U.S. Treasury Exchange Stabilization Fund (ESF)

Note: The following description is valid through April 9, 2020.  We will update this description as events warrant.

In a Nutshell – U.S. Treasury’s ESF makes $454 billion available for loans, loan guarantees, and other investments in facilities established by the Federal Reserve to provide liquidity to eligible businesses, states, and municipalities.  This includes lending to eligible “mid-sized” businesses with between 500 – 10,000 employees, as well loans to other businesses.

Authority – Title IV of the CARES Act, Sec. 4003(c)(3)(D), H.R. 748, Pub. L. 116-136, Mar. 27, 2020.

Rules – No rules particular to the “mid-size” program have been forthcoming yet, and it is unclear when they may be expected.

How Funds Can Be Used – Proceeds may be used for ongoing operations, including employee compensation.

Who is Eligible – To receive an ESF loan, in addition to the requirements of 500 – 10,000 employees, applicants must certify that:

  • Uncertainty of economic conditions at date of application makes loan request necessary to support borrower’s ongoing operations;
  • Funds received will be used to retain at least 90% of its workforce, at full compensation and benefits, until Sept. 30, 2020;
  • It intends to restore not less than 90% of its Feb. 1, 2020 workforce, and to restore compensation and benefits no later than four months after the COVID-19 emergency ends;
  • It is domiciled with significant operations and employees in the United States;
  • It is not a debtor in a bankruptcy proceeding;
  • It is created or organized in the U.S. with significant operations and a majority of employees in the U.S.;
  • It will not pay dividends on its common stock or buy back its or its parent’s stock while the loan is outstanding and until the date 12 months after the date the loan or loan guarantee is no longer outstanding;
  • It will not outsource or offshore jobs for the term of the loan and 2 years after repayment is completed;
  • It will not abrogate existing collective bargaining agreements for the term of the loanand for 2 years after repayment; and
  • It will remain neutral in any union organizing effort for the term of the loan.

Maximum Loan Amount – The CARES Act does not appear to specify a maximum loan amount, but additional details may be provided.

Period of Availability – The CARES Act does not appear to specify a period of availability, but additional details may be provided.

Loan Term/Interest Rate/Repayment/Forgiveness – The CARES Act does not appear to specify a loan term, but additional details may be provided.  Interest on loans will not exceed 2% per year with no repayment required for at least six months.  Principal amount of any obligation issued by eligible business may not be reduced by loan forgiveness.

Other Limitations – Employees earning over $425,000 cannot receive a raise over 2019 salary and cannot receive severance more than double that amount in 2020.  Executives earning greater than $3 million in 2019 cannot make more than $3 million +1⁄2 of the amount over $3 million in 2020.  Also, before loan is issued, requires warrants or equity in a publicly traded company and warrant or equity interest and a senior debt instrument for a business that is not publicly traded.

Additional Information – The CARES Act does not limit the Federal Reserve from also establishing a Main Street Lending Program or other similar program or facility that supports lending to small and mid-sized businesses on such terms and conditions as the Board may set.  The Federal Reserve announced a Main Street Lending Program facility on April, 9, 2020.  Details will be forthcoming. 

Where Can We Apply for ESF Loans – Loans will be available from approved banks and other lenders.  Applications will be available through them.