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Energy Chief Says Fed Asked to Expand Lending for Oil Firms

Saleha Mohsin and Ari Natter

(Bloomberg) -- The Trump administration asked the Federal Reserve to modify its Main Street Lending Program to include more mid-size companies in order to help oil firms cope with the plunge in crude prices, Energy Secretary Dan Brouillette said.

Treasury Secretary Steven Mnuchin “worked very closely with the Federal Reserve. We adjusted the program -- the Main Street Lending Program -- and made that program available to what we refer to as mid-cap size companies,” Brouillette said Tuesday on Bloomberg TV.

Brouillette said the president directed both him and Mnuchin “to evaluate the programs that were passed by the Congress and ensure that there is access for these energy industries to those programs. And that’s what we’ve done,” he said.

The Fed did not adjust the lending program, announced May 1, out of consideration for the oil sector, the central bank said in response to a request for comment. By law, its emergency facilities cannot target specific sectors. Because of the restrictions on debt, the Fed said it expects a good amount of oil and gas firms to be excluded from the Main Street program.

The central bank is expanding the key virus-related loan program to allow larger, more heavily indebted companies to qualify and use the money to pay off prior loans -- modifications which were sought by oil industry advocates.

The Fed’s announcement came one day after President Donald Trump said help for the oil industry would come “shortly.”

Congress’s stimulus oversight panel “should investigate these changes carefully. These Fed facilities are not supposed to direct aid specifically to certain companies or industries -- particularly not ones that were in dire financial shape even before the coronavirus crisis began,” Bharat Ramamurti, a member of the committee, said in a tweet Tuesday in response to Brouillette’s comments.

Fed questioned

When the Fed announced the decision, Ramamurti, a former top staffer for Senator Elizabeth Warren, noted how closely the Fed’s action’s mirrored requests from the oil sector.

The central bank’s expansion of the Main Street program “raises questions about how the changes promote the broader public interest -- especially when these companies will still have no real obligation to retain or rehire their workers,” he said on May 1.

He is part of a five-member panel overseeing the Treasury and Fed’s virus-related rescue efforts.

The Main Street program, which the Fed has not yet launched, offers loans for businesses with as many as 15,000 employees or as much as $5 billion in annual revenue. Expanding the program helps businesses across multiple sectors, not just oil. Analysts say that even with the changes, the Fed isn’t expected to broadly help producers find new capital as lenders back off from the sector.

It is one of the most ambitious emergency-lending facilities announced so far by the Fed to aid the U.S. as the economy shutters during the pandemic. It can buy as much as $600 billion in eligible loans from potentially hundreds of companies -- each with their own unique set of risks -- and extends coverage to more highly-indebted borrowers than initially envisioned.

(Updates with oversight member comment in seventh paragraph)

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