On March 27, 2020, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which provides approximately $2.2 trillion in relief programs to U.S. individuals, businesses, states and municipalities. Title IV of the CARES Act provides for up to $500 billion in loans and loan guarantees to, and other investments in, Federal Reserve programs and facilities, to be made available to U.S. businesses that have not otherwise received adequate economic relief in the form of loans and loan guarantees under the CARES Act. The programs available under Title IV will be entirely new and are separate from the federally-guaranteed loans offered by the Small Business Administration under Title I of the CARES Act. (For more information about the Title I loan programs, see here.) Detailed rules and regulations are expected to be announced in the coming days and weeks.

The $500 billion in Title IV relief is comprised of up to:

  • $25 billion for air carriers and certain related businesses
  • $4 billion for cargo air carriers
  • $17 billion for businesses critical to maintaining national security, and
  • $454 billion (plus any remainder of the $46 billion for air carriers and national security) to provide liquidity to other eligible U.S. businesses, states and municipalities related to losses incurred as a result of coronavirus.

This client alert focuses on the $454 billion plus in loan, guarantee and investment programs under Title IV, Section 4003(b)(4) of the CARES Act (the “4003(b)(4) Programs”). The form of the 4003(b)(4) Programs has yet to be determined, and the Federal Reserve and the Treasury have discretion to implement a variety of liquidity measures. This may include buying back corporate or municipal bonds or loans, guaranteeing or otherwise backstopping municipal or corporate debt, making direct loans to U.S. businesses, or other eligible forms of investment. Whatever measures are ultimately deployed, the Federal Reserve is expected to leverage funding from the U.S. Treasury to implement the 4003(b)(4) Programs, which would result in liquidity well in excess of the nominal $454 billion allocated under the CARES Act. The 4003(b)(4) Programs thus will be designed to give the U.S. economy what has been referred to as a multi-trillion dollar “booster shot.”

As described in the CARES Act, the 4003(b)(4) Programs will be implemented through the Federal Reserve by purchasing obligations or other interests directly from issuers, purchasing obligations or other interests in secondary markets, and making loans directly to borrowers, including in the form of loans or other advances secured by collateral. The 4003(b)(4) Programs will be in a form and subject to other terms and conditions, including covenants, representations and warranties, and other requirements (including audit requirements), as determined by the U.S. Treasury.

Although more detailed rules and regulations are expected to follow, the CARES Act provides certain terms and conditions of the 4003(b)(4) Programs, including:

  • 4003(b)(4) Programs will have interest rates determined by the U.S. Treasury based on the applicable risk and comparable market rates.
  • The maturity date will be no longer than five years.
  • 4003(b)(4) Programs will not be eligible for loan forgiveness.
  • 4003(b)(4) Programs will be subject to applicable requirements under the Federal Reserve Act, including loan collateralization, taxpayer protection and borrower solvency.
  • Borrower will be prohibited from engaging in stock buybacks of nationally listed shares, unless contractually obligated prior to enactment of the CARES Act, or from paying dividends or making other capital distributions with respect to common stock, until one year after the loan is no longer outstanding.
  • Borrower will be also prohibited from increasing the compensation of any employee whose compensation exceeds $425,000 or from offering them significant severance or termination benefits until one year after the termination of the applicable loan or loan guaranty.
  • Borrower’s officers and employees whose total compensation exceeded $3 million in 2019 cannot receive compensation greater than $3 million, plus 50% of the amount over $3 million that the individual received in 2019. It is unclear how these compensation provisions will apply to newly hired employees who had no 2019 compensation from the applicable borrower.

The CARES Act provides that the conditions of the 4003(b)(4) Programs related to share repurchases, distributions and employee compensation may be waived by the Treasury Secretary if he determines that a waiver is “necessary to protect the interests of the Federal Government” and makes himself available to testify before the Senate’s Committee on Banking, Housing, and Urban Affairs regarding such waiver.

In addition, the CARES Act directs the Treasury Secretary to implement a 4003(b)(4) Program to provide financing to banks and other lenders to make direct loans to eligible medium-sized businesses, including nonprofit organizations (the “Mid-Sized Business Program”). Requirements and restrictions applicable to a borrowers under the Mid-Sized Business Program include:

