The offices of Cutera Inc. in Brisbane, California.
The largest state-owned companies that used the government’s emergency relief fund for small businesses almost all had easy access to other forms of capital, according to a CNBC analysis of the records.
Even amid the upheaval caused by the coronavirus pandemic, these companies raised millions of dollars by selling stocks or had unused lines of credit they could have used, factors that likely should have prompted them to repay the loans. they obtained from the federal paycheck protection program. Treasury Secretary Steven Mnuchin warned of “serious consequences” for companies that should not have participated in the program.
But just hours before the May 14 deadline for repaying PPP loans with amnesty, most state-owned enterprises made no mention of returning the funds, which become grants if used for approved expenses such as. payroll. According to data analytics firm FactSquared, of the $ 1.32 billion used by state-owned companies on 407 loans, only 61 loans totaling $ 411 million are repaid.
An example: Cutera, a California maker of devices like laser epilators, raised more than $ 26 million last month by selling shares on the open market, according to documents. He also applied for a PPP loan days before the Treasury Department explicitly discouraged SOEs with access to capital markets from doing so.
Cutera received the money from the stock sale on April 21, the same day her application for the $ 7.1 million PPP loan was approved. On top of that, the company had $ 19.5 million in cash and liquid investments as of March 30, and an intact $ 25 million line of credit from Wells Fargo to fund its operations.
Cutera, led in part by San Francisco-based hedge fund manager Daniel Plants, is just one example of dozens of PPP candidates found by CNBC who were large and established enough to have relationships with bankers and investors. sophisticated.
Following the rapid disbursement of the $ 350 billion first round of the Small Business Relief Fund, a backlash against companies such as Shake Shack and Ruth’s Hospitality Group had tapped into the fund despite other options. These two companies returned the money and were eventually followed by other companies with well-known consumer brands like AutoNation.
But many state-owned companies have so far escaped scrutiny because they are not household names. CNBC found 49 companies with a market capitalization of at least $ 100 million that took out P3 loans and had not disclosed their intention to repay the money as of May 12. Of those companies, 13 sold shares this year, and many more had unused credit. lines good for tens of millions of dollars in borrowing power, according to the documents.
Last month, the Small Business Administration issued guidelines in response to public outcry over lending, saying it was unlikely that a “state-owned enterprise with substantial market value and access to capital markets” could do. a good faith certification she needed. PPP funds. The agency gave businesses two weeks to return the money if they suspected they might no longer qualify, and then extended the deadline to May 14.
On May 13, the Treasury released an updated FAQ stating that PPP loans under $ 2 million likely would not be reviewed and the deadline for returning funds was extended to May 18.
“The purpose of this program was not the social welfare of big business,” Mnuchin told CNBC’s Andrew Ross Sorkin on April 28, adding that the government would verify PPP loans over $ 2 million for s ‘ensure they were valid. “The purpose of this program was to help small businesses.
Many of the companies found by CNBC are in the tech, health tech, and pharmacy industries, which are often the type of companies that regularly have to sell stocks to fund their operations while developing new products.
One example is OncoCyte, which is developing tests for the early detection of cancer. The California-based company secured a $ 1.14 million PPP loan through Silicon Valley Bank on April 23. The next day, she filed a prospectus to issue shares and finally raised $ 10.75 million last month through the sale of shares.
Another is Xeris Pharmaceuticals, a maker of diabetes drugs, which raked in $ 39.9 million in stock sales in February. The Chicago-based company got $ 5.1 million from the PPP on April 22, and then decided to repay $ 900,000 of that amount, keeping the rest for payroll and other expenses, the company said.
Another company with easy access to capital markets is Applied Optoelectronics, a Texas-based manufacturer of fiber-optic networking products. The company had $ 28.8 million in unused lines of credit and $ 62.5 million in cash and liquid securities as at March 31, as well as an agreement with Raymond James to sell $ 55 million of actions. Despite its strong financial footing, the company applied for a $ 6.2 million PPP loan through Truist Bank, which it obtained on April 17.
In a May filing, the company said that despite the latest guidance from the SBA, it still believes it meets “all the requirements” of the program, but that the loan may subject it to “further review which may harm our financial situation “.
Steven Mnuchin, U.S. Secretary of the Treasury, center, walks through the U.S. Capitol in Washington, DC, the United States, on Sunday, March 22, 2020.
Sarah Silbiger | Bloomberg | Getty Images
Cutera, the maker of beauty devices, took a similar tone this month in a quarterly feature. The company said its certification that it needed the PPP was “subject to interpretation” after the SBA guidelines were updated in late April.
“If, despite the good faith belief that, given the circumstances of the business, the business has met all of the requirements for PPP loan eligibility, it is subsequently determined that the business was not eligible For the program, she might have to repay the loan or “be subject to additional penalties.”
A representative for Cutera declined to comment for this story, and Xeris Pharmaceuticals and Applied Optoelectronics did not respond to requests for comment.
OncoCyte CEO Ronald Andrews said in a telephone interview on Thursday that most of the proceeds from his sale of shares last month were intended for a recent acquisition. He acknowledged that “the optics weren’t great” because they had just secured a PPP loan, but insisted it would help them keep workers they would otherwise have laid off.
“This sale of shares was not capital to support the company; we can’t raise any more money unless our shareholders allow it,” Andrews said. “There are bad actors, I can’t deny that. We have a different story. We took PPP in good faith, we are very grateful for that.”
Fury over the PPP, a key part of the Trump administration’s $ 2 trillion response to the coronavirus pandemic, subsided in its second round as funds lasted longer than expected, allowing more small businesses to secure lifelines. The initial $ 350 billion round proceeded quickly and was replenished with an additional $ 310 billion on April 27.
Yet lawmakers and news outlets have urged the SBA to release a full list of companies – both public and private – that have called on PPP to hold it accountable. Private companies do not have to disclose whether they have used the program, and so far the SBA has rejected requests for information.