The “CV3” Bill’s $46 Billion for Aviation Loans – How Will It Work?

The third coronavirus response bill authorizes the Treasury Secretary to “make loans, loan guarantees, and other investments in support of eligible businesses, States, and municipalities that do not, in the aggregate, exceed $500,000,000,000…to provide liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of coronavirus” (“Notwithstanding any other provision of law”). Of that astonishing $500 billion sum, $46 billion is reserved off the top for:

  1. “loans and loan guarantees for passenger air carriers, eligible businesses that are certified under part 145 of title 14, Code of Federal Regulations, and approved to perform inspection, repair, 10 replace, or overhaul services, and ticket agents (as defined in section 40102 of title 49, United States Code)” – $25 billion.
  2. “loans and loan guarantees for cargo air carriers” – $4 billion.
  3. “loans and loan guarantees for businesses critical to maintaining national security” (sounds like Boeing) – $17 billion.

The Secretary must issue rules for loan applications within 10 days of the bill being enacted into law.

Loan criteria. In order for the aforementioned businesses to get loans or loan guarantees, the Secretary must determine that:

  • Regular credit is not “reasonably available” for the applicant.
  • The intended obligation is “prudently incurred.”
  • The interest rate reflects market risk and is not less than a comparable pre-COVID rate.
  • The loan duration is as short as practicable and no longer than 5 years.
  • “the eligible business must have incurred or is expected to incur covered losses [directly or indirectly as a result of COVID] such that the continued operations of the business are jeopardized, as determined by the Secretary.”

Loan conditions.  The loan or loan guarantee agreements for the aforementioned businesses must contain the following:

  • A prohibition on stock buybacks during the life of the loan unless already contractually obligated.
  • A prohibition on dividend payments for the life of the loan plus one year.
  • A requirement that recipient maintain March 24, 2020 employment levels “to the extent practicable” and under no circumstances can cut employment by more than 10 percent from that base.
  • A certification that the recipient is based in the U.S. and has a a majority of its employees in the U.S.
  • Restrictions on compensation of executives making over $425 thousand per year (through 1 year after the end of the loan) per section 4004 of the bill.

Federal interest. Loans or loan guarantees cannot be made unless the Treasury Secretary “receives a warrant or equity interest in the eligible business” (in the case of a business with publicly traded stock) or receives “a warrant or equity interest in the eligible business; or…a senior debt instrument issued by 1he eligible business” (in the case of privately held companies).

These interests in the companies “shall be designed to provide for a reasonable participation by the Secretary, for the benefit of taxpayers, in equity appreciation in the case of a warrant or other equity interest, or a reasonable interest rate premium, in the case of a debt instrument” and the Secretary “may sell, exercise, or surrender a warrant or any senior debt instrument received under this subsection. The Secretary shall not exercise voting power with respect to any shares of common stock acquired under this section.”

Unforgivable. “The principal amount of any obligation issued by an eligible business, State, or municipality under [the $500 billion loan authority] shall not be reduced through loan forgiveness.”

Air service. Section 4005 of the bill allows the Secretary of Transportation to require loan and loan guarantee recipients to maintain the air service that they were serving prior to March 1, 2020. This is duplicative of slightly more detailed language accompanying the $32 billion in outright grants to airlines, but if any airline for some reason chose not to take free money and get a non-forgivable loan instead, this section would apply.

Oversight. Section 4018 of the bill creates a new “Special Inspector General for Pandemic Recovery” in the Treasury Department, and section 4020 establishes a Congressional Oversight Commission.


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