  • Borrower must have between 500 and 10,000 employees. The CARES Act does not introduce any affiliation rules with respect to the employee size test, but this is not necessarily determinative given the program has yet to be established.
  • Borrower must be a United States business with significant operations in, and a majority of employees based in, the United States.
  • Borrower has not otherwise received adequate economic relief in the form of loans or guarantees provided by the CARES Act.
  • The uncertainty of economic conditions makes the loan request necessary for ongoing operations.
  • Annualized interest rate is capped at 2% per annum.
  • No principal or interest payments required for the first six months.
  • Funds will be used to retain 90% of workforce at full compensation and benefits through September 30, 2020.
  • Borrower intends to restore 90% of workforce that existed as of February 1, 2020, and restore all compensation and benefits no later than 4 months after termination date of public health emergency (as declared by the Secretary of Health and Human Services).
  • Borrower is not a debtor in an insolvency proceeding.
  • Borrower will not pay dividends on common stock or repurchase equity securities listed on a national securities exchange of borrower or any parent company while the loan is outstanding, unless contractually obligated prior to enactment of the CARES Act.
  • Borrower will not outsource or offshore jobs for the term of the loan and for two years after repayment.
  • Borrower will not abrogate existing collective bargaining agreements for the term of the loan and for two years after repayment, and will remain neutral in any union organizing effort for the term of the loan.

Separately, the CARES Act includes a placeholder for an additional “Main Street Lending Program” to support lending to small and mid-sized U.S. businesses.

Any loans made or guaranteed under a 4003(b)(4) Program would be treated for tax purposes as debt issued at par, and stated interest on these loans would be treated as qualified stated interest.  As a result, loans issued or guaranteed under the program would not be treated as issued with original issue discount for tax purposes, and cash basis taxpayers would not be permitted to deduct interest on the loans until that interest is paid. For more information about the tax implications of the CARES Act, see Coronavirus: The Senate Passes the CARES Act; Summary of the Tax Provisions of the Bill.

Procedures and other requirements for 4003(b)(4) Programs are expected to be announced by the U.S. Treasury soon. We will continue to monitor the additional rules and regulations as they become available.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. We will continue to evaluate the CARES Act, related regulations and any subsequent legislation to provide our clients guidance in real time. Please visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of Andrew Bettwy Andrew Bettwy

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both…

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both lenders and borrowers in a wide range of transactions involving multiple industries and diverse debt capital structures, including acquisition financings, recapitalizations, multiple lien and subordinated debt financings, debtor-in-possession and exit financings, and private placements.

Andrew has represented several leading financial institutions while at Proskauer, including Bank of America, Citibank, CoBank, Credit Suisse, Imperial Capital, Jefferies Finance and Lazard Capital Markets.

Andrew is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Photo of Jeffrey A. Horwitz Jeffrey A. Horwitz

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member of our Executive Committee. Jeff is a general corporate and securities lawyer with broad-based experience in mergers and acquisitions, cross-border transactions, and long-term joint ventures. He is regularly engaged to advise boards, management teams and investors on strategic matters, from litigation to personnel to transactions. Jeff is also the head of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Jeff counsels clients on the full range of their activities, from seed capital to public offerings, acquisitions and operational matters, often acting as outside general counsel. He represents major financial institutions, sovereign wealth funds, private equity and family offices in sophisticated financial and other transactions. He represented Merrill Lynch Global Private Equity in connection with its equity participation in the $33 billion acquisition of HCA in what was then the largest LBO ever. He has handled deals aggregating nearly $200 billion in value, including tender offers, “going-private” transactions, IPOs, restructuring and structured finance transactions, and mergers and acquisitions in industries as diverse as biotechnology and aerospace, retail and cable television, and education and scrap metal. He regularly handles transactions outside the U.S., including Europe, the Middle East, Asia, Latin America, Australia, South Africa and India.

Leading our Private Equity Real Estate group, he works with a team of 75 lawyers from across the firm advising on complex transactions and disputes relating to real estate, and particularly hotels. Jeff has handled virtually every type of matter, and has worked with virtually every major player in these industries, including transactions for nearly 3,500 hotels comprising more than 275,000 rooms and involving more than $12 billion. His experience, both in and outside the U.S., extends to hotel and casino development and construction; portfolio and single-property acquisitions; sales and restructurings; financings; management; marketing; reservations systems; litigation counseling and strategic planning; and ancillary services. This breadth of work is key to executing complex and sophisticated transactions, such as the $2.9 billion acquisition of Fairmont Raffles by AccorHotels and its investments in Huazhu, Banyan Tree Hotels & Resorts, Brazil Hotel Group, sbe Entertainment and 21c Museum hotels, among others.

As a senior member of our Entertainment Group, Jeff represents The Broadway League (the national trade association for Broadway theatre), the Tony Awards®, and various other joint venture events and producers. In the media industry, Jeff has advised on the acquisition and sale of television, radio, newspaper and magazine properties, and the acquisition and sale of advertising, promotion and marketing agencies, and related joint ventures. He also advises rights holders, including our long-time clients The Leonard Bernstein Office and The Balanchine Trust. He leads our team representing TSG Entertainment in film-slate financing deals.

