And welcome to this afternoon or this morning's webinar, depending on where you are, on the Main Street Lending Program. My name is Daniel Fisher. I'm AED's Vice President of Government Affairs. Our speakers today are Clinton Baker, Mark Johnson, and Peter Martin from Keiko Isom Accounting Firm. Before I turn it over to Mark, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the chat box in the lower left side of your screen. The slide deck from today's presentation is available as a PDF in the handouts tab of the webinar homepage. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. I would just like to say that AED continues to work tirelessly in Washington on equipment dealers' behalf, particularly regarding clarifications to the Paycheck Protection Program, which we'll touch on a little bit today, but as well as pushing the administration to finally come up with details of the Main Street Lending Program, which we'll really dig into a lot today. So, appreciate everyone out there for joining and looking forward to hearing from Mark. So, with Mark and the crew. With that, I'll turn it over to Mark. Thanks, Daniel. It seems like this is probably about the 20th webinar I've given and maybe the 20th or more than that webinar that you guys have been on. So, we will not spend a whole lot of time going backwards and catching you up to speed today. In fact, that's why I'm starting out with this page that reminds you that as a disclaimer that this information still changes every day, unfortunately. In fact, we have a team in our firm that meets every morning at 10 a.m. And Peter and Clinton that are on the phone call with us today are on that team. And every morning at 10 a.m. they dissect what came out last night at midnight and after. And that team is still going strong, unfortunately. So, today's information is through information that we've been privy to that's been released up to last night, but no further. So, if you look back at what you, at this presentation later, or you listen to the recording, it may be a bunch of hooey. Hopefully not, but it may be because it seems to change every day. So, keep that in mind as we go forward. For those of you that have been to some of our presentations before, you know myself and Clinton pretty well. We've been at several AED presentations and you may even follow our stories from the road or something like that. So, I'm not gonna spend any time introducing myself and Clinton, but I will make sure you understand who Peter Martin is on the phone with us. So, Peter has been with our firm quite a while. He leads up our strategic side of our firm. So, he does a lot of consulting projects and things like that. In a prior life, he was involved in banking, and so he heads up our CARES Act response because of that, because he's got an intimate knowledge with banking. And relative to some of the stuff in the press lately, he also has a background in law enforcement. So, if you took out a PPP loan and you should not have, and he may be arresting you at some point as well if Mnookin has his way, so just as an aside. But anyway, that's why Peter's on the phone with us, particularly around, if we have some questions, we wanna make sure we have an expert witness on the phone with us, and that would be Peter. So, we're gonna start, before we get into the MSL, their Main Street Lending Program. Originally, when we looked at the calendar, today was May 7th, and that was this magic date of pay your money back today and you get a get-out-of-jail-free card. And so, we were a little bit concerned that we would be three hours shy of your last resort on whether or not you ought to decide to send your money back or not. So, we figured there'd be a lot of questions. And so, we were kind of gonna head that off at the path here with this slide here. So, Peter and myself, particularly, I think we might go through this with you, just based on questions that we've already received from our dealers, whether they've gotten a letter from their attorney or their bank or their association. There's a lot of stuff out there right now about around this, should I pay it back? Have I done anything wrong? Are we in trouble? Should we not have done this to begin with? I thought we'd just start here before we got into the Main Street Lending Program because this might be weighing heavy on a lot of your thoughts. And so, Peter, I might start with you on this first question. What exactly did they certify? Yeah, absolutely. Well, I appreciate it, Mark. So, it's pretty clear. There's really one sentence in the CARES Act that explains this. And essentially, what it says is that you're gonna certify in good faith that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient. So, let's dive into that just for a quick second here. Couple of things here. Big, big buzzword about uncertainty. Keep in mind, there's nothing in the CARES Act that says you have to show economic injury or loss of revenue or any of that. It's uncertainty. That's the ballgame right now on this. And then, the second buzzword here that gets a little bit fuzzy is the idea of necessary. What sort of justifies necessary to really sort of explain the uncertainty that you're experiencing? This gets a little bit fuzzy and has gotten fuzzier because of Secretary Mnuchin's comments and a few other people. So, it's pretty clear from congressional intent and reading through the CARES Act that Congress's idea, I mean, even just given the name, Paycheck Protection Program, was all about making sure that we maintain payroll for at least an eight-week period of time with small businesses. And all of a sudden, the water's gotten a little bit more muddy with things like, you need to show that you didn't have access to liquidity elsewhere. Well, that statement actually flies in the face of directly what the CARES Act says. The CARES Act, in fact, says that having access to other liquidity does not make you ineligible for the Paycheck Protection Program. So, what we're really focusing on with our clients is the need to document why your business felt that there was uncertainty at the time of application. That's the point right now where you've got to be able to demonstrate it. So, at the point that you made application, your business felt there was some uncertainty in current economic conditions, and that's why you availed yourself of this program. And I think to take it maybe a step farther to the extent that your business pondered or had uncertainty around your ability to maintain that payroll for eight weeks, that's even more important, because it goes at the heart of what the program is there to do. So again, I really want to focus on the certification that you made is around uncertainty within your business, and that you felt that it was necessary to take this money out in order to support your payroll and ongoing operations of the company. And while I think you've got to factor in things like your access to liquidity, I don't think the fact that you have liquidity by itself means you're not eligible. It's totality of the circumstances kind of test and a