Follow the Bailout Money.
By Wolf Richter for WOLF STREET.
When the $2.2 trillion bailout package was being put together by Congress in all haste in March, a mad scramble broke out over who would get what.
Part of this deal was the $349 billion Paycheck Protection Program for “small businesses” – which can be, as we now know, a publicly traded company with over 5,700 employees, or a KKR-backed power company that, upon getting the loan, files for prepackaged Chapter 11 bankruptcy.
And so, the program already ran out of money as of Thursday, according to the SBA. “Notice: Lapse in Appropriations. The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding,” it said on its website.
The program dispersed 1.66 million loans, according to the SBA’s tally. There were 30.2 million small businesses in the US in 2019, so about 5.5% got loans. What’s going to happen to the remaining 94.5% of the small businesses?
Congress is contemplating a $250-billion expansion of the program that would cover maybe another 4% of small businesses. In other words, most small businesses aren’t going to get any of it.
A small business under the plan is a business with 500 employees or fewer. Loans were capped at $10 million.
But wait… 4,412 loans were issued in amounts larger than $5 million each. And we already know which company with 5,700 employees got $20 million. Yup, a restaurant chain, because they and hotel chains were exempted from the employee limit. Restaurants and hotels got their own limit: 500 employees per location. They accomplished this through magnificent lobbying efforts.
Ruth’s Chris Steakhouse [RUTH] – with about 5,700 employees at the end of last year and 159 restaurants across the US – disclosed in an SEC filing on April 13 that on April 7, four days after the SBA opened the filing process and as the system was bogged down, it obtained a PPP loan of $20 million, spread over two loans of $10 million each for two of its entities. JPMorgan Chase was the lender. If the company follows the rules, this $20 million will be forgiven.
And then there is the curious case of Longview Power LLC, in which KKR, one of the big private equity firms, has a 40% stake as a result of Longview’s bankruptcy in 2015. Longview owns a 700-megawatt coal-fired power plant in West Virginia and has about 140 employees. It was approved for a PPP loan last Friday, and on Tuesday it announced that it filed for Chapter 11 bankruptcy.
It was in these bankruptcy filing documents that the PPP loan came to light, and was reported by the Wall Street Journal.
In its prepackaged bankruptcy filing, creditors and the company agreed as to who gets what in the restructuring. The deal still has to be approved by the bankruptcy judge. Stockholders, including KKR, and holders of $44 million in unsecured bonds will be wiped out. Senior secured lenders will get 90% of the restructured company’s equity and agreed to provide $40 million in new funding.
If the company follows the rules of the PPP loan, it will be forgiven and turn into pure profit for then new owners.
Private equity firms and Venture Capital firms – which are among the deepest pockets out there – have been lobbying maniacally to get the rules changed to where it’s easier for their portfolio companies to get these PPP loans that, when they’re forgiven, turn into beautiful pure profit. For now, the rules make this tough but not impossible.
Then there are all the biggies that are clamoring for bailouts: Boeing, the airlines, and all the others – and lobbying has taken on an astonishing magnitude – or perhaps not so astonishing, given the magnitude of the money being offered – and how the system works in the US.
Just how much lobbying? Below is a report by the Center for Responsive Politics. Read about the feeding frenzy and gnash your teeth.
By Karl Evers-Hillstrom, Center for Responsive Politics. Researcher Dan Auble contributed to this report:
Washington lobbying firms are finding new clients as businesses affected by the coronavirus pandemic race to influence government policy.
Lobbying firms registered activity for over 140 new clients on issues related to COVID-19 over the last month. More than two-thirds of those clients have never lobbied at the federal level or had not hired lobbyists in recent years.
The influx of new lobbying activity indicates that K Street isn’t being slowed by the coronavirus pandemic. Rather, the widespread rush to influence the government’s response to the virus — and to access its massive pool of stimulus money — is creating new opportunities for Washington lobbyists.
Six Flags hired federal lobbyists for the first time since 2005 to request assistance for the shuttered amusement park industry. New York City’s Metropolitan Opera House hired its first lobbyists to ask for financial relief. Casino operator Penn National Gaming asked for gaming industry support in its first lobbying campaign in seven years.
Many of these lobbying clients likely never thought they would need government relief. But with the coronavirus pandemic crippling entire sectors of the economy, companies are scrambling for access to taxpayer-funded loans and grants. Others have pushed the federal government to label their businesses essential.
Lobbyists are seen as a vehicle to get that federal help.
Some of the new lobbying efforts have yielded industry victories. Lobbyists representing for-profit hospitals and physician staffing firms successfully lobbied Congress to keep “surprise” medical billing protections out of the $2.2 trillion stimulus bill, the Daily Beast reported.
Brownstein, Hyatt, the top earning lobbying firm in 2019, took on investor-owned hospital operator Tenet Healthcare and private equity-owned physician staffing firm Envision Healthcare as new clients in March. Envision Healthcare has increased its lobbying spending to fight surprise billing legislation and is one of the funders behind a multi-million dollar ad campaign to pressure lawmakers over the issue.
Many of the lobbying firms attracting new clients are known to sell their connections to President Donald Trump. Led by Trump fundraiser Marc Lampkin, Brownstein, Hyatt brought in 13 new clients to lobby on COVID-19 relief packages in March. Real estate investment firm Colony Capital, run by Trump adviser Tom Barrack, is one of its several high-profile clients that have never hired lobbyists in the past.
Trump fundraiser Brian Ballard is finding new clients, too. In late March, the Department of Homeland Security updated its list of “critical” industries to recommend that laundromats and county recorder offices can remain open. That’s after Ballard’s firm lobbied the agency on behalf of New York laundry machine supplier Laundrylux and title insurance company Fidelity National Financial, which pushed for the changes.
Miller Strategies, another Trump-tied firm, is lobbying for NanoPure, LLC, a little known company pitching a hand-held test for infectious diseases like COVID-19. Inovio Pharmaceuticals hired former White House aide Robert Wasinger of McGuireWoods to advocate for its coronavirus vaccine.
Lobbying firms and their clients must file first-quarter lobbying reports by April 20. Those will reveal how much businesses spent to influence government policy during the first three months of 2020. Total lobbying spending is expected to be high, as every major industry affected by the coronavirus pandemic pushed to get their favored provisions into the stimulus bill. By Karl Evers-Hillstrom, Center for Responsive Politics
Helicopter Money for Wall Street and the Wealthy: $2.06 Trillion in 5 Weeks. Regular folks, forget it. Read… Fed Massively Tapered QE-4. Hasn’t Bought Any Junk Bonds, Was Just Jawboning
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Classic Metal Roofing Systems, our sponsor, manufactures beautiful metal shingles:
- A variety of resin-based finishes
- Deep grooves for a high-end natural look
- Maintenance free – will not rust, crack, or rot
- Resists streaking and staining