March 26, 2020

Senate Passes Updated Economic Relief Plan (CARES Act) for Individuals and Businesses

March 25, 2020

Garrett Watson

Taylor LaJoie

Huaqun Li

Daniel Bunn

Last updated March 25 at 11:34pm

Key Updates

Unemployment insurance provisions now include an additional $600 per week payment to each recipient for up to four months, and extend UI benefits to self-employed workers, independent contractors, and those with limited work history. The federal government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend UI benefits for an additional 13 weeks through December 31, 2020 after state UI benefits end.
The proposed recovery rebates will use 2019 tax returns (2018 if the taxpayer has not filed in 2019) to determine the advanced rebate amount and reconcile the rebate based on 2020 income. This means that taxpayers who receive a smaller rebate than they are eligible for based on 2020 income will receive the difference after filing a 2020 tax return, but overpayments of rebates due to a higher income in 2020 will not be clawed back.
Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis. The credit would be available to employers whose businesses were disrupted due to virus shutdowns and those that had a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees.
Certain employer payments of student loans on behalf of employees are excluded from taxable income. Employers may contribute up to $5,250 annually toward student loans, and the payments would be excluded from an employee’s income.

On Wednesday evening, the Senate passed an updated version of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The bill builds upon earlier versions of the CARES Act and is intended to be a third round of federal government support in the wake of the coronavirus public health crisis and associated economic fallout, succeeding the $8.3 billion in public health support passed two weeks ago and the Families First Coronavirus Response Act. It is the product of negotiations between Democrats and Republicans for a bipartisan response to the crisis.

The CARES Act builds on the two former pieces of legislation by providing more robust support to both individuals and businesses, including changes to tax policy. The bill includes:

Expanded unemployment insurance (UI) for workers, including a $600 per week increase in benefits for up to four months and federal funding of UI benefits provided to those not usually eligible for UI, such as the self-employed, independent contractors, and those with limited work history. The federal government is incentivizing states to repeal any “waiting week” provisions that prevent unemployed workers from getting benefits as soon as they are laid off by fully funding the first week of UI for states that suspend such waiting periods. Additionally, the federal government will fund an additional 13 weeks of unemployment benefits through December 31, 2020 after workers have run out of state unemployment benefits.
$350 billion allocated for the Paycheck Protection Program, which is meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30. Notably, small businesses may take out loans up to $10 million—limited to a formula tied to payroll costs—and can cover employees making up to $100,000 per year. Loans may be forgiven if a firm uses the loan for payroll, interest payments on mortgages, rent, and utilities and would be reduced proportionally by any reduction in employees retained compared to the prior year and a 25 percent or greater reduction in employee compensation.
Recovery Rebate for individual taxpayers. The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). Additionally, taxpayers with children will receive a flat $500 for each child. The rebates would not be counted as taxable income for recipients, as the rebate is a credit against tax liability and is refundable for taxpayers with no tax liability to offset. The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children (see Chart 1). 2019 or 2018 tax returns will be used to calculate the rebate advanced to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive it in the 2020 tax season. Taxpayers with higher incomes in 2020 will see the overpayment associated with their rebate forgiven. For example, a single taxpayer with $100,000 in 2019 income would not receive an advance rebate but would receive the $1,200 credit on their 2020 return if their income for the year fell below the phaseout. On the other hand, a single taxpayer with $35,000 in income receives a $1,200 advance rebate but would not have to pay the rebate back on the 2020 return if they make $100,000 this year. This is structurally similar to the 2008 rebate design. We estimate the rebate will decrease federal revenue by about $301 billion in 2020, according to the Tax Foundation General Equilibrium Model. This credit is one-time, but policymakers may consider additional rebates if the downturn is prolonged.

We estimate that the rebates would increase taxpayer after-tax income by about 2.59 percent, ranging from 16.33 percent at the lowest quintile and dropping to 1.89 percent for the 80^th to 90^th percentiles. The rebate is structured progressively but is not available to those who have not filed taxes. These non-filers tend to have lower incomes. Additionally, Social Security Administration benefit information may be used for low-income taxpayers solely relying on Social Security benefits.

