Oil and gas industry could benefit from new Main Street lending program

 

The Federal Reserve announced an expansion of the size and scope of businesses that will be eligible for its “Main Street” emergency lending program. Though broad and not specifically intended for the oil and gas industry, the changes could benefit several of the industry’s heavily indebted small- to medium-size companies including some in Oklahoma according to POLITICO and its Morning Energy Report.

Under the Main Street program, the Fed will buy the majority of a four-year loan made by a bank to mid-size and small businesses. Thanks to the changes announced Thursday , companies with up to 15,000 employees or up to $5 billion in annual revenue can now qualify for those loans — up from 10,000 employees and $2.5 billion in revenue, Victoria reports.

The central bank is also lowering the minimum loan size to $500,000 from $1 million, and under the changes, lenders will be “able to apply their industry-specific expertise and underwriting standards to best measure a borrower’s income.”

The Trump administration has been weighing its options on how to help the struggling oil industry amid the coronavirus pandemic.

Late last week, Texas Sen. Ted Cruz called on Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell to immediately establish a new lending facility to provide emergency liquidity for oil and gas businesses. Cruz said at the time that the Main Street programs were not “sufficiently structured” to support oil companies, in part because it placed restrictions on the size of loans for businesses with large amounts of debt.

Sen. Dan Sullivan (R-Alaska) told POLITICO that the changes announced Thursday were “clearly a reflection on what we’ve been advocating for” to help the energy industry. “Whether it’s the president or Mnuchin or his team, there’s a clear recognition that this sector of the U.S. economy is not just important for Alaska or Oklahoma or North Dakota or Texas,” he said. “This was unequivocally the sector of the U.S. economy that drove us out of our last recession.”

Firms like Oklahoma City’s Continental Resources , which last week reportedly invoked an “act of God” clause to skirt oil deliveries to a refiner, and Occidental Petroleum, whose debt fell below investment grade in March, could be eligible under the revised conditions, said Andrew Park, a financial policy analyst at Americans for Financial Reform.

Bharat Ramamurti, a former aide to Sen. Elizabeth Warren tapped for the congressionally appointed panel scrutinizing trillions of dollars in emergency lending, tweeted Thursday the expansion clearly lined up with the requests of the oil and gas industry.

“That raises questions about how the changes promote the broader public interest — especially when these companies will still have no real obligation to retain or rehire their workers,” he said. Ramamurti added to POLITICO: “A lot of the changes … seem to move this from temporary liquidity for companies hurt by Covid to a bailout of companies that were already in bad shape pre-Covid.”

Source: POLITICO

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