Some U.S. companies will keep small business loans, defying backlash
25/04/2020 01:43
By Hilary Russ and Joshua Franklin
April 24 (Reuters) - Several publicly listed companies worth
hundreds of millions of dollars said on Friday they had no plans
to return funding they received under a U.S. government program
providing emergency loans to small businesses, even though some
of their peers have started to do so.
The loans are designed to support smaller businesses -
defined as having no more than 500 employees - ranging from hair
dressers to landscapers to help cover employee payroll and rent,
as large swaths of the economy have been shut down to keep the
coronavirus from spreading.
The U.S. Treasury Department said on Thursday that "big
public companies with access to capital" would have a hard time
proving they really needed the coronavirus relief funds, dubbed
Paycheck Protection Program (PPP) loans. It updated its
eligibility criteria, and gave companies that do not qualify
until May 7 to return the aid.
A handful of big public companies, some of which had
qualified under a loophole in the program that defined the
500-employee limit to each location operated by a single
company, responded to the public backlash by saying they were
returning their loans. That included Ruth's Hospitality Group
Inc RUTH.O , owner of the Chris Steakhouse chain, investment
firm Manning & Napier Inc MN.N and biotechnology company Wave
Life Sciences Ltd WVE.O . Restaurant operators Shake Shack Inc
SHAK.N and Kura Sushi USA Inc KRUS.O returned loans from an
initial tranche of the program.
But others are holding fast.
MiMedx Group Inc MDXG.PK , a manufacturer of biomaterials
with a market value of $420 million, Digimarc Corp DMRC.O , a
digital watermark provider with a market value of $197 million,
and ZAGG Inc ZAGG.O , a maker of screen protectors for mobile
devices with a market value of just shy of $100 million, told
Reuters on Friday they took the loans because they needed them
and planned to keep them.
MiMedx, which took a $10 million loan, said it was in
compliance with the Treasury's loans and could not access the
capital markets because it was not current in its financial
statements.
"COVID-19 has created operating complexities many never
imagined. From sourcing material, to guarding our staff's health
and maintaining high quality production standards," MiMedx said
in a statement.
Digimarc, which took a $5 million loan, said it complied
with both the guidelines and the spirit of the program. "We
don't know whether the capital markets are open to us until we
go there," CEO Bruce Davis said.
ZAGG, which took a $9.5 million loan, said it qualified
because it met all conditions.
"With extensive retail closures nationwide, our business has
been severely impacted during the shutdown of all non-essential
businesses due to COVID-19. We are using the money in accordance
with government guidelines," Zagg said in a statement.
A Treasury spokesman declined comment.
"The risk that these companies run is that they become the
poster child for greed," said Chas Hermann, the former chief
brand officer at Noodles & Co NDLS.O who is now a marketing
consultant. "Shake Shack recognized that quickly and turned it
around. It was the best move you could make after you made a
really bad move."
There is more loan money coming. President Donald Trump
signed a new $484 billion aid bill on Friday, the fourth passed
by lawmakers to address the coronavirus crisis to fund small
businesses and hospitals. It includes $310 billion for PPP
loans.
(Reporting by Hilary Russ and Joshua Franklin in New York
Additional reporting by Dave Lawder in Washington
Editing by Greg Roumeliotis and Leslie Adler)
((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))