reasonable person test as well. So, that's really what the certification was all about, and it kind of gets into that second bullet point mark there about when does that uncertainty have to show up. And we'll talk in a minute later about the forgiveness side. That's a little different than the application side, but, right. Well, yeah, I think that's exactly right. And I'm glad that you answered it that way, because that's what I've been telling the dealerships that called me on the phone when you weren't on this. I'm glad that's happened. In fact, one of the things that I've been suggesting to them is that if they've got that payroll protection program, and I guess we're making the assumption that some of the people on the phone have that today, that they kind of journal, for lack of a better word, over the next several weeks. Every time they hear from a customer or from an industry publication or something that defines that uncertainty again. You know, there was an article the other day that said seven of the eight equipment manufacturers have come out and said, you know, there will definitely be supply-demand issues over the course of the next few months. So I think that's important. The second question I'm getting the most often right now is this concept, am I gonna, do I need to prepare some marketing in advance for the fact that I might be on some kind of public information list? And I think the short answer to that might be maybe, and there may be a few lists. There may be a list, number one, that's out of the people that took more than the $2 million loans. There might be another list of the people that had 100% of their loan forgiven. We don't know what that looks like. Clearly, whatever, if it came out in public, it's meant to harm someone. But I think, you know, from some of the discussions I've had with dealers, I think one of the important things is to be proactive in your readiness for that. And that is to remind your staff and your customers, if that arises at some point, that yeah, we got money from the government and we have 400 employees and we have 20 locations. And in most of the locations that we do business in, we're one of the largest employers in that town. We're also very vital to that town's other economies, whether it's their hospitals or their schools or their restaurants. Our employees and our customers are very vital to keeping that community alive. And so yes, we took government money and that is why we took it. It's because we have a responsibility to make sure our employees stay employed and our communities stay thriving. And we're gonna do that anytime we can. That's been my response. Anything different? Is there officially been a law that says there has to be a public information list? Peter, is that a misnomer? No, it's a little bit of a misnomer. So I'm gonna give you the position of three different sort of constituents in this, I'll say. Congress very much has an interest in getting that list out, especially congressional Democrats. They are really pushing in the interest of transparency to have a list literally sortable by the company and how much money they got and potentially how they utilize the money. So Congress, or parts of Congress, I should say, are pushing for it. The president has come out and said it's an interesting idea and the lawyers need to look into it. That's about as far as President Trump has weighed in on this. And then finally, the SBA. The SBA has really stood their ground to date and said, we don't have the right to release that information because this is a loan between a bank and a borrower. And it's not for the SBA, ultimately, to determine that. So I think in this case, we're really gonna have to look for Congress and see what they do over the next couple of weeks to determine. But I agree with you. All signs right now seem to indicate there is gonna be some sort of public information release at some point related to this. Okay, very good. Then this next question is a funny one. I got it yesterday. This was a dealership in a very rural part of America. Their main attorney contact is a very large national workers' comp attorney firm. And this particular attorney firm had told the client, yes, the SBA is gonna audit every loan over $2 million. They've already got the three people hired that are gonna come out to your organization and they're gonna do all these interviews. They're gonna do this and that and this and that. And he wanted to know what my thoughts are on that. And I was like, well, if those three people are gonna work for the SBA, I'm pretty sure they haven't been hired yet. Because from what I understand, the SBA doesn't even have an audit team out there. In fact, the SBA had become somewhat irrelevant over the last few years because they didn't make loans to people like the people on this phone call today because they were too hard to get, took too long to get, and they weren't very big loans. So anyway, I don't think that audit team, I think the important part about that is there was something that said there will be extra scrutiny on the loans over $2 million that got forgiven. And I think that everybody on this phone call would agree that we sure hope that there would have been scrutiny, some level of scrutiny on any of those loans that were forgiven. And I think that's a big part of it. I mean, we've already put $3 trillion out into the economy. I hope there was a plan for making sure that we put 3 trillion in the right hands and that kind of thing. So I don't think that's anything that we understand yet. This, obviously, the May 7th date got pushed back to May 14th. And what's interesting about that, I think the only reason it got pushed back here, you can correct me if I'm wrong, is we don't actually have the standards yet for what forgiveness is gonna be. So anything you've heard from anybody, including everything Peter and I have been talking to you about for the last 13 minutes, is our best guess and based on the interpretations that are out so far, the actual forgiveness information from the government about how it will be determined if you got 100% forgiven or something less than that is not actually out. It was supposed to come out this week by law. And I think they're running late. So not only did they push the May 7th date on giving your money back, they had to push it back because they're gonna now say they are gonna release that information on May 14th. I don't know if that's gonna be May 14th right after the deadline of putting your money back or right before the deadline, but either way, that's not very helpful for you guys, which is why we're generally giving the advice to our clients that we know their financial information and we helped them with the loan that they ought to stay the course. Now, some of the people on the phone here, obviously we have not helped you with that information. So we can't make that blanket statement but for the most part, we're telling people to stay the course right now. That actually gives me a question I'd ask you though, Peter. Is there really any difference whether it's May 7th