Taxpayers’ money is being used to make the Paycheck Protection Program (PPP) loans. Thus, the public has every right to know the names of the recipients of those loans. Despite originally promising transparency, U.S. Treasury Secretary Steve Mnuchin is now stonewalling Congress on releasing a list of the recipients.
Congress sold the plan to the public on the basis that the loans would go to small businesses with less than 500 employees. The funds were to be predominantly used to keep workers employed and allow the businesses to survive the coronavirus shutdowns.
Instead, our search of filings at the Securities and Exchange Commission reveals that dozens of debt zombie companies that trade on Nasdaq got the loans. Dozens of publicly-traded companies with large credit lines from banks got the loans. Dozens of companies with a lot more than 500 employees got the loans. It’s beginning to look like tens of billions of dollars in PPP loans were simply funneled out the door rapidly with little oversight into who was getting the loans.
After news reports revealed that large, publicly traded companies had taken out PPP loans, the Small Business Administration that oversees the program published this clarification: “Borrowers must also take into account their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is considered unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.”
Making it more abundantly clear that publicly traded companies were not what Congress had in mind for the PPP loans, members of the House of Representatives Select Subcommittee on the Coronavirus Crisis released a letter that they had sent to Dennis Oates, the CEO of Universal Stainless & Alloy Products, Inc., which had taken out a $10 million PPP loan. The House members told Oates to “return these funds immediately” and explained the Congressional intent for the PPP program as follows:
“When Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act with broad bipartisan support, we intended to provide an invaluable lifeline for small businesses that otherwise might be forced to lay off employees or shut down entirely. We did not intend for these funds to be used by large corporations that have a substantial investor base and access to capital markets.”
The SEC filings show that many other large corporations have not returned their PPP loan funds.
One such company is Christopher & Banks Corporation, which trades on Nasdaq under the symbol CBKC. It’s a retailer of women’s clothes. According to its SEC filing, in early June it applied for and received a $10 million PPP loan. But the same filing also reveals that it has a $50 million revolving credit facility with Wells Fargo and a term loan facility with ALCC for $10 million. In other words, it would appear that the company was not in compliance with the SBA’s warning that a business not have access to “other sources of liquidity.” In addition, it advises that its Wells Fargo and ALCC credit lines are secured with “substantially all of its assets.” Taxpayers have, effectively, nothing as collateral on this $10 million loan.
Another publicly-traded company that has not returned its PPP loan is Senseonics Holdings Inc., a maker of an under-the-skin sensor to monitor glucose levels for people with diabetes. It writes in its SEC filing that it entered into two credit facilities providing immediate gross proceeds of $15 million and access to $5 million. But it still took $5.8 million from the PPP.
Other publicly-traded companies that took PPP loans appeared to have far more on their minds than keeping their workers employed.
According to the SEC filing made by Flotek Industries, Inc. it received a $4.8 million PPP loan in April of this year. (The company makes technology products for oilfield service companies.) The same filing said that the company had also in April “filed a Form 1139 for a tentative tax refund of $6.1 million pursuant to the CARES Act that extended NOL [net operating loss] carryback provisions and recorded an income tax receivable of the same amount at March 31, 2020.” But what Flotek had on its mind was acquisitions, not survival. The same filing explains: “On May 18, 2020, the Company announced the acquisition of 100 % of the equity interests in JP3 Measurement, LLC (‘JP3’), a privately held leading data and analytics technology company, in exchange for cash-and-stock valued at approximately $34.4 million and the assumption of $1.3 million of debt.”
Another example of a dubious PPP loan to a publicly-traded company is the $4,981,400 “unsecured” PPP loan made to Optical Cable Corp. on April 15, 2020. The same filing noted that the company has a revolving credit facility “with $500,000 in available credit.” Why wasn’t that tapped to reduce the amount borrowed on the PPP loan – if, indeed, publicly traded companies with access to capital markets should be borrowing under the PPP at all.
Our research barely scratches the surface of the questionable loans that have been made under a program sold to the public as saving mom and pop businesses on Main Street. According to research conducted by FactSquared, 438 publicly traded companies have thus far reported in SEC filings that they have received loans under the PPP program.
Yesterday afternoon the Washington Post reported that “Government watchdogs warned members of Congress last week that previously unknown Trump administration legal decisions could substantially block their ability to oversee more than $1 trillion in spending related to the coronavirus pandemic.”
The newspaper said that “Treasury Department attorneys concluded that the administration is not required to provide the watchdogs with information about the beneficiaries of programs created by the Cares Act’s ‘Division A.’ That section includes some of the most controversial and expensive programs in the coronavirus response efforts, including the administration’s massive bailout for small businesses and nearly $500 billion in loans for corporations.”
The Treasury’s $500 billion in loans for corporations includes the $454 billion that has been earmarked to hand over to the Federal Reserve to provide “loss absorbing capital” so that taxpayers are forced to eat losses on the projected $4.54 trillion in levered up loans that the Federal Reserve is making to bail out Wall Street under a dizzying array of loan facilities. The Fed has also failed to provide the public with names of recipients of loans in the vast majority of these programs.
This article first appeared on Wall Street on Parade.