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


(END) Dow Jones Newswires

April 09, 2020 17:53 ET (21:53 GMT)

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