or May 14th or whatever date? If I pay it back next Thursday or I wait until the end of my forgiveness period and just choose not to go through the forgiveness thing and I just give it all back then, say my forgiveness date for the end of my eight weeks is June 22nd. Is there any difference between May 14th and June 22nd for me? You know, I think to some degree, the answer is no. I mean, legally and the way the administration has set this up, they're providing this safe harbor date to say if you give the money back by the 14th, you will have been deemed to make that certification in good faith and regardless of the factors, we're basically not gonna come after you. And theoretically, if you gave money back on the 15th, they would have the ability to say you didn't do it by the deadline and you've exposed yourself to some sort of penalty. The problem is we were talking about earlier is the bar, that reasonable person test seems to have been set fairly low to begin with. And so again, the question is how much risk is there if you hold on to this and sort of stay the course and see what that uncertainty looks like. And one of the interesting things in the CARES Act in a separate section where it's referring to SBA borrowers who had a loan on the books prior to the PPP. These are loans they could have had out for a couple of years. Congress actually says, it is the sense of Congress that all borrowers are adversely affected by COVID-19 and relief payments by the administration are appropriate for all borrowers. So again, we're setting the stage for that bar was set so low to begin with. So I think that 14th safe harbor date is going to apply to a small percentage of PPP borrowers who had some kind of, again, significant financial situation going on outside that really made the certification tough. Beyond that, I think most people are gonna be able to say with good faith, they had that uncertainty. And so I don't think that 14th date becomes quite as important for them. Very good. And then finally, the last question on here that we'll address, and then we didn't wanna take too much thunder. Daniel actually has another, there's a AED has a conference set up where I believe it's Monday and he can correct me later if I'm wrong on that one. But I think it's on Monday that we'll also address PPP from a kind of a legal standpoint. And then Clint and I will be back. I think that's next week or the week after as well talking about, okay, the standards are out now. What's my next step? But the last question on here that I do wanna address because it's a kind of a big one is, is the IRS came out, I guess it was last week at this point. And I'm gonna, for a second, I'm gonna give the IRS the benefit of the doubt, which is I'm an accountant. So I don't do that very often. So when I can do that, I like to do that. So the IRS came out and essentially my interpretation is they said, we don't have any other recourse, but to follow how we've done this in the past. And the only other thing that we can compare this to was when we did the last bailout for the banks and the auto industry back in the early 2000. And at that point, the matching principle of matching income and expenses together said that if they wouldn't have spent this money anyway, if they hadn't gotten free bailout money, then that means the expenses need to line up with the income. And therefore, yes, we will let you have the forgiveness money tax-free, but no, we will not also let you deduct that, those expenses on your tax return as you normally would. That was clearly different than what Congress said. And I think what the IRS is saying is we just, that we think that's how we have to interpret it unless Congress addresses it. Yesterday, Congress did officially take up that mantle and say, we're gonna address it. We haven't seen how they've addressed it yet or they haven't actually addressed it yet, but that's my interpretation. Peter, you're not an accountant, you're a consultant. Is that your interpretation as well? That is absolutely right. So to be really clear, there is no question that the forgiveness does not generate income. That is not debt forgiveness income and that is not taxable. The only question is whether the expenses that you use those forgivable proceeds for will remain deductible. And you're absolutely right. There's a technical corrections bill that is floating through Congress right now. It appears that there is strong bipartisan support to get that done. And Mark, you probably gave the IRS a little bit more leeway than Congress has because several congressmen have said very clearly that was not congressional intent at all and that the IRS's position is wrong. So we'll see, but it does appear that that is gonna get taken care of. Peter, I did that because I knew this was being reported and I wanted somewhere there to be a recording of the on record of giving the IRS the benefit of the doubt. All right, so we'll move on from the PPP. Like I said, we wanted to address it because it was it was heavy on everybody's mind and we're going to be addressing it more. We've got two more webinars at least lined up next week about that so we'll we'll leave that and go on to the real topic of today which is the MSL. I do want to acknowledge that when when Daniel contacted us and said hey are we ready to talk about this yet because everybody wants to know when this program is going to come out particularly those dealers that didn't qualify for the PPP and so some information came out last week and a little bit more this week and that's why we were able to put together a presentation. The topic though is actually called is it viable option for distributors and I think I want to start out with this quote that the Federal Reserve did come out and say for in industries where there is a heavy asset base and by having a heavy asset base that also means you'd have somewhat of a heavy liability base particularly if you've got inventory and floor plan date or floor plan borrowing that this might not be the best program for that industry because of the limitations we've got in place right now which may mean that we need to evaluate and adjust these metrics later. While we don't even have the first official information out about that yet you can't apply for this loan yet and they are already evaluating this one as well so I guess stay tuned that means we're going to have some more webinars in the future to talk about this one. So Clinton I'm going to turn it over to you now and let's start walking through the reason everybody signed up for today's webinar. Yeah thanks Mark. You know what I'm going to do is I'm going to talk a little bit about the program in general because we get a lot of questions as they've heard different people for different terms about different types of loans they might be eligible for or how those loans are calculated so I'm going to spend a little bit of time talking about that first and then I have a few examples that Mark's going to walk us through kind of in the middle of the presentation and then we'll wrap up on the back end with some