Marcus gets a bank loan. Should he return federal money in the event of a pandemic?
Milwaukee-based hotel and theater operator Marcus Corp. has received a new $ 91 million bank loan to help it cope with the economic effects of the COVID-19 pandemic.
This Thursday announcement raises the question of whether the company, with annual revenue of more than $ 800 million, should return federal money designed primarily to help small businesses deal with the pandemic.
Meanwhile, Marcus Corp., along with other large publicly traded companies, will undergo a federal review on the $ 11 million in forgivable loans he got it through the federal paycheck protection program.
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The new bank loan is provided under an existing agreement with several lenders, including JPMorgan Chase Bank, NA, as administrative agent, and US Bank National Association as syndication agent.
It is providing a $ 90.8 million 364-day loan “to further consolidate The Marcus Corporation’s already strong balance sheet,” according to a company statement.
The company will use the cash to repay loans under its existing $ 225 million revolving credit agreement, to pay costs related to the new loan and for general corporate purposes.
The conditions include a suspension of quarterly dividends for the remainder of 2020 and limits on dividends during the first half of 2021.
Marcus Corp. has been particularly affected by the social distancing response to the pandemic.
Its Marcus Theaters Corp. in March closed all 91 theaters, with 1,106 screens, in Wisconsin and 16 other states.
The company’s Marcus Hotels & Resorts Inc. division owns or operates 20 hotels, totaling 5,400 rooms, in Wisconsin and seven other states. It closed hotels in March and April.
Yet Marcus Corp. has long maintained a strong balance sheet that “has weathered many storms in the past and has positioned us well to weather the current crisis,” Greg Marcus, President and CEO, said in a statement.
As of March 26, the company had a cash balance of $ 126.5 million, which reflects the $ 220 million borrowing from its $ 225 million revolving credit agreement.
Even though it faced the “very unlikely scenario” of keeping its theaters and hotels closed for the remainder of 2020, Marcus said, the company has enough cash to operate without the new loan.
“With today’s announcement, we have planned an additional ‘insurance policy’ to further improve our liquidity, which we believe positions The Marcus Corporation to weather this current storm until 2021, if necessary, ”he said.
Additionally, the company has the benefit of not only owning its hotels, but also the majority of its theaters “thereby reducing our fixed monthly rental payments,” Marcus said.
The company’s statement outlined other steps it has taken, including using the benefits provided by the federal response to the economic turmoil of the pandemic.
The Sentinel Journal reported Monday that Marcus Hotels had received forgivable paycheck protection program loans for nine properties. These include three upscale hotels in downtown Milwaukee: the Hilton Milwaukee City Center, the Pfister Hotel, and the Saint Kate – The Arts Hotel.
This federal money, totaling $ 11 million, is used to keep 1,400 to 1,500 employees on the company’s payroll, said Greg Marcus.
The main objective of the program was to help small businesses. But it included a provision for large hotel and restaurant chains to apply for loans for individual locations.
This exception allows a company like Marcus Corp., which had around 10,500 employees at the end of 2019, to get help.
But big companies have come under fire for taking the loans – especially as the program quickly ran out of its first round of $ 349 billion. Congress and President Donald Trump approved $ 310 billion in additional funding last week.
The US Small Business Administration also issued a new notice saying the money should be returned by May 7, unless a business can prove it was truly eligible for a loan.
This process includes exploring private funding sources before turning to PPP.
Treasury Secretary Steve Mnuchin said on Tuesday that federal loans exceeding $ 2 million would get a “full review”.
Mnuchin said it was “inappropriate” for companies like Shake Shack and Ruth’s Chris Steak House restaurant chains, and sports franchises like the NBA’s Los Angeles Lakers, to receive PPP money.
Shake Shack, Ruth’s Chris and the Lakers paid off the loans. Other large companies have said they will keep the money.
There was no immediate response Thursday from Marcus Corp. when asked if the company would repay PPP loans.
Greg Marcus told Journal Sentinel on Monday that the company would not be able to provide paychecks to its hotel and restaurant employees without federal help.
PPP loans are repayable if at least 75% of the money is spent on retaining or rehire employees. The rest must be spent on business expenses such as rent or utilities.
Marcus said 90% of the loan proceeds are spent on employee compensation.
Paychecks provided by PPP cover up to eight weeks.
USA Today contributed to this report.