Troubled Debt Restructuring: Phase 3 Stimulus Bill
On March 25, 2020, the Senate passed an amendment to H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (as amended, the “CARES Act”), which (as of March 26, 2020) is being considered in the House.
The complete text of the current draft of the CARES Act can be found here.
Section 4013 of the CARES Act provides that a financial institution may elect to (i) suspend requirements under U.S. Generally Accepted Accounting Principles for any loan modifications related to the Coronavirus Disease 2019 (“COVID-19”) pandemic that would otherwise be categorized as a troubled debt restructuring, and (ii) suspend any determination of loans modified as a result of COVID-19 as being troubled debt restructurings. Federal banking agencies and the National Credit Union Administration must defer to a financial institution to make a suspension. Such elections may begin on March 1, 2020 and last no later than the earlier of (i) 60 days after the lifting of the COVID-19 national health emergency and (ii) December 31, 2020 (the “Applicable Period”).
Pursuant to Section 4013, such suspensions will be applicable for the term of the loan modification, but solely with respect to any modification (including forbearance agreements, interest rate modifications, repayment plans and any other similar arrangement that defers or delays the payment of principal or interest) that occurs during the Applicable Period for a loan that was not more than 30 days past due as of December 31, 2019. Section 4013 further clarifies that such suspensions will not apply to any adverse impact on the credit of a borrower that is not related to COVID-19. For any modified loans to which these suspensions apply, Section 4013 provides that financial institutions should continue to maintain records of the volume of loans involved and that the appropriate Federal banking agencies may collect data about such loans for supervisory purposes.