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Ruth's Chris Steak House: On second thought, we'll give PPP money back too

Let’s call this the Shake Shack Shimmy. High-end restaurant chain Ruth’s Chris Steak House has decided that they don’t need $20 million from the Paycheck Protection Program after all — or at least after coming under fire for taking it. Late yesterday, as Congress passed a second PPP tranche to support failing small businesses, Ruth’s Chris followed Shake Shack’s lead in repairing its PR:

Ruth’s Hospitality Group Inc., the owner of the Ruth’s Chris Steak House chain, said Thursday it would refund $20 million. It was among 150 public companies that received nearly $600 million in forgivable loans this month from the Paycheck Protection Program. The federal program was created to help struggling small businesses cover payroll and keep Americans employed during the coronavirus pandemic.

Public companies have been criticized by some lawmakers and consumers for tapping into the $350 billion rescue program, which ran out of funds two weeks after it started accepting applications. Shake Shack Inc., SHAK -1.14% a company with market capitalization of about $1.7 billion and more than 7,000 employees, said earlier this week it would return the $10 million loan it received.

The market cap for Ruth’s Chris is a more modest $251 million, but that’s still a long way from what most Americans consider a “small business.” The aim for the PPP, at least in concept, was to help out Mom & Pop businesses that had few assets and little in cash reserves, not publicly traded corporations. In practice, as we have found out, the Small Business Administration has a much broader view of “small businesses,” and Congress didn’t include restrictions in the initial PPP language that would have disqualified operators like Shake Shack and Ruth’s Chris. There’s a reason for that, to which we’ll return in a moment.

Like Shake Shack, Ruth’s Chris issued a statement that emphasized its community spirit while implying it did nothing wrong in applying for the loan/grant in the first place:

“We intended to repay this loan in adherence with government guidelines, but as we learned more about the funding limitations of the program and the unintended impact, we have decided to accelerate that repayment,” said Ruth’s Chris CEO Cheryl Henry. “It is our hope that these funds are loaned to another company to protect their employees.”

It’s likely that Ruth’s Chris won’t be the last company to return their cash, nor Kura Sushi or Sweetgreen chain restaurants, which also announced paybacks. Treasury and SBA issued new guidance on limits for loan approvals under PPP with the new tranche of cash. They also emphasized that the guidance will likely be applied retroactively, and so this would be a very good time for some larger firms to rethink their previous grants:

The guidance states that borrowers “must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

“For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. … Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.”

In other words … nice business ya got there, shame if something happened to it. They have two weeks to pony up the cash so that it can go to actual small businesses, which hopefully will not have gone under permanently in the meantime.

By the way, has anyone noticed a bit of a pattern in exploitation? It seems to be focused on the restaurant and hospitality industries, and there’s a reason for that. The Washington Post reports that they heavily lobbied Congress to treat franchises as separate businesses, even if the company itself is publicly traded.  That lobbying clearly paid off:

But after intensive lobbying by the restaurant and hotel industries during the weeks leading to the passage of the $2 trillion Cares Act stimulus package, Congress allowed separate subsidiaries and locations to apply as businesses, even if they were part of a national or international chain.

More than 80 publicly traded companies in an array of industries — including owners of large hotel chains, restaurant chains, energy firms and manufacturers — received PPP money, SEC records show. Some of the companies are worth hundreds of millions of dollars based on their share values, and many of them pay executives seven-figure compensation packages. Others have boosted their share prices in recent years through share buybacks and dividend payments.

The worst offender might be Ashford Hospitality Trust, which got over $30 million from PPP. That name might not be familiar, but the brands on hotel franchises it owns certainly will be: Ritz Carlton (in Atlanta), Marriott and Hilton properties, and so on.

Blame these operators for lobbying to claw money away from their smaller competitors and then to suck the PPP fund dry immediately afterward, but the real blame belongs to Congress. They have behaved shamelessly and selfishly throughout this entire crisis, and still are refusing to stand their posts in a national emergency. Instead, they’re letting the foxes loose in the henhouses as long as they themselves get a few eggs along the way.