Will The US Take Over Defense, Oil Companies? Treasury Secretary Reveals Requirements For Loan Programs

Treasury Secretary Steven Mnuchin may seek for equity stakes in major defense contractors seeking a share of the $17 billion coronavirus relief fund. Mnuchin also said he is considering a loan program for oil companies that would provide the federal government with partial ownership.

A 10-page application posted on Treasury’s website indicates Mnuchin could require companies deemed critical to national security to put up equity stakes, similar to the deal struck with airlines under the $2.2 trillion coronavirus relief package.

The applications are due by May 1 at 3 p.m.

“This pot of money was designed to consider the needs of defense contractors, key suppliers to DOD and other companies that carry classified information,” Mnuchin told Bloomberg.

The application requires applicants to provide full description of its debts and obligations, and to affirm credit is unavailable to it elsewhere.

“To receive a loan, each borrower must provide the Treasury Department with appropriate financial instruments that, in the sole determination of the secretary, provide for a reasonable participation in equity appreciation or a reasonable interest rate premium appropriate for the benefit of taxpayers,” the application says, also providing for the acceptance of “senior debt instruments.”

“If the borrower has issued securities that are traded on a national securities exchange, the borrower must provide a warrant or equity interest in the borrower unless the secretary determines in his discretion that the borrower cannot feasibly issue warrants or other equity interests.”

The funds will go to companies with government contracts and which have top secret clearance. One of the recipients likely would be Boeing, which has been hard hit by the coronavirus pandemic.

As for U.S. oil companies battered by the collapse in oil prices, Mnuchin told Bloomberg Treasury might seek permission from Congress to use the $2.2 trillion CARES Act to bolster oil producers and run the program through the Federal Reserve. He said the companies would have to prove they are creditworthy. Many drillers, however, have seen their ratings plummet into junk territory.

President Trump earlier this week urged Treasury and the Department of Energy to come up with ways to protect domestic oil producers after prices fell into negative territory.