Seth R. Freeman
R. Adam Swick
Rafael X. Zahralddin-Aravena
1. Spending Measures (Budget Allocations)
- Provide $17 billion in loans and loan guarantees for unspecified “businesses critical to maintaining national security.
- Put $192 billion into hospitals and veterans’ health care.
- Provide $16 billion for the strategic national stockpile of pharmaceutical and medical supplies.
- Provide $25 billion for increased testing.
2. Tax Measures (Deferral of Payroll Tax Obligations, Extensions of Tax Filing Deadlines)
- Income tax payments delayed to July 15.
- Suspend federal student loan payments through Sept. 30 with no accrual of interest on those loans.
- Delay payroll tax for employers, requiring half of the deferred tax to be paid by the end of 2021 and the other half by the end of 2022.
- Include a tax credit for retaining employees, worth up to 50% of wages paid during the crisis, for businesses forced to suspend operations or that have seen gross receipts fall by 50% from the previous year.
- The CARES Act significantly increases the ability of corporations to utilize NOL carryforwards and carrybacks for 2018, 2019, and 2020. The Tax Cuts and Jobs Act (TCJA) enacted at the end of 2017 eliminated net operating loss carrybacks and limited a corporation’s ability to use NOL carryforwards in any given year to 80 percent of taxable income. Section 2303 of the CARES Act temporarily reverses both of those changes by permitting a corporation to carryback NOLs from 2018, 2019 and 2020 for five years.
- Treasury will authorize virtually any bank to be lender.
3. Subsidies to Preserve Jobs, Employee Benefits, Food Assistance
- One-time direct payments of up to $1,200 for individuals and $2,400 for couples, with $500 added for every child, based on 2019 tax returns for those who filed them and 2018 information if they have not. The benefit would start to phase out above $75,000 in income for individuals and $150,000 for couples, going away completely at the $99,000 and $198,000 thresholds, respectively.
- Boost unemployment insurance, adding $600 per week for up to four months on top of what beneficiaries normally receive from states. It expands eligibility to self-employed people and independent contractors.
- Ban companies that take government loans from buying back stock until a year after the loan is paid back.
- Bar employees or executives who made at least $425,000 last year from getting a raise.
- Some states like Florida and NY join in the effort to have the coronavirus event covered by certain Business Interruption Insurance policies, retroactive to March . The Bill is limited to insured with fewer than 100 employees. There are obvious Contract Clause issues that will undoubtedly be the subject of court challenges if this Bill ever becomes law.
4. Public Loan Guarantees and Expansion of Loans to Businesses
- Create a $500 billion pool of taxpayer money to make loans, loan guarantees or investments to or in businesses, states and municipalities damaged by the crisis.
- $25 billion in grants to airlines and $4 billion to cargo carriers to be used exclusively to pay employee wages, salaries and benefits, and set aside another $25 billion and $4 billion, respectively, for loans and loan guarantees.
- Give over $680 billion in loans for small businesses to cover salary, wages and benefits, worth 250% of an employer’s monthly payroll, with a maximum loan of $10 million.
5. Student Loan Relief
- All payments on federally held student loans (not commercially held FFELP or private student loans) are suspended through September 30, 2020.
- During the suspension period, interest shall not accrue on federally held loans.
- For purposes of federal loan forgiveness and loan rehabilitation programs, payments will be treated as if they were made for each month during the suspension period.
- Suspended payments must be reported to the credit bureaus as if they were made (thus not reported using forbearance codes).
- An employer may make a payment of principal or interest before January 1, 2021 on any qualified education loan incurred by the employee and exclude that amount from the employee's gross income. The payment may be made to the employee or to the lender.
6. Insolvency Law Relief
- SMALL BUSINESS: Under the new SBRA, Small Business Reorganization Act: a) Increase the threshold for small business eligibility from $2,725,625 to $7,500,000 of debt for one year;
- The definition of current monthly income (CMI) by excluding payments made by the federal government with respect to coronavirus;
- The definition of disposable income (DI) in consumer reorganization by excluding payments made by the federal government with respect to coronavirus;
- Allows plan of reorganizations already in place to be modified due to material financial hardship caused by coronavirus;
- Extends consumer repayment plans from 5 years to 7 if modified due to coronavirus.
1. Reduction of Interest Rates
- The Fed cut its target for the federal funds rate, the rate banks pay to borrow from each other overnight, bringing it down to a range of 0 percent to 0.25 percent. The federal funds rate is a benchmark for short-term rates, and affects longer-term rates. By reducing the rate, the Federal Reserve is aiming to lower the cost of borrowing loans. This will also, however, have the practical effect of reducing the interest income individuals receive on their savings accounts.
2. Expansion of Central Bank’s Holdings of Government Bonds
- The Fed said Monday it would purchase Treasuries and mortgage-backed securities "in the amounts needed to support smooth market functioning," effectively putting no limits on how many assets the Fed is willing to buy. During the week of March 23, 2020, the Federal Reserve purchased $375 billion in Treasuries and $250 billion worth of mortgage-backed securities (“MBS”). The Federal Reserve has indicated it would continue buying large amounts of securities in the week beginning on March 30. In the span of three weeks, the Federal Reserve’s balance sheet has grown by $1 trillion as a result of securities purchases, central bank currency swaps, repurchase agreements, and use of the new Primary Dealer Credit Facility and Money Market Mutual Fund Liquidity Facility.
