Summary of the Auto Industry Emergency Bridge Loan Act

Thursday, November 20, 2008

WASHINGTON Sen. Carl Levin, D-MI, co-chair of the Senate Auto Caucus, unveiled bipartisan legislation today to provide emergency bridge loan assistance to automobile manufacturers and component suppliers. Senators Kit Bond, R-MO, Debbie Stabenow, D-MI, George Voinovich, R-OH, Sherrod Brown, D-OH, Arlen Specter, R-PA, and Robert Casey, D-PA, joined Levin in proposing the legislation.

Levins statement on the bipartisan agreement and a copy of the legislation is available here. A summary of the legislation follows.

Summary of the Auto Industry Emergency Bridge Loan Act

The Auto Industry Emergency Bridge Loan Act provides the necessary short-term assistance to the U.S. auto industry as it weathers the current economic downturn. The measure provides the following:

  • $25 Billion in Bridge Loans. Directs the Secretary of Commerce to establish a program to provide up to $25 billion in direct loans to automobile manufacturers and component suppliers whose failure would have a systemic adverse effect on the overall economy.
  • Funding. Any costs of the loans would be covered by funds previously appropriated for auto industry retooling loans under Section 136 of the Energy Independence and Security Act of 2007 (P.L. 110-140). However, Section 136 is left completely intact, which means the environmental standards, including strengthened fuel economy and emissions standards, are preserved.
  • Replenishment. Loan repayments and proceeds from the sale of company stock will be used to replenish funding for Section 136.

The following robust oversight provisions are included:

  • Plan to Ensure Financial Viability. Requires loan recipients to detail how they would use the funds to ensure their long-term financial viability and improve their ability to produce energy-efficient, advanced technology vehicles. Requires cost control measures and performance goals and milestones.
  • Tough Oversight Board. Establishes Oversight Board comprised of the Secretary of Commerce, Secretary of Energy, Secretary of Transportation, Secretary of Treasury, Secretary of Labor and the Administrator of the Environmental Protection Agency. The Board will review and provide advice, and recommend changes, as necessary, for meeting the goals and milestones under the Financial Viability Plan. The Board also has authority to review significant company transactions and to give direction to the company with respect to such transactions.
  • Taxpayer Protections.
    • Warrants. Mandates the government get an equity stake in firms that get loans.
    • No Dividends. Prohibits firms who receive loans from paying dividends to common stockholders for the duration of the loan.
  • Terms of the loans. The companies will be charged 5 percent interest for the first 5 years and then 9 percent interest after that.
  • Executive Compensation Limits. Requires companies that receive the loans to place limits on executive compensation, including prohibiting golden parachutes. In addition to all of the limits placed on EESA beneficiaries, prohibits bonuses to executives whose base pay exceeds $250,000 annually.