Paycheck Protection Program (PPP) is a loan program established by US federal government in 2020 to help certain businesses and organizations impacted by COVID-19 to retain their workforce on payroll. These loans are low interest bearing and borrowers could apply for loan forgiveness if certain criterions were met.
Given the above nature of this liability, if a PPP Loan is explicitly cited on a private company's financial statement ie. as a Balance Sheet line-item, we will classify this loan as 'Other Equity' instead of 'Debt'.
Several ratios that RapidRatings utilizes to generate an FHR includes Debt, Liabilities, and Equity line items. These ratios will be impacted. Primarily, the reclassification will lower the Debt leverage (as measured by Total Debt to Total Assets) of the Rated entity. The impact on overall FHR of this adjustment, will vary from company to company and is result of a Rated Entity's operational and resiliency performance.
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