October 20, 2020

Volume X, Number 294

October 19, 2020

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Federal Reserve Clarifies that Distributions to Tribal Governments are Permitted Under the Main Street Lending Program

On July 15, 2020, the Federal Reserve Bank of Boston issued new guidance expressly permitting tribal businesses that are borrowers under the Main Street Lending Program (“MSLP”) to pay dividends to their tribal government owners.  In its amended Frequently Asked Questions (the “July 15th FAQs”), available here, the Federal Reserve announced that the Treasury Secretary exercised his authority under the CARES Act to waive the prohibition against the payment of dividends in the MSLP, permitting tribal businesses that are wholly or majority-owned by one or more tribal governments to make distributions to their tribal government owners.  See July 15th FAQ H.15 and H.2.  Tribal businesses and organizations seeking financial relief and Lenders seeking to extend credit under the MSLP have advocated for this important clarification so that tribal businesses may gain access to much-needed capital during the economic strain of the COVID-19 pandemic.  For example, Sheppard Mullin sought this important clarification with respect to tribal distributions in comments it submitted to the Federal Reserve on April 16, 2020.

The July 15th FAQs also clarified that tribal businesses that generate legal gambling revenue are eligible as borrowers under the MSLP if they otherwise qualify as eligible borrowers under the MSLP rules.  See July 15th FAQ E.1.  Prior guidance had referred to Small Business Administration (“SBA”) rules issued on or before April 24, 2020, but also cross-referenced interim rule 85 Fed. Reg. 23450 published in the Federal Register on April 28, 2020.  This discrepancy created ambiguity for tribal gaming businesses and lenders.  The July 15th FAQs expressly clarify that the relevant SBA rule permitting legal gambling businesses to be borrowers was released by the SBA on April 24, 2020, and permits such tribal businesses to borrow under the MSLP.

The amended guidance also provides that a tribal business concern borrowing under the MSLP must be a separate and distinct legal entity from a tribal government and must be organized or chartered by a tribe, a Federal or a state authority.  The guidance further instructs lenders under the MSLP to ensure that such a tribal business concern borrowing under the MSLP has effectively waived its sovereign immunity with respect to the loan transaction.  See July 15th FAQ E.2.

Today’s guidance is a critical step in providing tribal businesses essential access to economic relief.  We expect that tribal governments will continue their dialogue with the Treasury Department to develop and provide much-needed federal lending programs that will allow tribal governments direct access to capital.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 198


About this Author

Christine L. Swanick, Finance, Bankruptcy, Attorney, Sheppard Mullin, law firm

Christine Swanick is a partner in the Finance and Bankruptcy practice group in the firm's New York office.

Ms. Swanick concentrates her practice in the area of commercial financing and other credit transactions, including commercial loans, letter of credit facilities, syndicated credit facilities and note and bond financings, especially in the area of tribal-related financing projects. Additionally, Ms. Swanick advises on restructuring of tribal debt. She also represents tribes and entities doing business with tribes in contractual...

Wilda Wahpepah, Finance, Bankrupcty Attorney, Sheppard Mullin, law firm
Special Counsel

Wilda Wahpepah is a special counsel in the Finance & Bankruptcy Practice Group in the firm's Washington, D.C. office.

Ms. Wahpepah represents tribal governments, businesses and entities doing business with tribes across the country. Her areas of emphasis include regulatory counseling and advice related to tribal jurisdiction and governmental matters, gaming, finance and business development, natural resources and environmental law. Ms. Wahpepah represents tribal governments in state, federal, and tribal courts. She is an enrolled member of the Winnebago Tribe of Nebraska.