We estimate that nearly all filers below the 80^th percentile will receive a rebate, but only 0.1 percent of filers above the 99^th percentile will receive a rebate due to the rebate phaseouts. The average rebate will be about $1,523, ranging from $1,436 for the 0 to 20^th percentiles to $45 for the 95^th to 99^th percentiles.

Table 1. Conventional Distributional Effect of the Proposed Recovery Rebates (Revised) in the CARES Act
Income level	Percent Change in After-Tax Income	Average Rebate (Refundable and Non-Refundable Credit)	Share of Filers with a Rebate
0% to 20%	16.33%	$1,436	100%
20% to 40%	6.73%	$1,579	100%
40% to 60%	4.33%	$1,642	100%
60% to 80%	3.00%	$1,865	99.9%
80% to 90%	1.89%	$1,727	98.9%
90% to 95%	0.67%	$844	62.2%
95% to 99%	0.02%	$45	8.7%
99% to 100%	0.00%	$0	0.1%
Total	2.59%	$1,523	93.6%
Source: Tax Foundation General Equilibrium Model, November 2019.

Creates a $300 partial above-the-line charitable contribution for filers taking the standard deduction and expands the limit on charitable contributions for itemizers.
Waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. Eligible retirement accounts include individual retirement accounts (IRAs), 401Ks and other qualified trusts, certain deferred compensation plans, and qualified annuities. The bill also waives required minimum distribution rules for certain retirement plans in calendar year 2020.
Certain employer payments of student loans on behalf of employees are excluded from taxable income. Employers may contribute up to $5,250 annually toward student loans, and the payments would be excluded from an employee’s income.
A variety of business tax provisions:
- Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis. It would be available to employers whose businesses were disrupted due to virus-related shutdowns and firms experiencing a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit is available for employees retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees.
- Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period.
- Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income. The bill also modifies loss limitations for non-corporate taxpayers, including rules governing excess farm losses, and makes a technical correction to the treatment of NOLs for the 2017 and 2018 tax years.
- Firms with tax credit carryforwards and previous alternative minimum tax (AMT) liability can claim larger refundable tax credits than they otherwise could.
- The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), has been expanded to 50 percent of EBITDA for 2019 and 2020. This will help businesses increase liquidity if they have debt or must take on more debt during the crisis.
- Technical corrections to the depreciation treatment of qualified improvement property (QIP).
- The excise tax applied on alcohol used to produce hand sanitizer is temporarily suspended for tax year 2020.
- Aviation excise taxes are suspended until January 1, 2021. We estimate this will reduce federal revenue by about $8 billion in 2020.
$454 billion in emergency lending to businesses, states, and cities through the U.S. Treasury’s Exchange Stabilization Fund. Additionally, this includes $25 billion in lending for airlines, $4 billion in lending for air cargo firms, and $17 billion in lending for firms deemed critical to U.S. national security. Firms taking loans must not engage in stock buybacks for the duration of the loan plus one year and must retain at least 90 percent of its employment level as of March 24, 2020. Loans also come with terms limiting employee compensation and severance pay for firms taking loans. Emergency lending will be overseen by a Congressional Oversight Commission and a Special Inspector General.
Health provisions to address the coronavirus crisis, including provisions addressing supply shortages, coverage of diagnostic testing for the virus, support for health-care providers, improving telehealth service access and flexibility, encouragement for the creation of drugs to treat the virus, strengthening related Medicare and Medicaid provisions, and providing support for educational institutions.
$150 billion in a Coronavirus Relief Fund for state and city government expenditures incurred due to dealing with the coronavirus public health emergency. The fund would be allocated by population proportions, with a minimum of $1.25 billion for each state.

The CARES Act is a positive step forward to provide economic relief to individuals and businesses facing hardship or economic ruin due to this crisis. However, several aspects of the proposal can be improved.

