By Hilary Russ and Joshua Franklin
(Reuters) – Several publicly listed companies worth hundreds of millions of dollars said on Friday they had no plans to return funding they received under a U.S. government program providing emergency loans to small businesses, even though some of their peers have started to do so.
The loans are designed to support smaller businesses – defined as having no more than 500 employees – ranging from hair dressers to landscapers to help cover employee payroll and rent, as large swaths of the economy have been shut down to keep the coronavirus from spreading.
The U.S. Treasury Department said on Thursday that “big public companies with access to capital” would have a hard time proving they really needed the coronavirus relief funds, dubbed Paycheck Protection Program (PPP) loans. It updated its eligibility criteria, and gave companies that do not qualify until May 7 to return the aid.
A handful of big public companies, some of which had qualified under a loophole in the program that defined the 500-employee limit to each location operated by a single company, responded to the public backlash by saying they were returning their loans. That included Ruth’s Hospitality Group Inc (O:), owner of the Chris Steakhouse chain, investment firm Manning & Napier Inc (N:) and biotechnology company Wave Life Sciences Ltd (O:). Restaurant operators Shake Shack Inc (N:) and Kura Sushi USA Inc (O:) returned loans from an initial tranche of the program.
But others are holding fast.
MiMedx Group Inc (PK:), a manufacturer of biomaterials with a market value of $420 million, Digimarc Corp (O:), a digital watermark provider with a market value of $197 million, and ZAGG Inc (O:), a maker of screen protectors for mobile devices with a market value of just shy of $100 million, told Reuters on Friday they took the loans because they needed them and planned to keep them.
MiMedx, which took a $10 million loan, said it was in compliance with the Treasury’s loans and could not access the capital markets because it was not current in its financial statements.
“COVID-19 has created operating complexities many never imagined. From sourcing material, to guarding our staff’s health and maintaining high quality production standards,” MiMedx said in a statement.
Digimarc, which took a $5 million loan, said it complied with both the guidelines and the spirit of the program. “We don’t know whether the capital markets are open to us until we go there,” CEO Bruce Davis said.
ZAGG, which took a $9.5 million loan, said it qualified because it met all conditions.
“With extensive retail closures nationwide, our business has been severely impacted during the shutdown of all non-essential businesses due to COVID-19. We are using the money in accordance with government guidelines,” Zagg said in a statement.
A Treasury spokesman declined comment.
“The risk that these companies run is that they become the poster child for greed,” said Chas Hermann, the former chief brand officer at Noodles & Co (O:) who is now a marketing consultant. “Shake Shack recognized that quickly and turned it around. It was the best move you could make after you made a really bad move.”
There is more loan money coming. President Donald Trump signed a new $484 billion aid bill on Friday, the fourth passed by lawmakers to address the coronavirus crisis to fund small businesses and hospitals. It includes $310 billion for PPP loans.