With scores of small businesses in dire straits due to the coronavirus lockdown, the $349 billion bailout designed to help them was raided by public companies and hedge funds.
According to the Financial Times, over 80 publicly listed companies tapped the Paycheck Protection Program (PPP), which ran out of funds last week. The most prominent public company to take the funds was Shake Shack, which sparked backlash after receiving $10 million in PPP funds through JPMorgan. Perhaps sensing pitchforks, the company announced on Monday that it would be returning the funds.
JPMorgan separately announced that it's working with the Treasury department to adjust the distribution qualifications for the next round of PPP stimulus in order to 'end loopholes allowing major restaurant chains and hedge funds' to access the next virus aid package.
Another company which tapped into the PPP was Ohio-based biotech Athersys, which received $1 million through the program despite raising nearly $60 million in a Monday stock offering after its shares have nearly doubled YTD. Meanwhile Nikola Motor - backed by Fidelity and hedge fund ValueAct, announced a $4 billion valuation in early March when it announced a merger with VectoIQ. The company borrowed $4 million from the PPP according to a disclosure.
Ruth's Chris steakhouse made $42 million in profit on $468 million in revenue last year, yet tapped $20 million from the PPP.
Some companies have already shown an ability to raise money in the public markets despite the coronavirus lockdowns. One recipient, the electric truck start-up Nikola Motor, is in the throes of a merger with a public company that values it at $4bn.
The disclosures, which included more than a dozen filed on Monday alone, will sharpen discussion in Washington about the design of the bailout scheme, known as the Paycheck Protection Program, which was intended to help ordinary businesses keep employees on payroll and to meet basic operating expenses. -Financial Times
Lawmakers are expected to add hundreds of billions of dollars to the fund this week - however there have been calls for greater oversight and clear rules defining who can access the loans, which carry an interest rate of just 1% and turn into grants if businesses retain a certain percentage of employees.
"Public companies that have access to other sources of money should not be using this," said University of Delaware corporate governance expert Charles Elson. "Small businesses need this pot to survive."
According to FT, 83 public companies have borrowed over $330 million from the PPP - averaging $4 million each while the Small Business Association (SBA) which oversees the program said that the average loan was $200,000.
Indiana-based coal miner Hallador Energy took $10m after it had sacked 60 employees in March. Also taking $10m was the data storage company Quantum. Emmis Communications, the dotcom boom star which operates the Hot 97 radio station in New York, borrowed almost $5m, according to a securities filing.
Large restaurant groups including Potbelly and the owner of Ruth’s Chris Steak House disclosed last week that they had each drawn $10m or more, taking advantage of an exemption for restaurant and hotel chains to the rule that otherwise limited PPP funding to businesses with fewer than 500 employees. -Financial Times
"We have been able to maintain limited US operations in our lab and manufacturing facility in Massachusetts without reducing our workforce thus far," according to Boston-based biotech company Wave Life Sciences, which was able to secure $7 million through the PPP. "We are doing everything we can to protect their jobs through this period of uncertainty, which includes applying for the PPP loan that will be used exclusively to support US operations, including payroll."
Meanwhile, institutional investors in Pennsylvania and Alaska have warned hedge funds to cool their jets on PPP loans, according to Bloomberg.
Pennsylvania’s Public School Employees’ Retirement System is monitoring its managers -- as well as potential new ones -- to see if they took advantage of the rescue program. The Alaska Permanent Fund Corp. said it would view any manager taking assistance “quite negatively.” Some funds have already applied, Bloomberg earlier reported.
“It is ethically questionable and likely not in the best interest of the industry as a whole, long term,” said Marcus Frampton, chief investment officer at Alaska’s $60 billion sovereign wealth fund. “Alternatives managers, from a fiduciary standpoint, should be exploring federal assistance for portfolio companies where it is needed to preserve value and help employees.” -Bloomberg
Did they think nobody would notice?