The recovery rebate design has improved, as both the minimum income requirement and phase-in have been eliminated. Policymakers have opted for the design used in the 2001 rebate for distributing the recovery rebates, forgiving any overpayment to taxpayers when they file their 2020 tax returns. This simplifies the design and minimizes the need to claw back rebates later.

As my colleague Jared Walczak has pointed out, state and municipal governments that have allocated funding toward addressing coronavirus concerns in their most recent budgets may not be able to use Coronavirus Relief Fund revenue for those expenditures. Policymakers should consider allowing states and municipalities more flexibility to use relief funds for coronavirus-related expenditures they planned in their budgets to date.

The business provisions improve a firm’s ability to remain liquid and survive through the crisis, but more could be done given the scale of the challenge. In addition to providing NOL carrybacks for five years and suspending the net income limitation, policymakers could permit firms to accelerate the NOL deductions they currently hold, ensuring firms that did not make large profits in previous years also benefit. Additionally, the net interest limitation could be suspended entirely for this tax year.

Some of the tax provisions in the bill, such as the partial above-the-line deduction for charitable contributions, are not tailored to addressing the public health crisis or economic downturn and should be reconsidered. This will keep the bill narrowly focused on addressing the problem at hand and separate long-term legislative decisions from emergency measures needed to provide short-term economic relief.

We are optimistic that policymakers can build on this bill to ensure individuals and businesses can weather the storm and rebound effectively when the crisis abates.

Congress Approves Economic Relief Plan for Individuals and Businesses

March 25, 2020

Critical Infrastructure Lobbying

More Than 100 Industry Groups Urge President, And Elected Officials At All Levels To Uniformly Apply Department of Homeland Security Critical Infrastructure Definition

News provided by

American Chemistry Council

Mar 25, 2020, 11:02 ET

WASHINGTON, March 25, 2020 /PRNewswire/ — The American Chemistry Council (ACC) today joined more than 100 other business and trade associations representing a wide swath of the business community in pressing the White House, Governors, Mayors, and other elected officials to come together with uniform practices and policies by adopting the definition of “critical infrastructure” as defined by the Department of Homeland Security (DHS). In addition to ACC, the letter was signed by groups including, the American Cleaning Institute; the American Petroleum Institute; the Biotechnology Innovation Organization; the Consumer Brands Association; and the National Association of Manufacturers, as well as many others. DHS has made clear that the chemical manufacturing sector and its workers are identified as Essential Critical Infrastructure. The DHS guidance also explicitly states that those supporting the chemical and industrial gas supply chain, including those working in distribution, transportation, packaging, and maintenance are included, in addition to anyone supplying the production of protective cleaning and medical solutions, and personal protective equipment.

The letter urges: 1) national coordination; 2) prevention of artificial barriers to the safe shipment of goods; and, 3) freedom for a healthy workforce to get to and from manufacturing facilities and retailers during all necessary hours of operation.

The role of chemistry is particularly important today. Chemicals enable countless products that will be needed to support life-saving medical care, including personal protective gear for front line health workers; chemical biocides and disinfectants that are the active ingredients in cleaning products that eliminate bacteria and viruses on a personal, household and industrial scale: and plastic products and packaging that help prevent contamination of food, medicine, personal care and medical products while helping prevent person-to-person transmission of disease-causing microorganisms.

As state and local governments make their decisions regarding COVID-19 we fully expect them to rely on this DHS guidance and not place any undue restrictions that would impede chemical production, including the ability of employees to travel to work and the transportation of material to and from chemical facilities.

www.americanchemistry.com

SOURCE American Chemistry Council

More Than 100 Industry Groups Urge President, And Elected Officials At All Levels To Uniformly Apply Department of Homeland Security Critical Infrastructure Definition