of the things in terms of borrower eligibility and borrower certifications those types of things because I believe most people on this call would already meet them so we'll hang that till the end but you know the Main Street Lending Program at a high level I would describe it as a pretty friendly maybe not as friendly as I thought initially thought it would but a but a friendly traditional lending program that the Fed the reason it's friendly is because the Fed buys some of the loans in fact the vast majority of the loans from the banks so the banks are encouraged to to loan subject to their normal underwriting standards and then the Fed will buy the loans from them that's why it gets a little friendly but initially it was designed for for companies that were unable to access the Paycheck Protection Program or required additional support after that in fact if you go back and read the actual law the part of the CARES Act that that covers the Main Street Lending Program in there Congress encourages the Fed to focus the program on employers between five hundred and ten thousand employees now that has subsequently been changed we'll talk about that metric later it's even higher than that now but but they didn't specifically say it had to be the Congress Act Congress actually gave the Federal Reserve and the Treasury quite a bit of leeway to administer this program with how they saw fit so what they've done is they've come up with three different loan facilities the initial guidance issued on April 9th only included two and then we had three weeks of silence in fact in a blog that that our firm put out that I wrote on April 30th after the silence was broken I had the title Fed finally breaks three weeks of silence in our marketing department mark wouldn't let me wouldn't let me leave that title on there but but essentially they went quiet and at some degree I think the Fed is trying to learn from from the SBA as some other administrative offices are in other programs they're administering of saying you know this thing of opening the floodgates and then issuing guidance every day for weeks on end that changes is it's also not good for the economy because it creates instability and uncertainty and so they're being a little more measured in their approach so during those three weeks they open it up for public comment us and other organizations wound up and filed collectively about 2,000 to 2,200 public comments to the Fed giving them input including the the American Bank Bankers Association was pretty heavily involved also and actually I do think made the program a little more usable so we'll talk about these three different loan facilities you'll notice one of them is called the new loan I guess technically a couple of them are new loans the other one's called a priority loan which is really going to be the focus of what we talked about today because knowing dealerships I think that's the most likely loan facility for them and then the third one is called the expanded loan and and they're very similar in terms of their eligibility and the borrowing criteria and certifications and and whatnot overall the Fed has about 600 billion dollars earmarked for the Main Street lending program so it is it's a sizable program it's also very heavily based off of some of the Fed's programs from the 2008 2009 2010 period so they do have experience with that on this next slide what it shows is it stacks the three different loan facilities next to one another they are all four-year loans you can see the different minimum loan sizes here depending on what what type of or what loan program the borrower selected the maximum by the way the minimum loan size is also changed from some initial guidance so if you see some initial guidance out there that talks about a million dollar minimum just know that's been replaced it's a half a million dollar for the first two the new and the priority loans and then minimum ten million dollars on the expansion loan the loan sizes also are are a little different although very similar the first two there between the new and the priority loan you'll notice the amount that you're eligible to borrow is the lesser of 25 million dollars or an EBITDA factor less it less other outstanding and undrawn but available debt and so getting that we get into some some exceptions and some some exclusions in terms of what the undrawn available debt is I would say and again Mark will work through some examples later on by and large for dealers you can think about like this if you have a line of credit or a floor plan floor plan line of credit in place and you're eligible to borrow make up a number 30 million dollars but you've only borrowed 20 million dollars of it then in this calculation the 20 million dollars is going to count against the amount you can borrow under the Main Street program but the additional 10 that you haven't used yet we believe will not when we've read through the the the guidance from the from the Fed the other thing that's different you can see across the payment terms on the bottom all of them include a first-year deferral of both principal and interest so the first year no payments and the accrued interest just gets lumped into the loan and then they they amortize a little differently the new loan there that's pretty straight amortization over years two three and four the other two work more like a balloon so you get a fifteen percent principal payment due in year two fifteen percent of the principal payment due in year three and then the final seventy percent due at the end of year four and so these loan facilities are really designed for companies that need liquidity now and are experiencing a maybe a temporary decrease in cash flow but they expect cash flow to return you know in the midterm here in the next you know two three four years and they would have the ability then to refinance that balloon at the end of that and again we'll talk mostly about the priority loan it feels like it's the one that that is the most applicable and then the last thing on the slide I wanted to share because it is a point of clarification that the interest rate initially the interest rate was supposed to be two and a half to four times I'm sorry two and a half to four percent above the SOFR rate the secured overnight Fed rate and that was one of the comments that came back through a lot of the the public comments was the SOFR rate is not traditionally used not typically used and it's a new it's a new standard they're trying to move to and the industry said we don't like that we understand LIBOR what would this be compared to LIBOR and so LIBOR of course is also a sub one in fact I think it's even below half percent right now not not too far above what the SOFR rate is at basically zero but it's basically now we have LIBOR plus 3% now what that also does is that removes the bank's ability to price credit into the end of the rate so if you have a borrower two borrowers that everything else being equal but one of them is a good credit risk and one of them isn't they're going to get the same rate the other thing