Jeff also frequently represents start-up and development-stage companies, as well as established “traditional” businesses, in online, Internet-related or technology businesses. He has handled organizational and structuring matters, venture capital and other equity placements, restructurings (from “down” rounds to recapitalizations to M&A solutions). He has both company-side and investor experience.

As a frequent speaker at real estate and hospitality events, Jeff regularly presents about hotel management agreements at The Hotel School at Cornell’s SC Johnson College of Business, NYU’s Jonathan M. Tisch Center of Hospitality, and on M&A and investment matters at lodging investment conferences around the world, including the NYU Hospitality Industry Investment Conference in New York, Americas Lodging Investment Summit in Los Angeles, the International Hotel Investment Forum in Berlin and the Hotel Investment Conference Asia-Pacific in Hong Kong.

Jeff is a member of the American Hotel & Lodging Association (AHLA) Hospitality Investment Roundtable, ULI (and its Hotel Development Council) and the Advisory Board of the Cornell Center for Real Estate and Finance and has served as a member of the Editorial Board of the Cornell Hotel and Restaurant Administration Quarterly and a member of the Advisory Board of the Cornell Center for Hospitality Research. He is a director of The New York Hospitality Council, Inc., a not-for-profit forum for hospitality industry leaders, and is a member of the Real Estate Capital Policy Advisory Committee of The Real Estate Roundtable. He also has served as a director of the America-Israel Chamber of Commerce, and as a member of the French-American Chamber of Commerce in the U.S. and the American Society of Corporate Secretaries. He was the Chairman of the Board of Labyrinth Theater Company and a director of The Jewish Community Center in Manhattan for more than 15 years, a member of the Executive Committee of the Lawyers’ Division of UJA-Federation for more than five years and an officer of the Henry Kaufmann Foundation for more than a dozen years. He currently serves as Chairman of the Board of The American Playwriting Foundation and Building for the Arts and is a member of the Board of Directors of StreetSquash and The George Balanchine Foundation. He also served as a Vice Chair of the Associates’ Campaign for The Legal Aid Society.

Jeff has been with the firm for his entire career and lives in Manhattan and Connecticut.

Photo of Susan Goldfarb Susan Goldfarb

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring…

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring transactions that require bankruptcy remote special purpose entities.

Susan has significant experience drafting and negotiating financing documents for secured and unsecured loans, receivables financing, syndicated loans, loan modifications, restructuring transactions, equipment finance loan documents, loan assumptions and lease assumptions. In addition, she routinely drafts and negotiates enforceability, non-consolidation, true sale and other reasoned legal opinions.

Susan’s pro bono work primarily involves assisting not-for-profit organizations obtain federal and state tax-exempt status. She has obtained tax exempt status for companies that provide maternal health care and operate a pre-school and primary school in Uganda, conduct medical missions in Myanmar, operate a summer camp for LGBTQ youth, and provide services, resources and support to teenage mothers.

Photo of Lauren Richburg Lauren Richburg

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending…

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending transactions.

Photo of David S. Miller David S. Miller

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers…

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers and acquisitions, multinational corporate groups and partnerships, private equity and hedge funds, bankruptcy and workouts, high-net-worth individuals and families, and public charities and private foundations. He advises companies in virtually all major industries, including banking, finance, private equity, health care, life sciences, real estate, technology, consumer products, entertainment and energy.

David is strongly committed to pro bono service, and has represented more than 200 charities. In 2011, he was named as one of eight “Lawyers Who Lead by Example” by theNew York Law Journal for his pro bono service. David has also been recognized for his pro bono work by The Legal Aid Society, Legal Services for New York City and New York Lawyers For The Public Interest.

Photo of Yuval Tal Yuval Tal

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers…

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers & acquisitions (public and private, debt and equity), long-term joint ventures, private equity real estate and corporate and real estate finance. He advises clients on the full range of their activities including any form of financing, operational matters and commercial transactions. He advises sponsors and funds on the structuring, execution, entering into, restructuring and exiting of investments. Yuval is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Yuval has decades of experience representing clients on complex, first in kind transactions.  Yuval’s strength is providing original, workable and practical solutions that get the deal done. Qualified in New York, Hong Kong and Israel, Yuval has negotiated transactions in six continents and has particular experience representing Asian clients and clients based outside of Asia in inbound and outbound transactions. Yuval has worked in various industries including real estate, hospitality, entertainment, sports, financial services, technology and life sciences.