3. Other Measures to Support Flow of Credit
4. Suspension of Foreclosures/Evictions
- The CARES Act prohibits a servicer of a federally backed mortgage loan from initiating the filing or advancement of foreclosure proceedings or the execution of evictions or sales for a period of 60 days beginning on March 18, 2020.
- For the purpose of the foreclosure moratorium and forbearance requests, federally-backed mortgage loans include those purchased by Fannie Mae, Freddie Mac, insured by HUD, VA or USDA or directly made by USDA.
5. Reductions/Suspensions of Mortgage Payments
- A borrower can obtain a forbearance for up to 180 days on all federally backed mortgage loans experiencing financial hardship related to the COVID-19 emergency. Requests for forbearance can be made regardless of delinquency status.
- Multifamily borrowers (as defined) with federally backed multi-family mortgage loans may request up to 3 successive forbearances (i.e. up to 90 days) if experiencing financial hardship related to the COVID-19 emergency. Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period.
6. Asset Purchases (Liquidity Facilities, Purchase of Private and Public Sector Securities, Acquiring Equity of Larger Affected Companies)
- Under the CARES ACT, the U.S. airline industry is set to receive approximately $60 million in financial assistance. Under the terms of the loan, the government would take an equity interest in the companies until the loan is paid back. The loans also come with other conditions including: (a) airlines will not be allowed to lay off or furlough workers until September 30, 2020, (b) airlines will be prohibited from buying back shares of their own stock for a year after the loan is fully paid off and bars them from issuing dividends to shareholders while receiving aid, and (c) airline executive compensation is capped at 2019 levels, and (d) the FAA is extending through Oct. 24, 2020 [nam03.safelinks.protection.outlook.com] (PDF) the temporary waiver of minimum slot-use requirements [nam03.safelinks.protection.outlook.com] at U.S. airports to help airlines that cancel flights due to the Coronavirus. Under normal circumstances, airlines can lose their slots at congested airports if they don't use them at least 80 percent of the time. The FAA is waiving the 80-percent-use requirement for U.S. and foreign airlines that have affected flights. The FAA initially announced that the relief would be in effect through May 31, 2020.
7. Exchange Rate Adjustments
1. Social Distancing
- Under the Federal Government's guidelines to slow the spread, individuals are to work from home when possible, avoid social gatherings of more than 10 people, and follow the directions of local authorities. More than 35 states have orders in place to remain at home as much as possible and remain at least 6 feet apart from other people. Notably, Virginia has issued an order to stay at home through June 10, 2020. Based on the relative outbreak in each state, states have taken different approaches to the number of people allowed in gathering.
2. Closure of Public Places for Gathering
- Largely in response to individuals not respecting the social distancing guidelines mentioned above, states and city governments have taken steps to limit access to public spaces to prevent public gathers not in compliance with the recommended limits on social gatherings.
3. Closure of Non-Essential Businesses
- More than 45 states have enacted policies to close nonessential businesses in an effort to slow the spread of novel coronavirus in the United States. The definition of essential business varies to some degree by state but in general includes grocery stores and pharmacies. Museums, movie theaters, gyms, day cares, music venues and malls, as well as personal care retailers like spas, nail and hair salons, tend to fall in the nonessential businesses category.
4. School Closures
- The coronavirus pandemic has forced widespread school closures in the United States in an unprecedented disruption of K-12 schooling and in universities. School closures are decided on a localized level. Some schools have closed for set periods of time while others have already closed for the academic year.
1. International Assistance
- On March 31, 2020 the Federal Reserve announced the establishment of a temporary repurchase agreement facility for international monetary authorities (“FIMA Repo Facility”). The FIMA Repo Facility allows central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve. Through this facility, the account holders temporarily exchange their U.S. treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions.
Emergency Paid Sick Leave Act
- On March 18, 2020, the Emergency Family and Medical Leave Expansion Act (the “FMLA Expansion Act”) was enacted. The FMLA Expansion Act expanded family and medical leave for certain U.S. employees. The FMLA Expansion Act requires employers with fewer than 500 employees to provide up to 12 weeks of paid sick leave to full-time and part-time employees for “a qualifying need related to a public health emergency.” The qualifying need applies to employees unable to work (or telework) due to a need to care for a minor child home due to a school or other care facility closure due to COVID-19. The first two weeks are unpaid (but an employee can substitute accrued paid leave), and the remaining 10 weeks are paid at two-thirds of the employee’s regular rate for the number of hours the employee would otherwise have been scheduled to work, up to a maximum payment. The CARES ACT makes clarifying amendments and provides that an employer is not required to pay more than either $511 per day ($5,110 in the aggregate) to an employees on sick leave due to COVID-19, or more than $200 per day ($2,000 in the aggregate) to an employee who is caring for a quarantined individual or minor child. Independent Contractors can apply individually and cannot be counted for loan amount by employer.
Defense Production Act
- On March 18, 2020, Trump invoked the Defense Production Act in response to the COVID-19 outbreak. The Defense Production Act authorizes the president to require businesses to accept and prioritize contracts for materials deemed necessary for national defense. President Trump issued an executive order that defined ventilators and protective equipment as "essential to the national defense", the standard required by the DPA.
Bankruptcy Court Operations
- US Bankruptcy Courts are establishing procedures and orders for telephone and video hearings. Information is being updated daily at this site: https://www.uscourts.gov/about-federal-courts/court-website-links/court-orders-and-updates-during-covid19-pandemic#bankruptcy