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Hotels turn to Fed for emergency loans as coronavirus slams industry

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Yahoo Finance’s Brian Cheung joins Zack Guzman to discus how the coronavirus is impacting the hotel industry.

Video Transcript

ZACK GUZMAN: Right now we're digging more into the potential saving grace that could be there in the Fed's Main Street Lending Program. A lot of sectors lining up now to see what they can do with that money. Of course, the Paycheck Protection Program helped out a lot of companies in the hotel space. But now they're thinking about what else in terms of relief could be out there. And now they're turning to the Fed.

For more on that, I want to get the update from Brian Cheung, who has the latest. Brian.

BRIAN CHEUNG: Well, Zack, as we know, the Federal Reserve's Main Street Lending Program hopes to throw a lifeline to businesses that are larger than those that had access to the Paycheck Protection Program. But we actually haven't seen it started up yet. But regardless, there are still a number of large companies that have expressed interest, one of them being Wyndham Hotels.

If you're familiar with Days Inn or Super 8 motels, that's the company that owns those properties. And they operate under a franchise structure, which means that they might not be necessarily seeking an emergency loan at the corporate level. But franchisees across the board could be looking for help, as about 80% of those that applied for PPP loans that are franchisees under Wyndham have already gotten PPP money. Which means that if this extends longer with occupancy rates going down by almost 80% in some cases there's concern about where they'll get that money.

And the Federal Reserve is now one of those lifelines that they can get that funding from. So the Wyndham actually disclosing on an earnings call yesterday that they were interested in that program. You also have a number of other types of companies, like Dave & Buster's and The Cheesecake Factory actually amending their current credit facilities to actually make the room for taking on a loan if they decide to do so at some point down the line. So a lot of companies, even before the Fed setting this up, saying they're interested in those loans.

ZACK GUZMAN: Yeah, I mean, this is obviously something a lot of companies are interested in right now for those who might not, as you said, have qualified for the Paycheck Protection Program. But I know that you've been constantly monitoring what the Fed's thinking is when we think about weighing what's to come down the next couple of months here. Particularly not just hotel companies, but also oil companies weighing what help might be out there for them. What's the latest on that front in the Fed's thinking in which companies they're actually ready to help?

BRIAN CHEUNG: Yeah, we actually had the chance to speak with Dallas Fed president, Robert Kaplan, about two hours ago. And he was saying he might. He's down in Dallas, so he watches those oil companies pretty closely. Obviously, negative WTI crude oil prices have crushed these companies on the margins. So he said that, yes, the Main Street lending facility will offer some liquidity to some of those companies, but only those that are not highly leveraged or those that are currently insolvent.

So he says he expects to see bankruptcies and restructuring. He said it's going to have to be the case because of the pressures from the oil shock, really, over the past few weeks. So he said a lot of companies might not make it. But for those that can meet lending tests under the Main Street lending facility when it does go live, he said, those companies might be able to get a lifeline.

ZACK GUZMAN: All right, Brian Cheung bringing us the latest there. Appreciate that.