On April 23, 2020, the U.S. Treasury published FAQ #31 for the Paycheck Protection Program, providing a safe harbor for return of funds by May 7, 2020 in cases of insufficient need by recipients of PPP funds by public companies with liquidity alternatives.

With this background, I joined several of my securities law and litigation colleagues to publish guidance for public company Paycheck Protection Program loan recipients.

PPP applications require certification that “[c]urrent economic uncertainty makes this loan request necessary to support ongoing operations.”  To the extent that public companies may have had other reliable, accessible sources of capital markets funding, the borrower’s certification of economic need could be called into question. Public companies are clearly not all in the same sitaution with regard to their ability to obtain other sources of funding, and face a number of difficult decisions.

Going forward, both PPP lenders and borrowers should be mindful of FAQ 31’s impact on future applications as the supplemental round of PPP funds are made available. In addition to the risk of governmental regulatory or enforcement action, impacted companies and lenders may face other litigation and reputation risk.