News provided by

American Chemistry Council

Mar 25, 2020, 11:02 ET

WASHINGTON, March 25, 2020 /PRNewswire/ — The American Chemistry Council (ACC) today joined more than 100 other business and trade associations representing a wide swath of the business community in pressing the White House, Governors, Mayors, and other elected officials to come together with uniform practices and policies by adopting the definition of “critical infrastructure” as defined by the Department of Homeland Security (DHS). In addition to ACC, the letter was signed by groups including, the American Cleaning Institute; the American Petroleum Institute; the Biotechnology Innovation Organization; the Consumer Brands Association; and the National Association of Manufacturers, as well as many others. DHS has made clear that the chemical manufacturing sector and its workers are identified as Essential Critical Infrastructure. The DHS guidance also explicitly states that those supporting the chemical and industrial gas supply chain, including those working in distribution, transportation, packaging, and maintenance are included, in addition to anyone supplying the production of protective cleaning and medical solutions, and personal protective equipment.

The letter urges: 1) national coordination; 2) prevention of artificial barriers to the safe shipment of goods; and, 3) freedom for a healthy workforce to get to and from manufacturing facilities and retailers during all necessary hours of operation.

The role of chemistry is particularly important today. Chemicals enable countless products that will be needed to support life-saving medical care, including personal protective gear for front line health workers; chemical biocides and disinfectants that are the active ingredients in cleaning products that eliminate bacteria and viruses on a personal, household and industrial scale: and plastic products and packaging that help prevent contamination of food, medicine, personal care and medical products while helping prevent person-to-person transmission of disease-causing microorganisms.

As state and local governments make their decisions regarding COVID-19 we fully expect them to rely on this DHS guidance and not place any undue restrictions that would impede chemical production, including the ability of employees to travel to work and the transportation of material to and from chemical facilities.

www.americanchemistry.com

SOURCE American Chemistry Council

Chem M&A, projects may dry up as recession deepens

Author: Al Greenwood

2020/03/24

HOUSTON (ICIS)–The combined blows of low oil prices and the coronavirus (Covid-19) pandemic will cause chemical companies to rein in investments, causing declines in mergers and acquisitions (M&A) as well as new projects.

Even before the coronavirus, commodity chemical companies were contending with weaker demand as a result of destocking, said Arun Viswanathan, chemicals equity analyst at RBC Capital Markets. He was among the speakers in a webinar, part of a series hosted by ICIS.

At the same time, markets were trying to absorb the output of all the new plants that were recently built in the US and China.

The coronavirus has compounded these challenges, and economists are forecasting a sharp decline in GDP. For the US, some predict the economy could contract by double digits in the second quarter.

A case could be made for Q2 chemical earnings to fall by 20-30% or more year on year, Viswanathan said.

FINANCIAL STRESS TEST
Such a sharp decline will test balance sheets, said Joseph Chang, global editor for ICIS Chemical Business magazine.

Investors are worried about liquidity and solvency, even for investment-grade companies, Chang said.

So far, most of the chemical companies in the US and Europe have been conservative about leverage, which refers to a ratio of a company’s debt to its earnings before interest, tax, depreciation and amortisation (EBITDA).

ICIS recently conducted a review of 13 publicly traded US companies and found that about 82% of their long-term debt comes due in 2023 and beyond.

Major US chemical companies have generally done a good job of pushing debt maturities out, Chang said.

A new corporate-debt programme from the US Federal Reserve should provide more relief to chemical companies, although it is available only to companies with investment-grade ratings, Chang said.

To relieve pressure on earnings, companies could tap into revolving loans, Viswanathan said.

Another option is dividend reduction. Although some midstream companies have lowered them, chemical producers have made no indications that they could cut their dividends.

CAPEX REDUCTIONS
Companies could postpone or cancel chemical expansion plans, Viswanathan said.

Methanex is reviewing its earlier plans to build a new methanol plant in Geismar, Louisiana.

Chang said more such reviews could take place, especially if companies have yet to make final investment decisions (FIDs) on projects.

In the US, the basis for a lot of these projects was the region’s cost advantage.

US producers rely overwhelmingly on ethane and other natural gas liquids (NGLs) as feedstock, while much of the world relies on oil-based naphtha.

