SBA Implemented Changes to PPP as a Part of American Rescue Plan Act | Goodwin

REGULATORY DEVELOPMENTS

Temporary Supplementary Leverage Ratio Changes to Expire as Scheduled

On March 19, the Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation announced that the temporary change to the supplementary leverage ratio (SLR) for depository institutions, issued on May 15, 2020, will expire as scheduled on March 31, 2021.

In announcing that the temporary SLR modification will expire as scheduled, the Federal Reserve noted that, although certain destabilizing factors have eased since the SLR modification, it “may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability.” Accordingly, the Federal Reserve indicated that it would soon seek public comment on several potential SLR modifications.

SBA Issues Interim Final Rule Implementing PPP Changes

On March 22, the SBA issued an interim final rule implementing changes to the PPP that were included in the American Rescue Plan Act, the COVID-19 relief bill that took effect earlier this month. The interim final rule makes several clarifications and changes to the PPP, including:

• Changes the interplay between the Shuttered Venue Operator Grant Program and the PPP;
• Makes businesses with an NAICS code beginning with 72 that employ no more than 500 employees per physical location eligible for first-draw PPP loans;
• Clarifies that electric cooperatives and telephone cooperatives are eligible for PPP loans if they have no more than 300 employees per physical location;
• Clarifies that electric cooperatives and telephone cooperatives are no longer permitted to use the employee-based SBA size standard for their industry or SBA’s alternative size standard to determine size; and
• Provides additional detail on the types of payroll costs that are not eligible for loan forgiveness.

The interim final rule will take effect immediately upon publication in the Federal Register.

ARRC Encourages Market Participants to Transition Away from LIBOR Without Reliance on Forward-Looking SOFR Term Rate

On March 23, the ARRC released a statement indicating that it “will not be in a position to recommend a forward-looking SOFR term rate by mid-2021.” The ARRC stated that its conclusion was “based on the current level of liquidity in SOFR derivatives markets,” indicating that “robust underlying activity and a limited scope of use over time are important conditions to help ensure that a recommended term rate does not reintroduce the vulnerabilities that first prompted the transition away from LIBOR.”

U.S. supervisory guidance encourages banks to cease entering into new contracts that use U.S. dollar LIBOR as soon as practicable and in any event by December 31, 2021. However, in its statement, the ARRC said that it “cannot guarantee that it will be in a position to recommend an administrator that can produce a robust forward-looking term rate by the end of 2021” and urged market participants not to wait for a forward-looking term rate for new contracts, but to instead be prepared to use the tools available now, such as SOFR averages and index data that can be applied in advance or in arrears, as described in the User’s Guide to SOFR.

SEC Publishes FAQs Related to New Fair Valuation Rule for Registered Funds

On March 18, the staff of the SEC’s Division of Investment Management (Staff) published frequently asked questions to provide additional guidance on new Rule 2a-5 under the Investment Company Act of 1940 (the Fair Valuation Rule), which the Staff expects to update from time to time to include responses to questions from market participants seeking to comply with the rule prior to its September 8, 2022 compliance date. For more information on the Fair Valuation Rule, see our previous Client Alert relating to the adoption of…