater access to the financial fresh start of bankruptcy thanks to this important legislation.”

Key bankruptcy provisions within the CARES Act include:

• Amending the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. The increased debt limit for struggling small businesses to access subchapter V reflects recommendations of ABI’s Commission to Study the Reform of Chapter 11.
• Amending the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
• Clarifying that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.
• Explicitly permitting individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

The bankruptcy provisions of the CARES Act listed above sunset within a year.

Additionally, the law provides temporary relief for federal student loan borrowers by requiring the Secretary of Education to defer student loan payments, principal, and interest for 6 months, through September 30, 2020, without penalty to the borrower for all federally owned loans. This provides relief for over 95 percent of student loan borrowers. 

Click here for ABI's full press release.