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Cares Act – Distressed Industries

on Monday, 30 March 2020 in Covid-19 Information Hub

This is one of a series of articles on the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package signed into law on March 27, 2020. For a summary of the small business lending provisions please click here, for a summary of other employer and employee relief provisions please click here and for a summary of other tax-related provisions please click here.

The CARES Act authorizes the Secretary of the Treasury to make loans, loan guarantees, and other investments in an amount up to $500 billion to support and provide liquidity to distressed industries and state and local governments.

Distressed Industries

The funding and other credit support is intended to help:

  • Passenger airlines and cargo air carriers
  • Businesses critical to national security
  • Any U.S. business that has not otherwise received adequate relief (i.e., loans, loan guarantees) from other provisions of the Act
  • State and local governments


The CARES Act appropriates: 

  • $25 billion to passenger airlines
  • $4 billion to cargo air carriers
  • $17 billion to businesses critical to national security
  • $454 billion (plus any of the above amounts not used) to the Federal Reserve, to provide liquidity to the financial system that supports distressed industries by purchasing obligations directly from issuers, purchasing obligations on the secondary market, or making direct loans to distressed businesses 

Key Loan Terms

Businesses obtaining aid would be subject to the following:

  • Prohibition on stock buybacks until 1 year after the loan or loan guarantee is no longer outstanding
  • Prohibition on dividends and other capital distributions until 1 year after the loan or loan guarantee is no longer outstanding
  • Certain limits on executive compensation until 1 year after the loan or loan guarantee is no longer outstanding
  • Prohibition on loan forgiveness
  • For aid under the appropriations to passenger airlines, cargo air carriers and businesses critical to national security:
    • to the extent practicable, an interest rate not less than a rate based on market conditions before the COVID-19 pandemic
    • maximum term of 5 years
    • to the extent practicable, maintain employment levels as of March 24, 2020; however, in no case shall there be a reduction in employment levels by more than 10% from March 24

Mid-Sized Business Lending Program 

In order to implement aid under the appropriation to the Federal Reserve, the Secretary is directed to establish a program to provide financing to mid-sized businesses (500 to 10,000 employees) who meet certain criteria and agree to retain much of their workforces. Loans made under this program would have interest rates not higher than 2%, and principal and interest payments would not become due and payable for at least 6 months. Another program is to be established to provide liquidity to state and local governments.


The Secretary may waive certain required loan terms to protect the interests of the federal government. As part of the political bargaining in the writing of the CARES Act, this power to grant waivers is counter-balanced by the establishment of a Special Inspector General for Pandemic Recovery and a congressional oversight commission. 

We expect the Secretary to issue more guidance on how the distressed industries aid will be distributed, including applications and minimum requirements, in the coming weeks.

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