Smaller Chapter 11 Cases Will Impact Many and Move Swiftly

One provision of the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act makes available to a greatly expanded group of small businesses what is viewed as a cost-effective and time-saving bankruptcy reorganization process.

On Friday, March 27, 2020, the U.S. House of Representatives voted to approve the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) submitted by the Senate and President Trump just signed the bill. The bill provides for $2.2 trillion in emergency aid to ease the financial impact of the COVID-19 crisis.

Congress just made it easier and less expensive for small businesses to reorganize under Chapter 11. Small businesses continue to struggle under the current social isolation measures in place in most states. Even with the recent financial relief package passed by Congress, many small businesses will not have sufficient resources to meet their most basic obligations such as rent, utilities and other operational necessities.

As the economic turbulence associated with the downturn in commodity prices and the outbreak of COVID-19 continues, many energy companies may find their debt trading at significant discounts. For companies trying to manage liability and liquidity, this presents an opportunity to selectively repurchase debt and de-lever at prices well below par. Energy companies that are well-situated to capitalize on this window should carefully consider the corporate and tax ramifications debt buybacks present.

Corporate Considerations

Small businesses experiencing short-term and long-term distress from the effects of the current pandemic can avail themselves of various immediate remedies that are available under Chapter 11. However, the Small Business Reorganization Act (the SBRA) provides enhancements solely for eligible small businesses that are faster and less expensive than traditional Chapter 11.

On March 25, 2020, the United States Senate – and on March 27, 2020, the United States House of Representatives – passed the “Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”) to provide relief to small businesses and consumers harmed by the COVID-19 pandemic. The CARES Act is expansive in its scope, but there are important provisions lenders should know about that are related to bankruptcy.

On March 27, the president signed into law Phase 3 of the federal stimulus program, called the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Title I of the act, titled the Keeping American Workers Paid and Employed Act (KAWPEA), directs, among other amounts, $349 billion to small businesses as part of an expansion of the U.S. Small Business Administration’s (SBA) Section 7(a) loan program under a new paycheck protection loan program (PPP) as well as $10 billion through an expansion to the SBA’s Section 7(b) economic injury disaster loan (EIDL) program.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a roughly $2 trillion coronavirus response bill signed into law yesterday, is intended to provide widespread emergency relief for Americans and the country’s economy. In addition to its benefits for individuals, the bill provides aid for small businesses, large corporations, hospitals and public health agencies, and state and local governments.

The CARES Act includes actions specifically designed to provide various levels of temporary regulatory relief to financial institutions and to support the financial services industry as a whole. Following are the key areas in which the CARES Act provides relief to the financial services industry:

Up to $500 Billion in Emergency Liquidity for Eligible Businesses

Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), providing a two trillion dollar economic stimulus for U.S. industries and citizens affected by the COVID-19 coronavirus. The legislation is expected to be signed into law shortly. Included in this legislation are provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief.