On July 15, 2020, the U.S. Department of the Treasury waived the Main Street Lending Program (MSLP) restriction on capital distributions for tribal business concerns, thus opening the doors for many tribal business concerns to participate in the program. Specifically, the new MSLP FAQs released by the Federal Reserve provide that the Treasury has granted a waiver from the dividend prohibition in the Coronavirus Aid, Relief and Economic Security (CARES) Act to permit a tribal business concern to pay dividends or make equivalent capital distributions to its tribal government owners, but remains subject to the prohibition on payment of dividends and other capital distributions to non-tribal government owners.
The MSLP is a product of the CARES Act’s injection of $454 billion into the Federal Reserve’s lending facilities to support eligible businesses, states (which, by definition, include tribes), or municipalities in need of relief due to the COVID-19 pandemic. The initial requirements for any direct lending under such facilities included a restriction on borrowers from executing any stock buybacks or capital contributions for the term of the loan and the 12 months thereafter, a restriction which generally applied to loans under the MSLP.
Eligible borrowing businesses under the MSLP include tribal business concerns, which must be either (i) wholly owned by one or more Indian tribal governments or (ii) owned in part by one or more Indian tribal governments or a corporation that is wholly owned by one or more Indian tribal governments, if all other owners are either U.S. citizens or businesses.
The new FAQs also clarified that a tribal business concern must be a separate and distinct legal entity organized or chartered by tribal, federal or state authorities. Also, the new FAQs indicated that eligible MSLP lenders must determine — based on their own diligence and counsel — that the tribal business borrower either does not have or has effectively waived sovereign immunity in U.S. federal courts for matters resulting from the MSLP transaction and its applicable documentation.
Many tribal business concerns typically distribute at least some of their net income directly to the Indian tribal governments that own them. Due to the lack of other sources of funds (such as income and property taxes), such distributions often provide the main source of Indian tribal governmental revenue necessary for critical tribal governmental services and infrastructure. With the MSLP’s general restriction on capital contributions in place, it was essentially unrealistic for tribal business concerns to become borrowers under the MSLP, and this restriction was a major barrier to their participation in the MSLP.
Given the burdensome nature of this restriction, the Minneapolis Federal Reserve Center for Indian Country Development submitted a recommendation to the Federal Reserve Board of Directors to request a waiver of the restriction for tribal business concerns. Following advocacy, recommendations, and the provision of information, the Treasury has waived the capital distribution restriction for tribal business concerns as borrowers under the MSLP, thus opening the doors for many more tribal business concerns to become participants in the program.
The Faegre Drinker Indian law team is closely monitoring developments and working with clients to navigate access to funds under the MSLP.
Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.