Private Equity: Winners and Losers from The $2 Trillion Stimulus Package

March 30, 2020 | News, Private Equity
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The $2 trillion stimulus package passed by Congress and signed by President Trump last week contains wins and losses for the private equity industry.

While none of the legislation was directly aimed at the industry, restrictions on which companies can access aid will affect those companies with private equity ownership.

Winners and Losers from the $2 Trillion Stimulus Package

The act makes $349 billion available from the Small Business Administration is available to companies with less than 500 employees. However, questions exist about the ability of private equity-owned companies to gain access to those loans. These companies may be considered subsidiaries of their private equity owners. This would mean they are unable to access loans from the SBA.

The loans may also contain strict restrictions on stock buybacks, dividend payments, and layoffs. Such terms would make using the SBA resources unattractive to private equity firms.

Hospitals will be able to access $100 billion in grants to help deal with the expenses of battling the virus. Private equity firms have been very active in the Hospital industry in recent years. Many private equity firms, including industry leaders like KKR (NYSE: KKR), Apollo (NYES: APO), and Blackstone (NYSE: BX), currently own hospital systems in the United States. There are no restrictions in the act that prevent private equity-owned hospitals from accessing the grants.

Other Firms Seeking Capital

Several industries, like aviation and defense, received target funding for loans in the bill. Most of the money in that portion of the care act will target Boeing (NYSE: BA). There will be some leftover funds for other defense companies to apply for loans. As is the case with hospitals, there are no restrictions limiting the borrowing arability of private equity-owned aviation and defense companies.

Private equity firms have been large buyers of commercial and residential real estate over the last decade. The bill does provide relief for real estate owners. Cash flows for many private equity funds that own real estate are going to suffer considerable declines in cash flow as businesses and individuals struggle to pay rent until the economy fully reopens at some point in the future.

Related: Alternative Investments: Ares Capital Pens Shareholder Letter on Coronavirus

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