Even inside battle-scarred KKR & Co., entering the political fray was enough to stoke unease.
As several of the private equity titan’s portfolio companies got loans from an emergency U.S. program aimed at helping small businesses survive the coronavirus pandemic, executives at the firm’s New York headquarters issued a blunt message: Return the money to taxpayers.
Yet across the cash-rich private equity world, many firms pushed ahead, benefiting from the $669 billion Paycheck Protection Program run by the Small Business Administration and Treasury Department, according to lawyers and lenders with knowledge of the strategies. Now, some of those firms face the prospect of tough public scrutiny, as the Trump administration acquiesces to pressure from lawmakers to name borrowers who drew potentially forgivable loans from taxpayers.
After the government broadly excluded private equity firms from the program, dozens found ways to steer around the restrictions, often adjusting governance or ownership arrangements with portfolio companies in sectors including entertainment, fitness, sports and dermatology, the people said, asking not to be named discussing confidential arrangements.
What’s more, some portfolio companies also benefited from indirect taxpayer support after helping scores of related businesses apply for PPP loans, keeping revenue flowing, the people said.
The industry’s secret success in tapping SBA money risks stoking a new uproar in Washington. Publicly traded companies and hedge funds already faced a backlash for trying to lean on U.S. coffers, leading them to add to more than $38 billion in loans that have been returned or otherwise canceled. Unclear is how many private equity firms may soon be outed.
Some have held meetings in recent days to discuss returning SBA money, according to people with knowledge of the talks. Spokesmen for the SBA and Treasury declined to comment or didn’t respond to messages seeking comment, including on whether companies that repay loans will be included in data to be made public.
Though people close to the private equity industry were willing to describe how firms accessed SBA loans, the identity of those that did so remains closely guarded because of the political sensitivities. More than a dozen private equity firms declined to comment or didn’t respond to messages seeking comment on whether their portfolio companies had sought or received loans. But representatives for some of the largest -- KKR, Blackstone Group Inc., Apollo Global Management, Carlyle Group Inc. and TPG -- said companies they control did not use SBA money.
There’s reason for private equity firms to worry about getting dragged into a public debate over the hastily drafted SBA program, which both chambers of Congress voted this week to extend.
“Already we have seen public criticism of the PPP program,” said Harry Sandick, an attorney with Patterson Belknap Webb & Tyler LLP. The risk of facing future scrutiny is so high that “recipients should preserve their records,” he said, so they can prove they acted properly in tapping and spending funds.