Preliminary CARES Act Loan Application Guidance for Air Carriers & Businesses Critical to National Security

The CARES Act, signed into law on March 27, includes a section, Title IV - Coronavirus Economic Stabilization Act, which authorizes the Secretary of the Treasury to make loans, loan guarantees and other investments of up to $500 billion to eligible businesses operating in severely distressed sectors of the economy, states and municipalities.

According to the legislation, the Treasury will publish specific procedures for certain companies to apply for these loans within 10 days after enactment. However, on March 30, the Treasury released partial guidance regarding procedures and minimum requirements relating to the $46 billion available to passenger and cargo air carriers and businesses deemed critical to maintaining national security.

Application Information Requirements for Air Carriers and Businesses Deemed Critical to National Security
The Treasury has provided an initial list of information that these eligible businesses must provide in conjunction with their loan applications. This includes the following:

 

Debt and Debt Service	Description of existing secured and unsecured debt and scheduled debt service for the next three years
Employment Levels	Total headcount and compensation as of March 24 with any proposed changes during the remainder of 2020
Financial Statements	Consolidated financial statements for the previous three years
Covered Losses, Financial Needs and Use of Proceeds	Description of the covered losses incurred as a result of the coronavirus and quantitative information regarding financial needs of the business for the remainder of 2020 including the intended use of loan proceeds
Lack of Credit Elsewhere	Evidence that the borrower cannot secure credit elsewhere
Passenger and Cargo Service Operations	Available seat/ton miles, revenue per seat/ton mile, and cost per available seat/ton mile for 2019 and a forecast of the same for 2020
Security	Identification of collateral to be pledged to secure the loan
Operating and Restructuring Plans	Discussion of how the proposed loan fits within the borrower’s business plan and any plans to restructure existing obligations, contracts, staffing or organization to improve the financial condition of the business

 

Though these procedures and requirements are preliminary and will be supplemented with additional terms and a loan application form, the Treasury has encouraged prospective borrowers to begin compiling this information now to expedite their ability to submit a loan application.

Supplemental Procedures

The Treasury will promptly release additional procedures, which will address at least the following:

• Additional program rules and policies;
• Certifications and disclosures to be required of all borrowers;
• Loan terms and conditions;
• Information regarding how the principal amount of individual loans will be determined;
• An application form and instructions; and
• Application evaluation criteria.

The Treasury will approve or deny applications based on the published evaluation criteria and its sole discretion. 

Payroll Support for Air Carriers and Contractors

The economic stabilization plan also permits the Treasury to provide payroll relief to air carriers and certain contractors for businesses to continue paying employee wages, salaries and benefits. Notably, eligible contractors (and subcontractors) generally include those which operate at an airport related to the transportation of persons, property or mail including:

• Catering functions;
• Loading/unloading of property;
• Assistance to passengers with disabilities;
• Security;
• Airport ticketing and check-in functions;
• Ground-handling of aircraft; and
• Aircraft cleaning, sanitization and waste removal.

Eligible air carriers and contractors must make required assurances and agree to other conditions outlined by the Treasury. Qualifying applicants are eligible for an awarded amount equal to the compensation paid to their employees from the period April 1, 2019 through Sept. 30, 2019.

Applicants must complete the Payroll Support Application Form and once received, the Treasury will provide a Payroll Support Agreement. This Payroll Support Agreement will include terms such as:

• The assurances made by the applicant;
• The compensation limitations as described within the CARES Act;
• Certain conditions and covenants; and
• Provisions for the clawback of payments if the applicant fails to satisfy its assurances, conditions or agreements.

For an expedited application approval, the Treasury recommends applicants submit their completed application by April 3, 2020. However, companies will have until April 27, 2020 to submit their application, and applications submitted after that date may not be considered by the Treasury.
 

BDO will provide additional insight as new information becomes available. To learn more about securing economic relief for your organization, contact us.
 

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Disclaimer
The above has been prepared solely for informational purposes.  Any opinion expressed herein shall not amount to any form of guarantee that BDO USA, LLP (“BDO”) has determined or predicted future events or circumstances, and no such reliance may be inferred or implied.  BDO accepts no duty of care or liability of any kind whatsoever to any party, and no responsibility for damages, if any, suffered by any party as a result of decisions made, or not made, or actions taken, or not taken, based on this information.