and it's not on this slide but again I'll just kind of say it is in the new loan and the expanded loan the Fed would actually be buying 95% of these loans of each loan back from the banks so it'll go through traditional bank processes traditional bank underwriting and then the Fed will buy 95% on a priority loan they'll only buy 85% so because of the higher EBITDA multiple that's allowed to be used the banks are also going to share in a little more risk on those loans as well on the next slide then we actually will go ahead and talk about eligible borrowers again I think most people on this call are going to are going to fit this you can you I won't read the slide to you but you can read the slide to you read slide for yourself here you know businesses they're going to need to have less than 15,000 employees or five billion in revenues clearly you have to be in business for a while the majority of operations have to be in the United States those are just those are those are kind of the quick common you know basic things we get into some rules of affiliation which we'll talk about a little bit later but on the rules of affiliation in terms of counting employees or revenues we would do include affiliation for that purpose we don't include affiliation for determining the EBITDA limit on the loan only for determining employees and annual revenues again I think most people on this call are going to be well under those numbers so it was nice this fifth bullet point down kind of the largest bullet point here in terms of the number of lines it takes about borrowers can take advantage of both the Paycheck Protection Program and the Main Street Lending Program and that was really where the Fed kind of moved off of what the guidance in the CARES Act said when it said between employee employers between five hundred and ten thousand employees is what the initial law said this is where they kind of they moved off of that and said if this is a good good loan opportunity for somebody that has less than 500 employees we're going to allow them to participate also and just to be clear if you received a Paycheck Protection Program loan you can also participate in this one we'll talk more about the certificate certifications and covenants a little bit later after our example so then on the next slide here's where we touch on aggregation so aggregation was not or affiliation I should say affiliation was not initially in the law itself this is a kind of a liberty that the Fed has taken in defining this and what they've tried to do here is to somewhat reflect what the Small Business Administration the SBA is doing on the on the Paycheck Protection Program and and that is to say you have to look at affiliation if you have related companies when you count the number of employees or the revenue you have to include them together this is a little bit of funny guidance Mark and I were laughing about yesterday in terms of the calculation for annual revenue is specifically defined which is nice is specifically defined by the Fed for the to be the fiscal year ending 2019 for a borrower and it's based first off based upon their gap basis audited financial statements now the guidance says nothing about what if you have reviewed financials instead of audited it merely mentions audited but I'm sure review would work as well if you don't have either of those you're allowed to go to your to your tax return to basically what you reported to the IRS and if you don't have either of those you can use the most recent audited financial statements or annual receipts may be used so we might have some some clients out there I don't know that we have any clients in this situation but there might be some dealers out there who don't have their 2019 information wrapped up yet may be able to use our 2018 information in calculating EBITDA and and the amount of loans they had withstanding that would that would work against it so from that time period it may help them out may help them out even more so like mark mark let off the conversation about MSL posing the question of is this really viable for most dealers and so we have three examples here that he's going to walk through the show dealers of different size and and mark I believe you you've obviously you know sanitize some information here but but this is actual information from three different dealers in terms of looking at real numbers could you walk us through those yeah that's absolutely correct so we rounded the numbers off not just to the next thousand but maybe the next 5,000 just to make in case that dealer wound up being on the phone call I didn't want him to recognize your own financial statements so the other thing I did here is in these examples kind of in alliance with what what Clinton was saying we only used the program that used the six multiple of EBITDA and I don't know I don't I got distracted when Clinton was talking there with my dog snoring one of the one of the pitfalls of working from home you have the dog on my foot that snores so loud that sometimes it distracts me but anyway the the six multiple of EBITDA it's fairly similar to it feels like evaluation formula almost the Fed saying we want to make sure that whatever loan they borrow under the MSL program doesn't get to the point where their company isn't worth anything and that sends them into kind of a not a bankrupt position but maybe an insolvent position kind of thing but the way they calculate the six times EBITDA and then compared to total debt instead of equity is what leads to the problem here so this first example is a pretty good dealer obviously when you look at this they had 4.3 turn in 19 so you know pretty good turn ratio which means they have you know a fairly good amount of not only sales but inventory so you know in this situation they made 18 million dollars of EBITDA on their four hundred fifty five million dollars I multiply that by six it means I can borrow a hundred and nine million hundred nine point five million million dollars under this program however then I need to look at what my debt looks like and because of that a hundred and five million dollars of inventory and eighty million dollars of rental fleet even though they've got plenty of equity sixty seven million dollars of equity I mean a very strong dealer the fact they've got a hundred and twenty three million dollars of debt means that a hundred twenty three is bigger than hundred nine so they can't use this program at all just because of that even though they're a very viable every bank in town would love to loan money you know to these guys alone a little bit extra money to these guys they got sixty seven million dollars in equity and not only that these this particular dealer I already know that they're borrowing from their bank on their lines of credit at basically 1.5 plus LIBOR not three plus LIBOR so not only do they not qualify the MSL program as a as a competitive loan isn't even competitive to what they're currently getting so that was an example of a really good dealer with really good turns I started kind of going through the mental