Sputtering public firms scoop up small-biz PPP loans

Eight Indiana-based public companies, including four in the Indianapolis area, have disclosed in regulatory filings that they qualified for more than $61 million in relief loans from a federal program designed to help small businesses. So far, all but two have kept the money, despite government pressure to return it.


What’s more: Because of loose rules about who qualifies, some of these recipients had been struggling financially long before the COVID-19 disruptions the loan program was designed to address.

The Paycheck Protection Program, which the U.S. Small Business Administration launched April 3, offers forgivable loans to help keep small businesses afloat during the pandemic.

But some loans also went to publicly held companies, including Fishers-based American Resources Corp., Indianapolis-based Noble Roman’s Inc., Indianapolis-based Emmis Communications Corp., West Lafayette-based Bioanalytical Systems Inc., Terre Haute-based Hallador Energy Co. and Union City-based Cardinal Ethanol LLC.


Indianapolis-based Calumet Specialty Products Partners LP and Evansville-based Escalade Inc. also received PPP loans, though both companies have since returned the money amid public scrutiny. Calumet—which produces lubricants, oils, fuels and other products—had been among the largest PPP beneficiaries in the country, with five loans to its subsidiaries totaling $31.4 million.

Of the six firms that kept their loans, just one was willing to tell IBJ why it accepted the money. On April 24, Emmis Communications Corp., whose holdings include radio stations and Indianapolis Monthly magazine, said: “Like most media companies, Emmis’ revenues have been devastated by the COVID-19 crisis; unlike most media companies, we have been able to keep paying all our employees.

“Emmis has always had a people-first culture; now more than ever, that paycheck assurance is critical. The proceeds from the PPP loan will enable us to continue providing stability for our employees while we weather this storm together.”

Emmis, which received a $4.75 million loan, was facing significant challenges long before the pandemic—as a barrage of forces, including the rise of Pandora and Spotify and proliferation of digital advertising alternatives—strained revenue. But it was profitable last year—unlike six of the eight publicly traded Hoosier firms that were able to secure PPP loans.

Profitability not required

The checkered financial histories did not disqualify the firms from the PPP program. That’s because, unlike traditional loans, the program did not include an assessment of borrowers’ creditworthiness.

That reality allowed the federal government to dispatch funds to struggling firms in record time. But it also opened the door for funds to go to companies that are at risk of burning through the PPP cash and going out of business, anyway.

Calumet, for instance, is far from out of the woods. It hasn’t turned an annual profit since 2013, when it earned $3.5 million. It has posted more than $782 million in losses since then, including a $43.6 million loss in 2019. The company, which has about 1,500 employees, is in the midst of what it calls a multiyear program of “self-help” initiatives, including divestitures and job reductions, to improve performance.

American Resources Corp., which buys coal mines from struggling or bankrupt operators, secured a $2.7 million loan even though it has not turned a quarterly or annual profit since its founding in 2015.

The company has not yet filed an annual report for 2019 but reported a loss of $30.9 million through the first three quarters of last year.

And pizza purveyor Noble Roman’s Inc. received a $715,000 loan despite a combined $7.7 million in losses over the past four years, including a $378,000 loss in 2019. It last was profitable in 2015, when it earned $786,000.

Bioanalytical Systems Inc., which provides contract research services to the pharmaceutical industry, received a $5.1 million loan. It hasn’t turned an annual profit since 2017 and lost $790,000 last year, though its prospects have brightened since Robert Leasure Jr. came aboard as CEO in January 2019 and made acquisitions that vastly expanded its range of services.

Coal mining company Hallador Energy Co. received a $10 million loan. The company posted a $59.9 million loss in 2019, and this January temporarily idled its Carlisle Mine in Sullivan County, resulting in the layoff of 90 full-time employees.

Before last year, Hallador had reported 11 straight years of annual profits.

Ethanol producer Cardinal Ethanol LLC received an $856,000 loan. The company enjoyed nine straight profitable years before losing $6.6 million in the fiscal year ended Sept. 30.

Emmis and sports-equipment maker Escalade, which returned its $5.6 million loan, were the only two firms that were profitable last year.

Emmis is a shadow of its former self, however, following a divestiture spree that reduced debt and repositioned the firm to pursue acquisitions outside of the slow-growth media industry.

The company on May 13 voluntarily delisted its stock from Nasdaq and deregistered its shares. By freeing itself from public-company-reporting requirements, the firm expects to save more than $1 million a year.

On the fly

It was by design that few rules govern which businesses can receive PPP loans, said Rob Scott, administrator for the SBA’s Chicago-based Great Lakes Region.

Congress created the PPP program and the SBA implemented it quickly to help companies in crisis, Scott said.

President Donald Trump approved the program March 27 and the SBA started accepting applications April 3, issuing numerous revisions and clarifications since.

“We were building the plane as we were flying it,” Scott said of the quick rollout.

Among the few restrictions: Companies that have defaulted on obligations to the federal government can’t apply, and neither can convicted felons serving probation.

“There were certain criteria, but it was very limited,” Scott said. “The reason that was done was so that it would push money out to small-business America at a rapid pace.”

A company’s financial status was “not really” a factor in the approval process, he said. “It was literally if a lending institution felt comfortable doing the transaction.”

The SBA oversees the PPP, but borrowers must apply through a bank, which earns a fee for doing so. Banks lend their own money upfront, but if the borrower meets the criteria for loan forgiveness, the SBA will reimburse the bank.

The PPP is in its second round of funding. From the program’s April 3 launch through May 16, it had approved 4.3 million loans totaling $513.3 billion.

The average loan size was $118,000, and 63.7% of borrowers received loans of $50,000 or less.

Fewer than 2% of borrowers received loans of more than $1 million, although these loans represented more than one-third of total borrowings.


The extreme flexibility of the program has led to public scrutiny of these larger PPP recipients.

On April 23, nearly three weeks after it began funding its first PPP loans, the SBA announced that borrowers would need to certify their need for a PPP loan and their inability to find other sources of liquidity—and that public companies likely would be unable to meet this standard. The SBA also has announced it will audit companies that received PPP loans of $2 million or more.

Corporate governance expert Charles Elson said companies need to appreciate that the ongoing public scrutiny that comes with accepting PPP loans is a significant drawback.

“I would advise most companies, if you can absolutely positively avoid [taking a PPP loan], do,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “I think what you open yourself up to by taking it is much more serious than if you didn’t take it.”

Elson compared the PPP to the federal Troubled Asset Relief Program, or TARP, which Congress rolled out to help banks during the Great Recession in 2008-2009.

After accepting TARP funding, banks were subject to restrictions, including limits on executive compensation.

Elson predicted that the PPP will come with its own set of complications.

“I think the only reason you take it is, it’s the last step between you and bankruptcy,” he said.

Companies that receive PPP loans can have the loan forgiven if they spend the money on payroll, rent or lease payments, utility payments or mortgage interest. The SBA’s loan forgiveness application is an 11-page document with detailed instructions for documenting these expenses.

Larger borrowers will face even more questions, Scott said. “They will have to comply with a stricter auditing process by us. Anything over $2 million is going to get scrutinized not only by us but also by the Treasury Department.”

According to a database created by the analytics firm FactSquared, 422 public companies had received a combined $1.35 billion in PPP loans as of May 20. Of those companies, 67 had returned a combined $433.7 million in loans. The database uses a bot to comb public companies’ regulatory filings.•

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