In the wake of the ongoing COVID-19 pandemic, Congress has enacted various legislation in an effort to provide critical assistance to individuals and businesses. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)[1] is the largest economic stimulus package in United States to date. Additionally, the Federal Reserve has instituted a number of loan facilities to provide certain borrowers access to alternative sources of financing during the economic challenges of the COVID-19 pandemic.[2] However, until now, there was no proposed legislation to aid the approximately $16 trillion[3] commercial real estate (“CRE”)[4] debt market or the $550 billion[5] commercial mortgage-backed securities (“CMBS”) market. As a result of the COVID-19 pandemic, CRE transactions decreased 68% overall in the second quarter of 2020 as compared to the second quarter of 2019 and CRE transactions secured by hotel properties decreased by 91% during the same time period.[6] The CMBS delinquency rate climbed to 10.32% in June 2020, which was just a shade below the historical high of 10.34% from July 2012.[7] Although the delinquency rate fell moderately to 9.60% in July 2020, the decrease was largely the result of approximately $8 billion in loans that were cured in July 2020 by way of loan modifications, reserve releases and other remedial measures.[8]

Continue Reading Proposed “HOPE” Act to Provide Financial Assistance to CMBS Borrowers Through Preferred Equity Lending Facility

COVID-19 has significantly impaired the global economy. In the Global Economic Prospects Report of June 2020, the World Bank forecasted that the global GDP in 2020 will contract by 5.2%, creating the worst recession in 80 years. More than 90% of the global economies are contracting, a percentage higher than that of the Great Depression of 1930-32. While the US equity market has seen a modest recovery due to its alternative, the debt market, producing meager return rates, the outlook for the real economy is far from optimistic. In spite of expecting a rebound in the second half of 2020 and in 2021, researchers predict that it will be limited and that the prospect of a V-shaped recovery is hopeful at best.

Continue Reading COVID-19: Economic Consequences and Recovery Measures

On August 7th, President Trump signed four presidential memoranda aimed at providing another round of economic stimulus and financial assistance for unemployed workers. The White House has been negotiating with Congressional leaders for several weeks on legislation that would extend many of the emergency economic programs established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and provide additional aid to the economy that is still struggling from the effects of the COVID-19 pandemic. Although the CARES Act was enacted in March with overwhelming bipartisan support, the White House and Congressional leaders have been unable to reach agreement on another legislative package. The parties have deadlocked over the inclusion of aide to the states (sought by Congressional Democrats), COVID-19 liability protections (sought by GOP Senate Leader Mitch McConnell), and the amount of enhanced unemployment benefits (Congressional Democrats have sought to extend the CARES Act’s $600 per week; the White House and Congressional Republicans have sought to lower the amount to around $300 per week). In addition, the parties have sharply different views on the overall spending level for the next bill. In May, House Democrats passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which would provide $3 trillion dollars in stimulus, while Senate Republicans have introduced a $1 trillion stimulus bill.

Continue Reading Presidential Directives to Provide Fiscal Relief and Economic Stimulus in Response to Hardships Caused by COVID-19

The plethora of economic policy commitments to support business in the UK and the US in the face of COVID-19 can be difficult to navigate. Our lawyers recently held a webinar in conjunction with PLI to provide an overview of the various support schemes implemented in the UK and the US, focusing on UK schemes such as the Coronavirus Business Interruption Loan Scheme (“CBILS”); UK Coronavirus Job Retention Scheme (aka Furlough Scheme); the COVID Corporate Financing Facility (“CCFF”); and on Financial Conduct Authority (“FCA”) reforms and working capital assistance for UK listed companies. It also considered emergency relief measures in the US, including the Federal Reserve’s Paycheck Protection Program Liquidity Facility.