gymnastics of what is making that work and what is not and so the next example is also a good dealer but they had a more a slower turn last year which some of our dealers did they had a 1.96 turn so they again so their sales were obviously there's a little bit smaller regular they had two hundred sixty five million dollars in sales last year which were to 13.2 million dollars of EBITDA again still a very strong dealer with 59 million dollars of equity almost as much equity as the other dealer so again very strong position every bank in town would love to loan them they're also borrowing about 1.55 plus LIBOR right now so not a competitive loan for them but they're able to borrow seventy nine million dollars based on a six multiple of EBITDA however they've got 104 million dollars of total debt in there and what you'll see it in my example here I'm breaking out the difference total debt and total liabilities the other liability is according to the program it sounds like it's total debt so we've left out accounts table we left out accrued expenses all those kind of things and just look at total debt but because that hundred four million dollars of total debt they are also not eligible for any of the MSL program and it's not a competitive program so again by thinking about the mental gymnastics I'm trying to figure out which dealer then that might apply to so this one is not a real dealer I'll have to admit that one so I was again just trying to go through the gymnastics and what you'll notice is I use the same third I use this I went back to a really high turn 4.5 turn so it's similar to the dealer before so they instead of having 267 million dollars they've got 292 million dollars in revenue because they've you know they turned their the same inventory faster usually when you turn it that faster that comes at a cost it comes at a cost in margin and so what we see in this dealer is the same EBITDA the same 13.2 million dollar EBITDA that I had in the last example so again they can borrow the same 79.2 million dollars under the program we use a six multiple but because they're turning their inventory faster they've got less inventory which means they've got less debt and less floor plan so in this example with their total debt of 59 million dollars they would actually be able to borrow 20 million dollars under the NSL program less the fact that because their inventory was down a little bit the way their loan was written they actually would have 4.8 million dollars of an unused line of credit that would ding them just based on the the way I interpreted the specifics of their line of credit and so that would bring their 20 million dollars down to 15.2 but again this is a dealer with 26 million dollars of equity and there they can borrow 15.2 million dollars which should take them down to 10 million dollars of equity, they're borrowing probably at about that, I'm guessing, again, it's a made up number, so I'm guessing that they would borrow it maybe closer to the three plus LIBOR so that the loan might be more competitive to them since they're a smaller dealer and they're less financially, they don't have as much equity as the other dealers. In this example, they would qualify, and so again, but I had to make up a dealer to get there. None of our current dealers would have got there. Even we went and looked at some of our smaller dealers without much rental fleet, so their inventory and rental totals were down, which meant their floor plan and their line of credits were down, and so even those, though, were still at such a point that the EBITDA had also gone down. So when I take the EBITDA times six, I don't have much borrowing capacity, so unfortunately, I guess, Clinton, I did not find a single one of our dealers that could qualify. So I'm going to flip it back to you and have you save the day here on the MSL program. Well, I appreciate it. That's a tall order to save, and I think with the Fed, you started out with a quotation from the Fed's frequently asked questions where they specifically state they understand that for asset-based borrowers, this program is going to be difficult to qualify. I'll also say this. They've been very slow at issuing guidance, and so I don't expect anything soon from them. This program is open through the end of September, and they have stated that they would keep it open longer if there was need for it. So we may have some guidance sometime in the next few weeks or month or two that would allow more asset-based borrowers to participate in something like this, to your point, as long as it's still economically feasible. A LIBOR plus three rate with a deferred for the first year and then balloon the end of year four on the remaining principal may or may not be competitive for them. The next area we've gotten a lot of questions about have to do with some of the rumors and some of the truths we've heard about the certifications and covenants that taking out this loan have with it. So the first one here is can this loan be used to refinance other debt is the question we get a lot. And so we've put in here some of the language about the borrower has to make a commitment that they will not use this to repay other loans with the exception of mandatory payments. So basically on existing debt that you have, as long as it was subject to obviously a written loan agreement and that written loan agreement had required payments to be made, you're still allowed to make your normal payments. That's perfectly fine. What the Fed was trying to get to here is they don't want you to take this money and use it to prepay other funds or even while you have this money to prepay other loans. The exception to that is when they released this most recent guidance a week ago, now it was on April 30th, the priority loan facility does include the ability to refinance some existing debt. It's a little bit odd to me but what they said was or what it says in there is you may refinance existing debt but not with the lender you're getting your Main Street loan from. And so I think what they're trying to do is just make sure the lender isn't using this program where they're going to sell 85% of the loan to the Fed and get risk off their table. I think they're just trying to make sure that they're doing that. I don't think it's the other possibility which is they're trying to consolidate lenders. I don't think it's that at all. The other thing is that the borrower has to make a commitment they'll not seek to cancel or reduce any outstanding lines of credit with this lender or anyone else. The lender has to make the same certification through the process during which they sell the loan to the Fed. They have to certify they don't intend either to reduce these lines of credit. What's interesting and I think about some of Peter's comments earlier about the 3P program, Paycheck Protection Program, and there is the clarification that's being needed around the economic uncertainty and what does that mean. And then I think about Main Street lending and I think okay, you have to give a commitment that you don't intend to cancel or