CARES Act Insights: Summary of the Coronavirus Economic Stabilization Act for Medium-Sized and Larger Businesses

Miller & Martin PLLC Alerts | April 01, 2020

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“Act”), an approximately $2 trillion piece of legislation intended to stabilize the economy in the midst of the coronavirus pandemic, was signed into law. The Act is wide-ranging legislation that will impact many facets of the economy, and Miller & Martin is reviewing all aspects of it. This client alert focuses on the $500 billion liquidity fund established to provide direct loans and loan guarantees to what would commonly be considered as medium- and larger-sized businesses which have been affected by the coronavirus pandemic. We have already published a separate client alert focused on the $349 billion Paycheck Protection Program Act for small businesses and non-profit organizations (click to open).

In addition to the Paycheck Protection Program Act, as well as other forms of financial relief for individuals and certain tax measures for the benefit of businesses, the Act also creates a $500 billion liquidity fund to provide direct loans and loan guarantees to a broad category of eligible U.S. businesses which have not “received adequate economic relief” under other loan and loan guarantee provisions of the Act. This fund, established under Title IV of the Act (known as the “Coronavirus Economic Stabilization Act of 2020”), earmarks $46 billon for direct loans and loan guarantees to specific impacted businesses, such as air carriers and companies vital to national security. The remaining $454 billion is pumped into programs and facilities established by the Federal Reserve to provide liquidity to other eligible businesses, states and municipalities. The fund will be administered by the Secretary of the Treasury (the “Secretary”), who has ten days within which to enact application procedures and minimum eligibility requirements.

Significant details that may be of interest are as follows:

  • Direct Relief to Impacted Industries: Relief funds in the form of direct loans and loan guarantees available to impacted businesses are broken down as follows: $25 billion to passenger air carriers (Delta, etc.) and related businesses; $4 billion to cargo air carriers (FedEx, etc.); and $17 billion to businesses “critical to maintaining national security.”

  • Federal Reserve Programs: The remaining $454 billion in relief funds (together with any unused portion of the above amounts earmarked for the impacted businesses) is made available to the Federal Reserve for use in providing liquidity to the financial system in support of direct loans to eligible businesses and lending programs to states and municipalities.

  • Borrower Requirements – Impacted Industries: The Secretary has broad discretion in administering these relief funds, but guidelines in the Act indicate that direct loans and loan guarantees provided to impacted businesses must, among other criteria, mandate that borrowers:
    • maintain, to the extent practicable, employment at levels as of March 24, 2020, but in no case less than 10% of such levels;
    • have experienced losses arising directly or indirectly from the coronavirus pandemic which jeopardize its continued operations, though there is no indication of any relationship between the amount of the loans and the losses borne by borrowers;
    • for the duration of the loan and for one year after the loan is no longer outstanding, may not (nor may any affiliate) repurchase securities of the borrower or its parent on a national securities exchange, and may not pay dividends or other distributions to common stockholders;
    • as directed by the Secretary, provide for the benefit of U.S. taxpayers a “warrant or equity interest” (or in the case of borrowers without stock traded on a national securities exchange, at least a senior debt instrument); and
    • not pay (during the term of the loan and for one year after the loan is no longer outstanding) the following to any officer or employee whose total compensation exceeded $425,000 in 2019: (i) compensation in any 12-month period in excess of such 2019 amount, or (ii) severance or other benefits upon termination in excess of twice such 2019 amount, with an ultimate cap on total compensation payable in any 12-month period to such individuals equal to $3 million plus half of the excess total compensation over $3 million.


  • Maturity – Impacted Industries: The term of direct loans and loan guarantees to impacted businesses shall not extend for a period longer than five years.

  • Application Process – Impacted Industries: On March 30, 2020, the Secretary released preliminary guidance to impacted businesses seeking direct loans. Loan applications will be made to the Treasury Department, which will disburse loan proceeds directly to the borrowers. No information was provided on the maximum amounts available to individual borrowers. Further, the Secretary’s guidance indicates that a loan application form is forthcoming, but encourages eligible borrowers to start gathering information that will be required, such as current debt service amounts, employment levels, financial statements for the previous three years, an operating plan for the remainder of 2020, and other specific information that appears to demonstrate the need for funds. Click here to view the Secretary’s guidance for these direct loans.

  • Borrower Requirements – Federal Reserve Programs: Borrowers under the Federal Reserve’s programs and facilities are not subject to the more restrictive criteria applicable to the direct loans and guarantees made to the impacted businesses, but must still adhere to the compensation restrictions noted above, and are prohibited for the duration of the loan and for one year after the loan is no longer outstanding from (i) repurchasing securities of the borrower or its parent on a national securities exchange (though no similar restriction on affiliates is included), and (ii) paying dividends or other distributions to common stockholders.

  • Medium-Sized Businesses: The Act contains a separate provision that instructs the Secretary to “endeavor” to steer a portion of the Federal Reserve-directed funds towards direct loans to businesses and non-profit organizations that employ between 500 and 10,000 employees. These loans are made with an annualized interest rate not to exceed 2%, principal and interest are deferred for 6 months, and borrowers need only make certain “good faith certifications” regarding, among others, the need for borrowed funds and commitments to retain employment levels, to not pay dividends, to not repurchase securities and to not send jobs overseas.

  • States and Municipalities: Similarly, the Act also instructs the Secretary to “endeavor” to implement programs and facilities for liquidity to states and municipalities, but without much in the way of details or restrictions.

  • Taxation: All of the foregoing loans and guarantees shall constitute indebtedness for federal tax purposes.

  • No Loan Forgiveness: Unlike in aspects of the Paycheck Protection Program Act, no principal amount of the obligations issued by eligible businesses, states and municipalities under any of the foregoing loan programs is subject to loan forgiveness.

While the foregoing provides the highlights of this historic legislation, we await further guidance from the Secretary regarding how these loan programs will be implemented. In contrast to the Secretary’s preliminary guidance for impacted businesses discussed above and the online and other resources that are becoming rapidly available regarding applications for SBA loans under the Paycheck Protection Program Act, similar guidance from the Secretary and from the Federal Reserve on the programs available to medium- and larger-sized businesses is not yet available. This means important details regarding loan applications, maximum loan amounts, and the expectations for receipt of funds under these programs have yet to be provided. We will provide additional updates as more information becomes available.

For more information about the ongoing developments related to the COVID-19 pandemic, please visit Miller & Martin's Coronavirus Resources.