As an international M&A lawyer, Yuval has many years of experience dealing with complicated, non-customary transactions involving parties from different countries, cultures and legal systems.  He has represented private equity, family offices, corporations and individuals in structuring, restructuring, managing and disposing of investments in Asia, Europe and the United States.  He is typically called upon to strategize and structure complex transactions that do not follow a prescribed form or pattern. Yuval’s experience enables him to forsee future issues and clients have commented on his “ability to think seven moves ahead of the competition”. Yuval is also well known for his ability to broker deals between opposing parties in order to get the deal done, irrespective of the legal, business or practical obstacles. His efforts have earned him recognition by Legal 500Chambers Asia Pacific and IFLR1000, where clients have referred to his “ability to play the honest broker to all parties involved, and to bridge the different cultures, legal systems and language barriers and to continually solve the unsolvable, is what allowed us to get this difficult deal done” and another stated “he was completely invested in the deal in a way lawyers seldom are, and his creativity and efforts allowed us to bridge considerable gaps between the parties and find common ground”.

As co-head of our Hospitality, Gaming & Leisure Group, Yuval has worked on virtually any kind of transaction, including mixed-use development and construction, acquisition and sale, restructuring and public offerings of real estate, hotel and casino companies. He has completed numerous high profile transactions involving the buying, selling and combining Asian and Western based hotel operating companies, including AccorHotels’ [EPA:AC]  US$2.9 billion acquisition of Fairmont, Raffles and Swissôtel brands, its acquisition of Tribe, Australia’s first integrated modular hotel brand, Accor’s long-term alliance with Huazhu Hotels Group (also known as China Lodging Group [Nasdaq: HTHT]) and its strategic partnership with Singapore-based Banyan Tree Holdings [SGX:B58]. He also advised Formosa International Hotels’ sale and resulting joint venture with Intercontinental Hotels Group with respect to the Regent brand.  His real estate and hospitality work has included transactions for properties from China to India to the United States to Australia. He also has many years of experience with hotel licensing, franchising and management.

Yuval’s broader Private Equity Real Estate experience includes working on The Recording Academy’s (The Grammys) deal to develop Grammy Museums in China, a public/private deal to finance an office building in Delhi, India; the acquisition of hotels in Bangkok by a large Japanese institutional investor and a joint venture between a Hong Kong developer and an Asian based private equity fund for the acquisition and redevelopment of a property in Kowloon into a mixed use property including co-living and co-working properties.

Yuval is a member of the Steering Committee of the Asian Hospitality Development Council of the Urban Land Institute (ULI) and has recently been appointed to the Law 360 2020 Hospitality Editorial Board. He is a regular speaker at real estate and hospitality related conferences such as the Hotel Investment Conference Asia-Pacific in Hong Kong.

Prior to rejoining Proskauer in 1999, Yuval practiced law in Israel, representing Israeli clients in transactions in Europe and the United States and European and U.S.-based clients in transactions in Israel. He handled transactions for major publicly traded Israeli companies such as Clal (Israel) Ltd., LifeWatch, Kitan Consolidated Ltd., Orckit Communications Ltd., ECI Telecom Ltd., Scitex Corporation Ltd. and Tecnomatix Technologies Ltd. Since joining Proskauer, Yuval has continued to represent Israeli clients on a wide range of corporate and securities matters.

Photo of Grant R. Darwin Grant R. Darwin

Grant Darwin is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Group.  Grant counsels clients in connection with a variety of domestic and cross-border buyouts, mergers, acquisitions, divestitures, joint ventures, and recapitalizations, as well…

Grant Darwin is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Group.  Grant counsels clients in connection with a variety of domestic and cross-border buyouts, mergers, acquisitions, divestitures, joint ventures, and recapitalizations, as well as growth and venture-stage investments and general corporate governance matters.  Grant’s experience involves transactions in an array of industries, including manufacturing, gaming, retail and consumer products, technology and healthcare.

In addition to his corporate practice, Grant engages in a variety of pro bono efforts, including matters related to cash bail and prison reform, use of excessive force against minors and advising not-for-profit organizations on formation, corporate governance and related matters.  Grant has also spearheaded voter registration drives and joined in election protection initiatives.

Prior to Proskauer, Grant was an associate with Kirkland & Ellis LLP, where he was awarded the 2016 Kirkland & Ellis Pro Bono Leadership Award.

Photo of Lara Miller Lara Miller

Lara Miller is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Groups. Lara focuses her practice on domestic and cross-border buyouts, mergers and acquisitions, divestitures, joint ventures, recapitalizations, growth equity investing and portfolio company…

Lara Miller is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Groups. Lara focuses her practice on domestic and cross-border buyouts, mergers and acquisitions, divestitures, joint ventures, recapitalizations, growth equity investing and portfolio company governance and related matters. In addition, Lara has represented clients across a variety of industries, including consumer products, financial services, health care, hospitality, real estate and media and technology.