reduce. It doesn't say you can't later. It just says at the time of the loan you have to say you didn't intend to. So is there a potential litigation down the road for that point? The next slide starts with I guess the first thing it starts with is kind of a hey, you can't be in bankruptcy or intend to. That's probably not a major concern. I do appreciate their clarity here in specifying that. But again, this loan program is a friendly traditional bank program, lending program. So banks are going to be doing underwriting here. They're not going to want to issue bad loans that they then sell to the Fed that the Fed can't collect on. I've seen a couple of reports from the 2008 through 2010 crisis and when the Fed had similar programs they liked to tout that each of their programs that they had were paid back in total and actually made money because they weren't bad loans. I'm sure they had some loans go bad along the way, but in total they were made whole and that's also something that this program is seeking for. This next bullet point is a rather large bullet point you can read here, but there are several different topics in here that we've gotten a lot of questions about. The first one is about compensation. And so we've specifically referenced the section of the CARES Act here, this 4003 with the additional subsection information after that, because that's the section that governs a lot of this. And in the compensation issue, there's really two things you have to watch out for. One of them is any employee of the company that borrows this money, any employee cannot make, if they make more than $425,000 in 2019, then in any given 12-month period, a rolling 12-month period while the loan is in place, they can't make more than whatever they made in 2019. And so using 2019 as the metric takes some of the planning opportunities off the table, I think, for borrowers who might have thought, oh, we could do a bonus immediately before we take the loan and jack the number up and then take it out later. No, you can't do that. They referenced 2019. And then the other one that I really, I don't know many dealers where this would be a problem, but maybe for some it would be, and that is if you made more than $3 million in 2019, then you can only take $3 million plus half the amount above that in future years. So again, not a big issue, and I've shared that with most of our clients. They just kind of laughed and said, yeah, we wish that were the problem, Clinton, on the $3 million number. But it does speak to this issue of it's something to pay attention to, especially the $425,000 could catch a lot more of the owners and executive leadership teams of a number of dealerships. The stock repurchase commitment, that you will not engage in stock repurchases, this is aimed at public companies. In fact, a lot of times I reference it as there are no public company buybacks here. It's also something to watch for non-public companies, but clearly it was targeted at publicly traded companies and not using this money to redeem stock. The last issue here, though, the capital distribution restriction, at first it was defined in the initial guidance from the Fed in early April, it was defined as you couldn't make capital distributions or dividends based upon common stock. And so during the public comment period, again, we asked questions and other groups asked questions, well, what about pass-through entities? What about S-corporations that do have common stock, but they technically don't make dividends, they make distributions? What about partnerships or LLCs that don't have common stock? They have member units or partnership units. How do we treat distributions there? And so fortunately, the Fed did give clarity in their guidance on April 30th that says pass-through entities are allowed to make distributions to the extent reasonably required to cover its owner's tax obligations from this entity. And so it's not uncommon, very few equipment dealers that we work with would only have one entity. Most of them have an entity structure that's some combination of partnerships or S-corporations and a C-corp along the way somewhere in their overall chart. And so sometimes these distributions that get taken out of the dealerships that have cash available may be being used to pay tax obligations from other entities that make taxable income but don't have the cash. So it's something to watch out for. That's going to get limited going forward if you take out Main Street Lending Program. And then obviously conflicts of interest. There's a whole section in the CARES Act about conflicts of interest. And really what that has to do is it's not like there aren't conflicts of interest in terms of can I continue any related party activities I have amongst myself. These conflicts of interest have to do with the borrower and the lender. And I believe on this slide here, this is also a point of clarification because in the initial law, in the CARES Act and some of the initial commentary, there was a bright line test that said these borrowers had to retain 95% of their payroll on September 30th. It's measured on that day. They had to retain 95% of the payroll that they had pre-COVID-19 pandemic, March something or other. And so in the first guidance and the second guidance, the Fed kind of abandoned that bright line test of 95% and said, you know, we don't know what that's going to look like. Here's the thing. Just certify to us you're going to make a reasonable effort to maintain your payroll and keep your employees during this time. And so there again, like Peter was talking about the 3P program, this could be another kind of hook down the road of someone saying, well, you didn't make a reasonable effort. You shouldn't have qualified for this. Now, the difference is these loans have to be paid back. These loans are not eligible to be forgiven. So maybe it's not as big of an issue as long as they're repaid. On the last slide here, this is the last slide of content, and then we'll see if there are any questions. These are some common questions. We've gotten, is collateral required? And the answer is it literally does depend. It depends what your bank is looking at on your financial statements. I would say if there's collateral there, they're probably going to want to get in line for it. If there's not and if this is more of a line of credit, although it is a term loan, if it's really more of that sort of thing, then they're going to have to determine whether they want to make that loan to you or not. There's nothing in the program that requires collateral. The next one is also one of the most common questions we get, and that is, is this loan forgivable? The answer is no, absolutely not. It's in the law. It's in the term sheets. It's in the guidance. They're very clear. These loans are not forgivable. In fact, it's kind of interesting to me to think about this being a, again, kind of a friendly traditional bank financing vehicle. If somebody would have told you a few months ago, hey, you can go borrow under these terms, there may have been a number of