More U.S. companies return payroll loans after new Treasury guidance (updated)

Ruth's Hospitality

23/04/2020 16:48

(Updates with more companies refusing loans, adds analysis)
    By David Lawder, Lisa Lambert and Lawrence Delevingne
    WASHINGTON/BOSTON, April 23 (Reuters) - U.S. companies on
Thursday began refusing government loans they were just awarded,
after the Treasury Department said that publicly traded firms
would have a hard time proving they really needed the
coronavirus relief funds.
    The about-face underscores problems with the way the
Treasury's Payroll Protection Program (PPP), designed to keep
American workers on company payrolls and off unemployment during
coronavirus-related lockdowns, was structured and rolled out.
    Some large well-funded companies were granted millions of
dollars from the $350 billion pool of funding, while many small,
mom-and-pop shops were unable to access any funding at all,
sparking public outrage.
    "Under the rubric of helping small businesses on Main
Street, well-intentioned programs like PPP have ended up helping
medium and big companies," said Aaron Klein, a fellow at the
Brookings Institution.
    The initial PPP funding was snapped up in less than two
weeks by millions of small and mid-sized businesses, including
restaurant chains Potbelly Corp  PBPB.O  and steakhouse operator
Ruth Hospitality Group  RUTH.O  and a coal mine. Congress has
now approved an additional $310 billion.  urn:newsml:reuters.com:*:nL2N2CB0JC
    Under the original guidance from the Treasury Department,
companies applying for PPP loans had to certify that "current
economic uncertainty makes the loan necessary to support ...
ongoing operations."
    In new Frequently Asked Questions guidance updated on
Thursday, Treasury said many of those companies would not be
able to certify in their loan applications that funds were
"necessary" for continued operations because they were already
well-financed.
    "It is unlikely that a public company with substantial
market value and access to capital markets will be able to make
the required certification in good faith," the Treasury said.
    The department went on to say that borrowers that returned
loan money by May 7 "will be deemed by the Small Business
Administration to have made the required certification in good
faith."
    The new guidance prompted the program's largest recipient,
the Ruth's Chris Steakhouse chain  RUTH.O  to say it would
quickly repay its $20 million loan to maintain its payroll
during coronavirus-prompted shutdowns. 
    Manning & Napier Inc  MN.N , a Fairpoint, New York,
investment firm that managed $17 billion as of March 31, also
said that it had "immediately rescinded" its already approved
applications for $6.7 million in PPP loans for two subsidiaries
following the new guidance for public companies from Treasury.
    Manning & Napier had said on Wednesday that the loans,
obtained through Buffalo, New York-based M&T Bank Corp  MTB.N 
would be "used to help support payroll costs and rent expense."
    The company, which remains in operation, previously
disclosed that compensation and related costs for its 307
employees was $81 million for 2019, an average of about $264,000
per employee. 
    A spokesman for the investment firm did not respond to
requests for additional comment. 
    Two other public companies that borrowed under the initial
tranche, Shake Shack Inc  SHAK.N  and Kura Sushi USA Inc,
 KRUS.O , earlier returned the funds.  urn:newsml:reuters.com:*:nL2N2CA0O9
    About $550 million of the first round of forgivable loans
went to more than 150 publicly traded companies that had
qualified under size guidelines in the statute. 
    Treasury Secretary Steven Mnuchin warned on Wednesday that
companies that received the rescue money intended for small
businesses could be investigated. He told Fox Business Network
it was "questionable" whether larger firms had qualified for
loans based on a self-certification step in the application
process.  urn:newsml:reuters.com:*:nL2N2CA0O9
    The FAQ update made it clear that the Treasury was looking
hard at the step in which a small business "must certify in good
faith that their PPP loan request is necessary."
    "Specifically, before submitting a PPP application, all
borrowers should review carefully the required certification
that 'current economic uncertainty makes this loan request
necessary to support the ongoing operations of the applicant,'"
it said. 

 (Reporting by Lisa Lambert and David Lawder in Washington, and
Lawrence Delevingne in Boston; Additional reporting by Tim
Ahmann and Joshua Franklin; Editing by Dan Grebler, Heather
Timmons and Peter Cooney)
 ((lisa.lambert@thomsonreuters.com; +1 202 898 8328; Reuters
Messaging: lisa.lambert.thomsonreuters.com@reuters.net))