More than a week after Congress approved the largest fiscal stimulus in U.S. history, many companies still don't know if it will provide the financial lifeline they need to stay afloat.

Since the legislation passed on March 27, industry groups have been pressing policymakers to ensure a large chunk of their firms can actually benefit from a major lending program at the heart of the new law. Under the CARES Act, the Treasury is getting $454 billion in funds to provide credit protection for the Fed's emergency lending operations, a backstop expected to lead to about $4.5 trillion in Fed lending.

California Bank of Commerce (CBC) announces the launch of its Sponsor Finance Lending Division, led by well-known dealmaker Larry LaCroix. The division works closely with private equity firms (including Search Funds) and direct lenders to provide cash flow-based senior debt financing.

As of March 31, 2020,  the US Treasury Department has issued the application form and other guidance in connection with the Paycheck Protection Program which can be found on its website:  https://home.treasury.gov/cares

The materials on the website include:

●  Paycheck Protection Program Overview
●  Paycheck Protection Program (PPP) Information Sheet: Lenders
●  Paycheck Protection Program (PPP) Information Sheet: Borrowers
●  Paycheck Protection Loan Program application
●  Paycheck Protection Program – Interim Final Rule

SFNet’s CEO submitted a  letter to US Treasury Secretary Mnuchin and Administrator Carranza of the Small Business Administration, seeking affirmation of eligibility of non-bank lenders under the CARES Act. The letter seeks to further ensure that non-bank lenders are afforded all available protections under the Act as regulations are now established and implemented.  

(Editor’s note: Subsequent to this letter, the SBA has issued its ‘Interim Final Rule’ that makes businesses identified in 13 CFR 120.110, which includes financial services companies, ineligible for the Paycheck Protection Program.   SFNet will be seeking any recourse available to press the SBA to amend this position)

A corporate scramble for cash and massive injections of liquidity by the Federal Reserve are reverberating across the balance sheets of U.S. commercial banks, with commercial and industrial loans registering the biggest week-over-week increase in more than 45 years.

C&I loans jumped 7.4%, or $176.17 billion, during the week ended March 18, according to seasonally adjusted data in the Fed's latest H.8 report on bank assets and liabilities. The data covers a week during which the crisis caused by the new coronavirus pandemic escalated rapidly. The Trump administration declared a national emergency March 13, and states placed increasing restrictions on public gatherings and business activity aimed at slowing the spread of the virus.

At SFNet we realize how important it is to stay plugged into what’s happening on a local and global scale and understand how the latest developments are impacting our industry, especially during this time of unprecedented disruption. Although we can’t meet face-to-face right now, we can come together virtually to learn, exchange ideas and tackle some of the most pressing issues facing the secured finance community.

Over the next couple of months, SFNet is moving all in-person education courses online, introducing new webinars—both industry-focused content as well as trending topics of interest, and reformatting our planned live events to virtual platforms followed by re-scheduled in-person meetings at a later date.

I am old enough to remember the meltdowns that we had in the 1990s when prime rate of interest hit double digits and the American economy cratered when companies folded up and went out of business. Of course, I also remember 2008-2009 when the housing crisis hit and a lot of companies went out of business and banks lost a lot of money, etc. Here we go again.  We are now in the year 2020 and sitting on the brink of another emerging crisis.

Republic Business Credit works with the Azadian Group and Change Capital to provide flexible growth capital during the coronavirus pandemic. 

Encina Business Credit, LLC (“EBC”) announces the completion of a $75.0 million revolving credit facility for Horizon Global Corporation (“Horizon”). The facility will be used to replace an existing facility and will provide for ongoing working capital.

Jeffery Wacker, head of U.S. Asset Based Lending Originations, TD Bank, with contributed insights from Elizabeth Rust, Senior Economist, Keybridge in Washington D.C. and David Chmiel, Managing Director, Global Torchlight Limited from London, U.K.

Modell’s Sporting Goods. America’s oldest family owned and operated retailer of sporting goods, athletic footwear, active apparel and fan gear, today announced that the Company has voluntarily filed for relief under Chapter 11 of the Bankruptcy Code (“Chapter 11”) in the U.S. Bankruptcy Court for the District of New Jersey on March 11, 2020.
“We are extremely appreciative of the support that our lenders (JP Morgan Chase and Wells Fargo), vendors and landlords provided during this difficult period, engaging in extensive renegotiation efforts and allowing us to pursue every possible avenue to preserve the jobs of our loyal associates..." Modell’s Chief Executive Officer, Mitchell Modell, said.

Some of the companies hit hardest by the Covid-19 coronavirus are starting to talk to banks about short-term loans that would provide a safety net during the outbreak, according to people familiar with the matter. Discussions are preliminary and have occurred mostly with airlines, said the people, who asked not to be named discussing private information. Companies in industries such as energy and travel and leisure with investment-grade or high-yield ratings could also consider backup financings, they added.

Do not underestimate the impact of the Coronavirus on a company’s Q1 and Q2 2020 financial results.  The supply chain issues are unknown, the potential economic slowdown is unknown, and the length of time the impact will be felt is unknown.

This will certainly be a standard excuse for performance weakness that will be heard over the next year.  Be prepared!

As a lender, which borrowers do you consider for impact, and what do you do to stay ahead of the problem?

Citibank N.A ("Citi") acted as sole structuring agent. The bank syndicate for the RCF and TLA is led by Citi; Export Development Canada; Bank of Montreal; and Toronto-Dominion Bank; and also includes Canadian Western Bank; HSBC Bank Canada; and Bank of America, N.A.

Pioneer has received a commitment for $75 million in debtor-in-possession ("DIP") financing from PNC Bank.  Upon Court approval, the new financing and cash generated from the Company's ongoing operations will be used to support the business during the reorganization process.  PNC has also committed to "roll" the DIP financing into an asset-based revolving credit facility at exit.

Lending to companies with just a few million dollars in earnings is gaining greater interest from investors seeking higher yields and better protections as the private credit market grows increasingly segmented and sophisticated.

Firms are looking to raise funds to target companies in the lower middle market, or companies with an Ebitda of less than US$15m, including Deerpath Capital Management, which wants to raise US$1bn for its lower middle market fund, and PineBridge Investments, which announced it has US$596m to invest. At the same time, Main Street Capital Corp said it is continuing to seek opportunities in this segment.

Fifth Third served as Administrative Agent and Lead Arranger for this financing with Silicon Valley Bank (SVB) as Joint Lead Arranger on the investment. Soltage, working in partnership with Basalt managed funds, are deploying this investment through their previously established Helios capital vehicle.