businesses out there that were interested. Again, maybe not dealerships because of the floor plan opportunity they have, but there may have been a number of businesses that were interested. And all of a sudden, when forgivable loans become available through the 3P program, all of a sudden, there are a lot of people saying, well, if it's not forgivable, I don't need the loan. I don't want the loan. So it's kind of funny how quickly we can get a little focused on one thing. And then the next question, clearly, the application process, this will go through eligible lenders. Eligible lenders are going to be banks, credit unions here in the United States, plus the U.S. operations of many foreign banks. So it will be pretty traditional lenders. What I would say is, as a first step, would be a good idea to contact your lender if you think this program might be for you. They're going to help give you guidance on, one, whether they are going to participate in the program. That would be the first question I would ask them. And, two, is what information are they going to need? Because, again, it's traditional bank financing. They're going to ask for many of the traditional things. Plus, they're at some point going to need information that is specific to the Main Street Lending Program application, which, as of right now, the Federal Reserve has still not released. They've released term sheets, but they've not released yet what the additional application information might look like. One of the last things that I would add here, Mark, I think the next slide is our pictures and contact information in case people want to follow up with us on any questions they have. But one of the things I might add about this Main Street Lending Program and think about when we were making slides was, the Fed has very specifically said, whoever participates in this program, we intend to, in the interest of transparency, share your name and how much you borrowed and under what terms. So I believe in terms of the program itself, they will issue that at a very high level, a lot of aggregated data. But they are setting the expectation with borrowers that if you do take advantage of this program, just know we have the right to share that information. So I really hope that the Fed does change their position in terms of this being so strictly tied to EBITDA, especially as I think about the equipment dealers we work with and all of them across the country. We're seeing, we're certainly seeing an impact in terms of revenues. I might have you talk about that, Mark, more than me. But we've certainly seen a downtrend here in the last month or two when we compare same store sales to a year ago. And so there's, it's not going to be an easy time for a number of dealerships. It feels like the construction equipment dealers are starting to experience that downturn a little earlier than the ag dealers, only because the ag dealers are in planting season right now. But many of them are worried about once planting season gets over, they're going to slow down pretty dramatically as well. Yeah, I think we have just as many dealers right now that are up as they're down. It's kind of a tale of where you're at and how vibrant your economy was anyway and how quick the contractors that are your clients are trying to speed through some projects before they might get shut down, whether it's from economics of a deal or whether it's from the COVID police, as I like to call them that are out, you know, telling people, hey, you got too many people on the job site, you got to send them home. So, you know, I think that's all we've got for content. I don't know if it's you or Liz or if there's any questions yet, but I'd open it up to that. All right, well, yeah, I don't see any questions. Robert, if you do have a question, please type it in the chat box. I am glad to see my picture there and what it looked like when I actually had a haircut, so that's nice. Any questions? I guess I do have one question. Does accepting or applying or, you know, getting a Main Street lending program loan, does that forbid you from taking advantage of any of the tax credits that were in the CARES Act? So, so far what the Fed has said about that, Daniel, it's a good question because so far what it has said is that you can take this and the Paycheck Protection Program. It doesn't specifically name any of the other programs to say, yes, you can. There was something in the law that said you need to certify that you are, that this is necessary and that you need it and that you didn't get enough relief from the other provisions. And so what I would say is I would take that to say, yeah, you can take advantage of many of the other tax provisions or credits, tax credits. Payroll tax deferral is another one that's, you know, a very nice, basically interest-free loan, for lack of a better term, on the employer portion of the payroll tax liability for 2020. So no clear guidance, but it's a hot topic as well. Good question. All right. I don't see any other questions, it looks like. So I don't want to continue. I don't want to draw this out too long. So I will denounce one thing Mark said at the beginning about some webinars we have going on next week. We have a webinar on Thursday, May 14th on Beyond PPP Funding, Crucial Planning and Strategy. And that was what Mark was referring to in terms of how to, well, Mark, what do you want, do you want to go over what that topic is here? I'm looking at an outdated topic. Well, yeah, it's on, it's on, depending, it says, I think it's on May 14th, which is also the date they're supposed to release it. So hopefully we'll have a precursor to what they're going to be releasing. But regardless, it was about, okay, you've already got a PPP loan. Not only is there the scary stuff, but what should you be doing as you're looking towards forgiveness in about four to six weeks from now, depending on when you got your loan, and what can you be doing? What should you be documenting? You know, who should you be talking to? All that kind of stuff about how do you make sure you're in compliance at the end of that and took advantage of it in whatever way you should have. Great. And so be on the lookout for registration information on that. And then as Mark mentioned, we will be doing another PPP type webinar, likely on Monday, that details are being finalized as we speak. That would feature an attorney or a couple of attorneys discussing the good faith certification you have to make and whether, you know, or not, what issues to consider if you are thinking about returning or keeping your PPP loan. So with that, I don't think there's any questions have come in. So I will go ahead and thank everyone for joining. Remember, this is recorded, and you can go back and watch it and view it and listen to it at your convenience. So thank you again to Mark, Clinton, and Peter for joining us and have a great day.

Main Street Lending Program

viability for distributors

traditional lending program

Federal Reserve

loan facilities

repayment terms

collateral

borrower commitment

eligible lenders