Hotels see loophole in bailout, seek help with Fed commercial mortgage bonds
“This limit will not allow a business owner to meet both payroll and debt service obligations beyond approximately 4 to 8 weeks,” said the AHLA President, Chip Rogers, in a statement. “Therefore, it will result in the dismissal of the very workers the bill seeks to protect. Since the measure reduces debt cancellation with any reduction in payroll, hoteliers would be forced to use the entire amount of the loan against payroll, at the expense of servicing debt.
More broadly, $349 billion might not be enough. Some economists have said Congress should double funds for the repayable loan program to cover small business payrolls for 75 days.
The stimulus package also gives the Treasury Department $454 billion to set up credit facilities with the Federal Reserve, which will leverage funds in addition to $4 trillion in low-interest loans. These loans are intended to help large businesses stay afloat while coronavirus tourniquets cut cash flow, as well as small businesses that may need more than the SBA and private lenders can provide.
On Friday, AHLA and the Asian American Hotel Owners Association wrote to Treasury Secretary Steven Mnuchin, Fed Chairman Jerome Powell and Securities and Exchange Commission Chairman Jay Clayton saying they needed one of these facilities to save the commercial mortgage bond market.
With COVID-19 countermeasures largely halting travel, hotel revenue fell 70%, the letter said. If this forces hotels to default on their commercial mortgages, they could be foreclosed. And if the $300 billion in hotel-backed commercial mortgage-backed securities defaults, trouble could spread, virus-like, through the banking sector.