Continue Reading COVID-19: UK and US Economic Support Mechanisms

The US Small Business Administration (“SBA”) has now formalized certain borrower-friendly changes to the Paycheck Protection Program (“PPP”) provided for by the PPP Flexibility Act. A new Interim Final Rule (“IFR”) follows an informal joint press release on June 8, 2020 by the Department of the Treasury and SBA that previewed program changes. The SBA also issued a revised PPP Borrower Application Form and a revised PPP Lender Application Form conforming certain certifications to the program revisions and making other changes. Revised forgiveness application forms and instructions have not yet been released, but are anticipated in the near future.

Continue Reading SBA Issues New Rule, Revised Borrower/Lender Application Forms Implementing PPP Flexibility Act

Borrowers under the Paycheck Protection Program (PPP) are breathing a sigh of relief after the US Senate approved legislation yesterday that will ease some of their biggest concerns about PPP loans. H.R. 7010, “The Paycheck Protection Program Flexibility Act of 2020,” was adopted by the US House of Representatives last week, and is expected to be signed by the President soon.

The most significant changes concern loan forgiveness and apply to both existing and new loans. Prior to this legislation, PPP borrowers could only obtain forgiveness for amounts spent in the first eight weeks after receiving their loan. That “covered period” for forgiveness has now been extended to twenty-four weeks, or December 31, 2020, whichever is earlier, providing borrowers a lot more leeway to obtain forgiveness, particularly if they are not ready or able to fully reopen their businesses now.

Continue Reading US Congress Enacts Legislation to Give PPP Borrowers Added Flexibility

As US businesses begin to reopen, LegalTech News/ (subscription required) asked lawyers how their firms are leveraging technology to inform clients on states’ and local governments’ evolving reopening requirements.

Lawyers interviewed for the May 26, 2020 article say that their firms’ COVID-19-related tech resources were developed to be planning tools for clients rather than marketing

While the second round of Paycheck Protection Program (“PPP”) funding remains available for new applicants, the first round is about to enter a new phase—loan forgiveness. Under the PPP, up to the full amount of the loan may be forgiven if the borrower spends proceeds on eligible payroll, mortgage, rent, and utilities expenses in the eight weeks following loan origination (subject to certain limitations, including that not more than 25% of forgiveness may be based on eligible non-payroll expenses). Forgiveness will be reduced for employer reductions in headcount and for certain reductions in salaries/wages in excess of 25% for any employee making less than $100,000 on an annualized basis during the eight-week period as compared with pre-COVID-19 conditions. To facilitate the forgiveness process, the SBA has now issued a PPP Forgiveness Application (SBA Form 3508). Borrowers that plan to seek forgiveness should carefully review the form and its instructions in advance of submission to their lenders or current servicers.

Continue Reading US SBA Paycheck Protection Program (PPP) Forgiveness Application

On May 18, 2020, the US Small Business Administration (SBA) released its twelfth interim final rule (IFR #12) on treatment of entities with foreign affiliates and purporting to “clarify” its own prior “guidance” noting that:

“Some market participants have indicated that there may be uncertainty regarding whether PPP applicants must include employees of foreign affiliates in their employee counts, because SBA has previously issued guidance stating that an entity is eligible for a PPP loan if it has 500 or fewer employees whose principal place of residence is in the United States. See 85 FR 20811, 20812 (April 15, 2020).”

Continue Reading Now We Know it Was “Mud”: The SBA “Walks Back” Its Prior Rules and FAQs Regarding Treatment of Foreign Affiliates

Today, just one day before the safe-harbor deadline for returning Paycheck Protection Program (PPP) loans, SBA released new guidance (FAQ # 46) on the good-faith certification of economic uncertainty. While this new guidance does not provide the clarity that many borrowers were seeking, it appears to reduce the risks associated with this certification by adopting a new safe harbor for loans under $2 million and limiting the potential penalties for loans above $2 million.

Continue Reading New SBA Guidance May Reduce the Risks to Borrowers Making the Certification of Necessity for Paycheck Protection Program Loans