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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

February 19, 2021

Dining Dollars: $25 Billion Restaurant Rescue Plan Gets Stamp of Approval From Senate and Moves Forward to Enactment

On February 4, 2021, the US Senate voted 90 to 10 to approve a $25 billion Restaurant Rescue Plan to provide much-needed relief to restaurants across the United States that have been decimated due to the ongoing COVID-19 pandemic. After nearly a year of staff cuts, indoor dining bans, serial closings, reopenings, and reinventings, and pandemic kitting, this rescue is desperately needed, as restaurants are running out of resources to get back on their feet. Thus, lost sales are only part of the plunging revenue picture: uncertainty due to the lack of consistent government regulations, reduction in payment terms by key suppliers, costly dining protocols, shifting consumer dining preferences, being too small to restructure, and employee retention issues have also contributed to the precarious state of the restaurant industry and the crushing debt its constituents face. This subject is addressed in James Morden’s article “The Impact of COVID-19 on the Restaurant Industry Outlook” in the February 2021 issue of the American Bankruptcy Institute Journal.

According to the Independent Restaurant Coalition (IRC), a grassroots organization founded by restaurant owners and chefs, US restaurants and bars have lost over $180 billion in sales because of the pandemic, representing one in four lost jobs (a total of 2.4 million jobs have been lost since the start of the pandemic) and the permanent closing of more than one in six restaurants totaling 116,000 restaurants. The ripple effect of these losses has been felt by local farmers, fishers, bakers, and other small businesses in their communities who account for 65 percent of the restaurants’ and bars’ cash flow. Only $34 billion, or 6.5 percent, of PPP loans were claimed by restaurants and bars despite these businesses being our country’s second-largest private sector employer responsible for generating approximately 4 percent of our nation’s GDP. Fewer than one in three PPP loans provided to restaurants, or $11 billion, were under $150,000. Closer to home, 75 percent to 85 percent of the eating and drinking establishments that comprise New York’s $51.6 billion and Connecticut’s $8.2 billion restaurant economies are projected to permanently close without some form of government relief.

The Restaurant Rescue Plan is a tool to provide dedicated tax-free funding to the smaller, independent restaurants and bars who lack reserves and the kind of banking relationships to allow them to access PPP and other government loans and flexible lending facilities to withstand present and future losses. It also embodies a growing acknowledgment that we cannot allow these businesses to fail as they provide more than food and drink—they are important community and cultural anchors and foster domestic and international tourism.

The Restaurant Rescue Plan is based on the $120 billion Restaurants Act first put forth in June 2020, passed by the US House of Representatives in October 2020, and reintroduced on February 5, 2021. Ultimately, it may be part of the larger bill if enacted. The Restaurant Rescue Plan is proposed to cover the period from February 15, 2020, through December 31, 2021.

The budget resolution containing the Restaurant Rescue Plan, introduced and approved by the US Senate, instructed congressional committees to establish a tax-free grant program for independent restaurants with a maximum of $10 million per restaurant group or $5 million per individual restaurant location. While the resolution is not yet codified into law, it is part of President Biden’s $1.9 trillion proposed pandemic relief package. After being approved by the House Small Business Committee on February 10, the proposed Restaurant Rescue Plan went to the House Budget Committee the week of February 15 to be finalized and voted and then voted by the House as part of the full pandemic relief package during the week of February 22. If passed, the House vote would be followed by a Senate vote. The mounting support in Congress for restaurant relief is a promising sign for the passage of the Restaurant Rescue Plan. In an article for Restaurant Hospitality, Joanna Fantozzi summarizes how the Restaurant Relief Plan can help business owners.

Reports by the IRC state that the proposed Restaurant Relief Plan could help up to 11 million restaurant industry workers and another five million in its supply chains. According to Fantozzi, eligible businesses include restaurants, bars, caterers, breweries, taprooms, and tasting rooms that are not part of a restaurant group with more than 20 locations and are not publicly traded, with some limitations on private equity firm involvement. Even restaurants that opened in 2020 or have not yet opened are eligible; for the former group, funding is available equal to the “eligible expenses incurred” less any PPP loans received and for the latter group, funding is available equal to “eligible expenses incurred before the date of enactment.”

Grants can be used for payroll and annual benefits up to $100,000, mortgage, rent, utilities, maintenance, supplies (including PPE and cleaning products), food and beverages, paid sick leave, and other operating expenses. They can be taken with PPP, EIDL and Employee Retention Tax Credits; however, any PPP loans received will be subtracted from the eligible grant amount. The length of time a restaurant has been operating and whether it received any PPP loans are among the factors used to award the grants. For example, for restaurants that opened in 2018 or earlier, grants are calculated by subtracting the restaurant’s 2020 revenue from its 2019 revenue, and, as noted, also subtracting any PPP loans received in 2020. In addition, appreciating the need for diversity, inclusion, and participation by underrepresented communities, the Restaurant Rescue Plan gives priority to businesses owned by women, veterans, and socially and economically disadvantaged groups in the first 21 days of grant applications and reserves one-fifth of the $25 billion for restaurants with less than $500,000 in 2019 gross receipts.

In the coming weeks, more details of the Restaurant Rescue Plan will likely be established and made public once the budget reconciliation process is completed. While the exact timeline of the proposal is not yet confirmed, one thing is certain: after a reported 19,400 jobs lost in the restaurant industry in just the first month of 2021 and an unemployment increase of 19 percent in 2020 from 2019 (according to the 2021 US Bureau of Labor Statistics jobs report), the current promise and the future enactment of relief under the Restaurant Rescue Plan is sure to be a welcome sign of hope for restauranteurs, chefs and their staff, and entrepreneurs all across the country.

If you have any questions regarding the content of this alert, please contact Janice Grubin, Restructuring, Bankruptcy & Creditors’ Rights Practice Area co-chair, at jgrubin@barclaydamon.com; Scott Rogoff, Hotels, Hospitality & Food Service Team leader, at srogoff@barclaydamon.com; Elizabeth Vulaj, associate, at evulaj@barclaydamon.com; or another member of the firm’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area or Hotels, Hospitality & Food Service Team.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at yhennessey@barclaydamon.com or any member of the COVID-19 Response Team at COVID-19ResponseTeam@barclaydamon.com.

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