CARES Act Update: Our insights in the first week since enactment

7 min read

On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The new law provides for $2.2 trillion in emergency aid to ease the financial impact of the COVID-19 crisis. Among other things, the law provides $500 billion to support loans, guarantees, and other investments to stricken industries, expands jobless benefits, and provides for direct payments to millions of Americans. The attached document includes all of the insights regarding the law that we have created since enactment on March 27th. These articles explain the kinds of assistance that our clients can receive under the Act and some of the requirements for eligibility.

1. The CARES Act

On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The bill provides for $2.2 trillion in emergency aid to ease the financial impact of the COVID-19 crisis. Among other things, the bill provides $500 billion to support loans, guarantees, and other investments to stricken industries, expands jobless benefits, and provides for direct payments to millions of Americans. 

1.1. Key Provisions of the CARES Act

a) Economic Stabilization and Assistance to Severely Distressed Sectors

Title IV of the CARES Act sets forth $500 billion of funding to support certain industries that have been severely impacted by COVID-19. Those industries are entitled to direct loans and loan guarantees from the U.S. Treasury Department (“U.S. Treasury”) amounting to $46 billion. The remaining $454 billion of funding is to be used by the U.S. Treasury for a combination of direct lending and guarantees and to support lending programs through bank or non-bank lenders. U.S. Treasury has significant discretion to determine the form and the terms and conditions including covenants, representations, warranties and other requirements. A matrix summarizing the availability of funding for different categories of business can be found at this link.

b) Paycheck Protection Program for Smaller and Specially Qualified Businesses

For smaller and specially qualified businesses, the CARES Act offers financial assistance via the new Paycheck Protection Program (“PPP”). The PPP is being implemented under the Small Business Act as part of its Section 7(a) loan program, the primary lending program of the Small Business Administration (“SBA”). The PPP provides loans (“PPP Loans”) of up to $10 million to companies that meet certain size requirements based on number of employees. PPP Loans can be used for a variety of purposes, and may be forgivable to the extent used for certain payroll, mortgage, rent and utility payments. 

1.2. SBA Implementation of the PPP

The SBA has noted that it expects to have the PPP “up and running” by April 3, 2020, and has issued the following guidance:

1.3. Changes in the Tax Code and Related Provisions

The CARES Act, along with the Families First Coronavirus Response Act, effective on April 1, 2020, will have a significant impact on companies and their employees through changes in the tax code and related provisions

1.4. Impact of the CARES Act on Specific Industries

a) Impact on the Pharmaceutical and Medical Devices Industries

For the pharmaceutical and medical device industries, the CARES Act focuses on ensuring the availability of lifesaving drugs in a public health crisis by addressing supply chain security and supply shortages of critical drugs and medical products, as well as by encouraging innovation through loosening restrictions on government collaboration with the private sector on research and development of pandemic, epidemic, and countermeasure products.  

The CARES Act incentivizes medical device manufacturers to produce and distribute medical devices by providing additional liability protection, and by awarding funds to hospitals in medically underserved areas for use in the prevention, diagnosis and treatment of COVID-19, but also adds a responsibility to give notice of potential or actual supply shortages. Further, the CARES Act provides funding to the federal government to aid the development, manufacture, and production of medical supplies and countermeasures, vaccines, and small molecule active ingredients, as well as other preparedness and response activities.

b)  Impact on the Aviation Industry

The CARES Act will direct US$500 billion in loans, loan guarantees and other investments to adversely impacted aviation industry and will make available an additional US$32 billion in payroll support to aviation workers. In exchange for receiving financial assistance, aviation businesses must agree to accept certain restrictions on their activities, such as no distribution of dividends, limits on stock buybacks, and no employee furloughs, layoffs or pay reductions. Further information can be found here.

The U.S. Treasury has issued the following procedures and guidelines for the Aviation industry:

1.5. CARES Act: Mid-sized Business Lending Program

Responses to the questions that non-US companies may have about their eligibility for aid under the CARES Act can be found here.

1.6. Questions of interest to Non-US Companies Under the CARES Act

We provide here a more in-depth discussion of the Act’s provision for the lending program for mid-sized businesses and non-profits under Section 4003(c )(3)(D).  It contains an annex that describes some of the specific requirements that may need to be satisfied when one applies for relief under the program.

1.7. Impact on International Trade

The CARES Act does not expressly alter U.S. trade policy. However, certain provisions of the Act may presage future trade actions by the United States intended to mitigate perceived vulnerabilities in the supply chain for pharmaceuticals, medical devices and similar goods. Moreover, the law's provision of government financial assistance to certain U.S. industries could lead to new trade disputes.


2.    Agencies' Response

2.1. Financial Services Regulatory Agencies

Several provisions of the CARES Act are of particular interest to financial institutions and other financial services providers (e.g., expanding which lenders may participate in certain loan programs).

Additional information regarding /publications/alert/us-liquidity-facilities and /publications/alert/us-investment-programs authorized by the CARES Act is also available. /sites/default/files/2020-04/4-Federal-regulatory-response-020420.pdf.

2.2. Competition Agencies

Several competition agencies in the U.S. and around the world have announced new policies to provide for expedited review of proposed collaborations or a relaxing of regulations to permit collaborations. However, competition agencies also will be on alert for anticompetitive behavior during this crisis. The CARES Act does nothing to ease the scrutiny that firms might be subject to if they align too closely. Companies should continue to follow antitrust guidelines and sensitivities when collaborating with competitors in response to COVID-19. 

2.3. Enforcement agencies

The US Securities and Exchange Commission (“SEC”) and the US Department of Justice (“DOJ”) have already given notice that they will be actively investigating and prosecuting COVID-19-related frauds. In this environment, companies will need to pay special attention to maintaining strong corporate controls and procedures. A review of the fraud prosecutions in the immediate aftermath of the 2008 financial crisis provides some insights into how companies can mitigate the risk of fraud and fraud-related enforcement proceedings

Download 'CARES Act Update: Our insights in the first week since enactment' (pdf)

Key Contacts

Paycheck Protection Program and Small Business Administration Loans
Ed So
Binoy Dharia
Heather Waters-Borthwick
Claudette Druehl

Funds for Non-US Company
David Thatch
Anastasiya Lisovskaya

Deferral of Payroll Taxes
Henrik Patel

Trade and Customs Issues
Greg Spak

Airlines, Air Carriers and Companies Essential for National Security under Section 4003(b)(1)-(3)
Elena Millerman
Mike Smith
Colin Diamond
Armando Rivera Jacobo
Todd Wolynski
Anna Andreeva

Warrants under Section 4003 and for Air Carriers under Section 4112(a)
Colin Diamond

Healthcare Appropriations
Rupa Briggs

Antitrust Collaboration Issues
Mark Gidley

Borrowing under the $454 Billion Section 4003(b)(4) Facility
David Thatch
Elena Millerman

Tax Provisions (Non-Payroll)
Sang Ji

Federal Reserve Programs
Duane Wall
Glenn Cuccinello
John Wagner
Max Bonici
Roseann Cook