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Stimulus Package Passed by Senate Includes Limits on Dividends and Buybacks
Practical Law Legal Update w-024-6919 (Approx. 3 pages)
Stimulus Package Passed by Senate Includes Limits on Dividends and Buybacks
by Practical Law Corporate and Securities
| Published on 26 Mar 2020 • USA (National/Federal) |
The stimulus package passed by the US Senate in response to the COVID-19 outbreak would limit dividends and buybacks for companies accepting government loans.
Update: On March 27, 2020, President Trump signed the CARES Act into law.
On March 25, 2020, the US Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the outbreak of COVID-19. The CARES Act includes provisions that would allow the Treasury Secretary to enter into agreements to make loans or loan guarantees to eligible businesses, however such loan agreements must include provisions prohibiting the company from:
- Paying dividends or making other capital distributions with respect to the company's common stock while the loan or guarantee is outstanding and for 12 months after the loan or guarantee is no longer outstanding.
- Repurchasing exchange-listed equity securities of the company or any parent company while the loan or guarantee is outstanding and for 12 months after the loan or guarantee is no longer outstanding, except to the extent required under a contractual obligation that is in effect as of the date of the enactment of the legislation.
The US House of Representatives is expected to pass the bill on March 27, 2020, with President Trump signing the bill into law immediately.
For more information on dividends and stock repurchases, see Practice Notes, Dividends, Redemptions, and Stock Purchases and Issuer Stock Repurchases: What are the Options?.