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Food Venture Financing News - Weekly Issue No. 9

05.20.20
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In This Issue:

PPP Loan Forgiveness

The SBA has released its Loan Forgiveness Application (linked here). Completed applications should be submitted to the PPP lender rather than the SBA.

  • Costs Paid or Incurred. The application provides that the PPP loan is forgivable to the extent it is used for eligible costs (payroll, mortgage interest, rent and utilities) paid or incurred during the 8-week Covered Period.
  • Alternate Payroll Covered Period. The "Covered Period" generally commences the day the borrower receives the PPP loan. However, the application provides that, with respect to payroll costs, the Covered Period may begin on the first day of the borrower's first pay period following receipt of the loan.

New Guidance Regarding PPP Loan "Necessity"

After receiving negative media attention regarding large, high profile businesses and public companies receiving PPP loans, the SBA highlighted the need for borrowers to certify that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations" of the borrower. However, the SBA's lack of guidance regarding "necessity" led some borrowers opting to return funds to ensure compliance. The SBA finally released additional guidance last week addressing this issue in a new FAQ providing that any borrower that "received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith." Loans under the $2 million threshold will not be audited to confirm certification. 

  • Document Necessity and Anticipated Uses. It is still recommended that borrowers document their general need and anticipated uses of PPP funds.
  • Automatic Audit. The Treasury Department has previously advised that all borrowers of PPP loans above $2M will be subject to an automatic audit.
  • Safe Harbor. The SBA also again extended the "safe harbor" for a return of PPP loans to May 18th.

Main Street Lending Program

Although the Federal Reserve first announced the Main Street Loan Program (MSLP) on April 9th, a Federal Reserve official indicated last week that the launch of the MSLP was not imminent. The Fed has received bipartisan criticism for the delay in the MSLP rollout, but appears to be acting cautiously in light of the chaotic launch of the Paycheck Protection Program. 

  • Changes to Main Street Loan Program. While we wait for further details on the eventual rollout of the Main Street Loan Program, the Fed has already made some key changes to the MSLP based on feedback received during the public comment period. These changes include:
    • Creation of a third "Priority Loan" lending facility. The Fed had previously announced two lending facilities: a "New Loan Facility" and an "Expanded Loan Facility." The Fed has added a third lending facility – the "Priority Loan Facility," which allows for smaller loans with to borrowers with greater leverage. Some key points include:
      • Loan Terms. Four-year maturity, with payments of principal and interest deferred for one year. The interest rate will be LIBOR + 300 basis points;
      • Payment. 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity;
      • Minimum loan size of $500,000;
      • Maximum loan size equal to the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6x 2019 adjusted EBITDA.
    • Changes to New Loan Facility and Expanded Loan Facility. The Fed also changed some of the terms under the previously announced New Loan Facility and Expanded Loan Facility, including:
      • Eligible Borrowers. Businesses with up to 15,000 employees (increased from 10,000) or $5 billion in 2019 revenue (up from $2.5 billion).
      • Interest Rate. Eligible loans will bear interest at LIBOR + 300 basis points.
      • Payment Schedule. Payment of principal and interest remain deferred for one year. For the New Loan Facility, eligible loans will be repaid 1/3 at the end of each of the 2nd, 3rd, and 4th year. For the Expanded Loan Facility, the upsized tranche will be repaid 15% at the end of the second year, 15% at the end of the third year and a balloon payment of 70% at maturity.
      • Minimum Loan Size. Minimum loan size for New Loan Facility loans decreased from $1 million to $500,000. Minimum loan size for eligible Expanded Loan Facility increased from $1 million to $10 million.

Food and Beverage Financings

  • A report by the Good Food Institute indicates that in 2019 a record $824M was invested in alternative protein companies, and an additional $930M was invested during Q1 of 2020. While these figures include capital raised by Impossible Foods and Beyond Meat, emerging companies in the alternative protein space are continuing to generate significant investor interest.
  • Sales of alternative protein products have increased by 50-300% compared to the same period last year.
  • Along with alternative protein companies, certain sustainable food and ethnic food CPG products are also experiencing increased revenue and interest from investors in 2020.
  • It remains important for food and beverage companies to continue to build cash runways through the end of 2020 and beginning of 2021.

Articles

Webinars

Food System and Disaster Relief Efforts in Our Industry

  • ReFED CO-19 Food Waste Solutions Fund
     The ongoing COVID-19 crisis has upended our food system, resulting in a surge of on-farm food loss, food business closures, and a skyrocketing number of food insecure individuals. In response to these challenges, ReFED launched the ReFED COVID-19 Food Waste Solutions Fund to quickly deliver vital funding to organizations that can rescue food before it is wasted and get it to those who need it so urgently.

    ReFED has started to grant $1 million to a portfolio of organizations that will — in the next 90 days — prevent more than 10 million pounds of food or 8.3 million meals from being wasted.

    The Fund's first set of grants have been made to four organizations on the front-lines of COVID-19 to scale their impact immediately:
    • Forager: Enables a digital community of farmers, producers, grocers, restaurants, and consumers. Over the next 90 days, they will expand the reach of the tech platform to 10 states.
    • SeaShare: Sources and processes high quality, donated seafood and has distributed over 3.5 million servings to Feeding America food banks over the past two months.
    • Boston Area Gleaners: Rescues surplus farm crops for people in need. They are scaling cold-storage and repacking facilities and expanding the geographic reach of produce sourcing in light of COVID-19.
    • Food Rescue US: Operates a technology-based last-mile meal prep operation. In response to COVID-19, they launched Restaurant Meal Programs and Community Kitchen, a collaboration with World Central Kitchen.

    Contact alexandria.coari@refed.com for more information
  • Kitchen Table Advisors
    Farmers and ranchers are on the frontlines of the current COVID-19 food system support. Kitchen Table Advisors provides personalized, in-depth business advising support to over 60 sustainable family-run farms and ranches in Northern California. KTA is helping those farms and ranches navigate a variety of business challenges, including cash flow planning, emergency financing applications, new sales accounts, and other mission-critical functions. Contact Noelle Fogg Elibol for more information at noelle@kitchentableadvisors.org.

At Davis Wright Tremaine LLP (DWT), we are proud to have one of the largest Food & Beverage legal practices in the country, with over 40 attorneys representing food innovators, entrepreneurs, and investors at every level of the food chain, from Farm to Label.

Please contact our Food and Beverage team if we can assist you in any way in these unprecedented times.


The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.

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