The Federal Reserve made some changes to its Main Street Lending Program according to a Thursday press release by the central bank that will now extend a much-needed lifeline to the U.S. oil industry.
As bankruptcies, capex cuts, and unfavorable financial reports from Q1 start to trickle into the US shale patch, more oil companies in peril will now be able to tap the Main Street fund that was set up to render aid to small and medium sized businesses.
Prior to today, those funds were not available to companies who had more than 10,000 employees and $2.5 billion in revenues. Borrowed funds could also not be used to refinance existing debt.
But lawmakers in oil-dependent states such as Alaska, North Dakota, and Texas—have been furiously lobbying to change those limits in a move that would allow more oil and gas companies access to the funds they need to weather the low oil price environment caused by the pandemic.
On Thursday, at the behest of those lawmakers, the Federal Reserve increased the employee limit to 15,000 and the revenue limit to $5 billion. What’s more, companies applying for the funds do not need to prove they were in good standing as of March 2020—an earlier requirement that excluded many oil and gas companies because they often carry heavy debt.
Shale company debt has been cause for concern since the oil crash of 2014.
Senator Ted Cruz, however, pushed Treasury Secretary Steve Mnuchin and the Federal Reserve Chairman to allow companies taking the funds to use it to refinance debts that they carried prior to the coronavirus—debt that oil companies foundering through the coronavirus crisis would otherwise be hard pressed to do given the low price of oil that is well below most companies’ breakevens.
The Fed Reserve received more than 2,200 public comments requesting they make changes to the program.
Supporters of the lending program argue that oil and gas companies need to the support to ensure the security of the nation’s oil and gas supplies. Detractors argue that bailing out disreputable fossil fuels when the country should be supporting only climate-friendly options.
By Julianne Geiger for Oilprice.com
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