Private Equity Sees Help in Fed's New Coronavirus Stimulus
April 09 2020 - 6:08PM
Dow Jones News
By Chris Cumming
Private-equity firms expect to have access to the Federal
Reserve's new $2.3 trillion lending program, a relief for an
industry that feared being shut out of stimulus spending designed
to offset economic damage from the coronavirus pandemic.
The central bank on Thursday unveiled major new loan programs
intended for companies, cities and states under financial stress
due to disruption related to the virus. The plans include a $600
billion loan fund for businesses of all sizes, called the Main
Street Lending Program.
Unlike the roughly $350 billion in stimulus funding overseen by
the Small Business Administration, which private-equity firms say
they are mostly excluded from, PE-backed businesses should be
eligible for the new loans, industry lawyers and lobbyists say.
"We appreciate the Federal Reserve's actions and believe they
are a step in the right direction to help more workers and
companies across America, " wrote Drew Maloney, president and chief
executive of the American Investment Council, the largest
private-equity lobbying group, in an emailed statement.
The industry has made a major lobbying push in recent weeks to
unlock stimulus funds authorized to blunt the pandemic's economic
damage. Congress last month authorized roughly $2 trillion in
stimulus spending, through programs administered by numerous
federal agencies.
Private equity lobbied unsuccessfully for a special waiver to
help them gain access to the $350 billion SBA loan program. A rule
treating all companies owned by an investment firm as a single
entity puts most private equity-backed companies above the agency's
size limits, industry representatives say.
But private-equity groups say the Fed's business-lending program
doesn't include that restriction, based on initial guidelines. Any
company with up to 10,000 employees or $2.5 billion in annual
revenue is eligible for a loan of up to $25 million, depending on
the borrower's existing debt load.
"I feel really positive" about the Fed's announcement, said
Thomas Bohn, chief executive of the Association for Corporate
Growth, a trade group for midmarket private-equity investors. "I
think people are hearing the message that these are real jobs that
are being shed, whether the company is owned by a family or by
private equity."
While the Fed's move could be a boon for private equity, certain
PE-backed companies may not be able to participate due to their
leverage level, attorneys say.
The Main Street Lending Program "appears to be more broadly
available to private equity-sponsored businesses" than the SBA-run
program, and the Fed initiative doesn't have any provision
"specifically directed to limit participation by private
equity-sponsored businesses," Martin Ruhaak, a private-equity
attorney at Ropes & Gray LLP, wrote in an email.
However, the large amounts of debt often carried by private
equity-backed companies could be a challenge. Businesses with high
leverage ratios may be restricted from taking on additional debt
under the program, Mr. Ruhaak wrote.
Write to Chris Cumming at chris.cumming@wsj.com
(END) Dow Jones Newswires
April 09, 2020 17:53 ET (21:53 GMT)
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