The advent of shale gas and shale oil increased supplies of NGLs in the US, lowering their costs versus producers that relied on naphtha.

The sharp decline in oil prices has reduced – if not eliminated – that cost advantage in the US.

Spot margins for high-density polyethylene (HDPE) in the US are below those in Europe and close to those in Asia, Chang said. “It’s going to be much harder to justify these kinds of billion-dollar investments.”

Many of the new proposed chemical plants are being pursued by oil producers, who want to rely less heavily on crude, Chang said.

Oil companies are under even more pressure to lower capital expenditures, so that could lead to more chemical project delays and cancellations.

Chevron is reducing its 2020 capital spending plan by $4bn-16bn. Those cuts include $800m in its downstream and chemical operations.

M&A OUTLOOK
Similarly, any expectations that oil producers could acquire downstream chemical producers have dried up, said Daniel Fletcher-Manuel, head of financial markets development, ICIS.

Viswanathan added that chemical companies have already gone through a phase of deal-making. Dow and DuPont merged and then separated into three companies focuses on materials, agriculture and specialty chemicals. Sherwin-Williams acquired Valspar, and consolidation took place among producers of titanium dioxide (TiO2).

Still, there were some companies conducting strategic reviews. Viswanathan expects that any actions based on these reviews could be delayed by three to six months.

“I do think that M&A will take a little bit of a breather for a couple of quarters,” Viswanathan said.

Chang said the decline in stock prices for chemical companies could complicate any deals. Those drops could increase the gap between what buyers are willing to bid on a company and what sellers are willing to accept.

SOME CHEM SECTORS ARE LESS BAD
The outlook is still gloomy, but some parts of the chemical industry are in better positions than others.

Among specialty chemicals, companies that make herbicides, pesticides and other agrochemicals have a rosier outlook because they provide essential goods, said Viswanathan.

Plastics should also perform relatively well because of their essential role, he said.

For paints and coatings producers, the decline in oil prices should lower their feedstock costs, Viswanathan said. However, these companies will contend with lower demand from the construction and automobile sectors.

Chemical companies reliant on the automobile industry could suffer more because of the plant shutdowns in that sector, he said.

Industrial production was already weak, and it could fall further because of the coronavirus.

Companies that are focused on producing commodities could see Q2 earnings fall by 30-40% year on year, Viswanathan said. Special chemical producers and companies reliant on oil-based feedstock could see Q2 declines of 5-10%.

He expects more stock analysts will lower their earnings estimates in the days and weeks ahead.

CHEMICALS HAVE KEY ROLE TO PLAY
Chemical companies will play a critical role in preventing the spread of the coronavirus, said Dean Curtis, group managing director for ICIS.

In Europe, ICIS has noted rising demand for clear sheets made of polycarbonate (PC) and polymethyl methacrylate (PMMA), Curtis said. These are being used to make protective screens for cashiers in supermarkets and other retail stores.

The rise in demand for sanitsers and hygiene products is trickling down to ethanol and ispropanol (IPA), he said.

“As most of the world protects and isolates during Covid we are seeing changes to demand, some positive and some negative,” Curtis said.

“Economic stimulus will play its part, based on the link of chemical demand to spending power,” he said. “But the industry is resilient, it innovates and I have shared just a few examples of our ability to be agile and adjust – and more importantly to do the right things for society and the industry itself.”

Curtis added: “There are many examples where our industry, like humankind has come together and stepped up and pivoted to support our fight against Covid-19.” he.

The ICIS webinar series will continue at 1500 hours GMT on Wednesday with one focused on packaging.

Tuesday’s webinar recording is available here.

Sign up here for industry updates on “Making sense of market events: Coronavirus and oil price slumps”. Join the other webinars here.

Visit the ICIS coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

By Al Greenwood

https://www.icis.com/explore/resources/news/2020/03/24/10485995/insight-chem-m-amp-a-projects-may-dry-up-as-recession-deepens

March 24, 2020

Chemical M&A Outlook