A data storage company under pressure from lawmakers to return a loan it received from the federal Paycheck Protection Program, which the government created to help small businesses hurt by the coronavirus, says it is keeping the money.
Quantum, one of five public companies asked by a House panel last week to return their funding “immediately,” told CBS MoneyWatch that it plans to respond to the letter from the Select Subcommittee on the Coronavirus but does not plan to give back the loan. Another company singled out by the panel, MiMedx, announced late Friday that it would return its PPP loan a few hours after receiving the House lawmakers’ letter.
The subcommittee set a deadline of Monday for the companies to say they were returning the loans they received from the small business relief fund. If not, the subcommittee said the companies would have to explain in writing why they are eligible for the program, as well as produce related documents, by May 15.
The Paycheck program provides low-interest, government-backed loans aimed at businesses with 500 or fewer employees. The loans do not have to be repaid if businesses retain their workers and use 75% of the proceeds on payroll. The subcommittee’s actions follow widespread outrage over the fact that hundreds of public companies have tapped the emergency relief fund. Many small businesses say they remain unable to get aid from the program.
“Quantum will be responding and looks forward to engaging with the committee,” the company said through a spokesperson. “Quantum believes it owes a duty to its American employees who would lose their jobs if Quantum returned its PPP loan to demonstrate why Quantum not only falls within the technical eligibility requirements of the PPP loan program, but also falls squarely within the spirit of what was intended by the [Coronavirus Aid, Relief and Economic Security Act].”
All five of the companies targeted by the Select Subcommittee received $10 million from the Paycheck Protection Program. In its letter to Quantum, the panel said the intent of the CARES Act was to “provide an invaluable lifeline for small businesses that otherwise might be forced to lay off employees or shut down entirely.”
The letter also noted that Quantum had 800 employees and the ability to raise funds from existing investors. “We ask that you return the funds immediately,” the letter said, which was signed by seven House Democrats including the subcommittee’s chair, Representative Jim Clyburn of South Carolina.
The $10 million loan to Quantum was highlighted by CBS MoneyWatch in an April article on larger companies getting loans from the small business relief fund. As of Monday, Quantum had a market capitalization of $173 million. The company had 2019 sales of $418 million and an operating profit of just over $19 million. A message on the company’s website said Quantum is open for business and that “employees are expected to work remotely.”
Quantum’s largest shareholder is B. Riley Capital Management, a $500 million investment fund that specializes in buyouts and that recently owned just over 21% of the storage company’s shares. In late April, Craig Ellis, an analyst at an investment bank affiliated with B. Riley, B. Riley FBR, issued a “buy” rating on Quantum shares. Ellis said he expected the company’s operating profits to rise nearly 30% over the next 12 months.