The Federal Reserve, SBA, and FDIC have taken action to combat the negative economic effects of Coronavirus (COVID-19). Below is a summary of the measures the Federal Reserve, SBA and FDIC have adopted.

Federal Reserve

On Monday, March 23rd the Federal Reserve announced extensive new measures across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery. These measures include:

• The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities, including agency commercial mortgage-backed securities, in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.
• Establishing new programs to support the flow of credit to employers, consumers, and businesses, which will provide up to $300 billion in new financing. For each new facility, the Federal Reserve will finance a special purpose vehicle (SPV) and the Department of the Treasury will provide equity investments of $30 billion in the SPV using the Exchange Stabilization Fund (ESF).
• Establishing the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance to large employers.
  • This facility is open to investment grade companies and will provide bridge financing for four years.
  • Borrowers may elect to defer interest and principal payments during the first six months of the loan, extendable at the Federal Reserve's discretion.
  • The Federal Reserve will finance a special purpose vehicle (SPV) to make loans from the PMCCF to companies, while the Treasury will use the ESF to make equity investments in the SPV.
• Establishing Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds for large employers.
  • The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds.
• Establishing the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses.
  • The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
  • The Federal Reserve will lend on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans.
  • The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS.
• Expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
• Expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.

In addition to these efforts, the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.

SBA

The U.S. Small Business Administration (“SBA”) can provide economic injury disaster loans (“EIDLs”) to eligible small businesses and nonprofit organizations affected by Coronavirus (COVID-19). The SBA has provided resources for accessing this funding on their disaster assistance website. EIDLs are low-interest loans (4% or less) up to $2 million that can be used to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. Collateral is generally required for loans over $25,000; however SBA will not decline loans for a lack thereof.

EIDLs are available only to businesses and organizations that are located in a declared disaster area, have suffered substantial economic injury, are unable to obtain credit elsewhere, and are defined as small by SBA size regulations. Small businesses and organizations in declared counties (and contiguous counties) apply directly to the SBA for EIDLs. SBA EIDL declarations must also be requested by a state or territory’s Governor. Upon request, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an EIDL.

SBA has issued revised criteria for states or territories seeking an economic injury declaration related to Coronavirus (COVID-19). SBA states that the relaxed criteria will have two immediate impacts:

1. Faster, Easier Qualification Process for States Seeking SBA Disaster Assistance. Historically, the SBA has required that any state or territory impacted by disaster provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of a disaster, with at least one business located in each declared county/parish. Under the just-released, revised criteria, states or territories are only required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where those businesses are located.
2. Expanded, Statewide Access to SBA Disaster Assistance Loans for Small Businesses. SBA disaster assistance loans are typically only available to small businesses within counties identified as disaster areas by a Governor. Under the revised criteria issued today, disaster assistance loans will be available statewide following an economic injury declaration. This will apply to current and future disaster assistance declarations related to Coronavirus.

FDIC

The FDIC has put together a reference page for those affected by the Coronavirus (COVID-19). The page provides FAQs for those impacted by Coronavirus, information for use by financial institutions, information for use by bank customers, and helpful articles the FDIC has published relating to the coronavirus.

In addition, Jelena McWilliams, chairman of the FDIC, sent a letter requesting the Financial Accounting Standards Board (the “Board”) to:

1. give large public lenders the option to defer implementing the Current Expected Credit Losses (“CECL”) rule;
2. to exclude COVID-19-related modifications from being considered a concession when determining a troubled debt restructuring (“TDR”) classification; and
3. delay implementation of the CECL rule for lenders that were expected to adopt the rule after December 2022.

The CECL rule went into effect for large U.S. public companies in December and requires companies to forecast expected loan-related losses as soon as a loan is issued. Market volatility related to the Coronavirus pandemic is expected to make the implementation of CECL challenging for companies because of the difficulty in making predictions about credit risk. Ms. McWilliams stated that the economic uncertainty of the pandemic may cause banks to face higher-than-anticipated increases in credit-loss allowances at a time when they should be focused on 1) lending to businesses and consumers 2) the immediate business challenges relating to the impacts of the current pandemic and its effect on the financial system.

If you have questions concerning the above, please feel free to contact Jon Talcott at (202) 689.2806 (jon.talcott@nelsonmullins.com) , Peter Strand at (202) 689-2983 (peter.strand@nelsonmullins.com), Mike Bradshaw at (202) 689-2808 (mike.bradshaw@nelsonmullins.com), Nick Garifo at (202) 689-2925 (nick.garifo@nelsonmullins.com) or Kaylen Loflin at (202) 689-2785 (kaylen.loflin@nelsonmullins.com).