Bill relaunches last Congress’s Employee Equity Investment Act under Commerce Department
Senators Chris Van Hollen (D-MD) (press release) and Jerry Moran (R-KS) and U.S. Representatives Blake Moore (R-UT) and Lori Trahan (D-MA) have introduced the American Ownership and Resilience Act (Senate and House bill PDFs), a relaunch of the Employee Equity Investment Act of 2023 (EEIA) introduced in the last Congress. The legislation is cosponsored in the Senate by Senators Tammy Baldwin (D-WI), Todd Young (R-IN), Jeanne Shaheen (D-NH), Eric Schmitt (R-MO), and Peter Welch (D-VT). In the House, it is cosponsored by Representatives Dusty Johnson (R-SD) (press release) and Bill Foster (D-IL). It has not yet been assigned a bill number.
The bill would create an investment facility within the Commerce Department to create a public-private partnership that works like existing Small Business Investment Company (SBIC) loans but focusing on employee ownership. The program would provide federal backing for Employee Equity Investment Companies (EEICs). EEICs would raise their own funds but would receive federal loan guarantees to provide debt at more reasonable costs and/or equity infusions into transactions in which an ESOP or eligible worker coop ends up with a majority interest in the company (or where the ESOP already owns that much and the company seeks growth capital). The debt would normally be subordinate to other lenders. EEICs would pay fees into the program and, like the regular SBIC program, would operate at a zero-subsidy cost to the federal government. EEICs would be funded by a similar mechanism as existing SBICs, where the SBA issues unsecured debt instruments called debentures based on loans the SBICs make. These are pooled and sold as securities as an SBA-guaranteed bond with a fixed interest rate at a standard premium over Treasury notes. The legislation lays out detailed capital and other requirements for EEICs to qualify.
The proposal seeks to address the problem faced by many potential sellers to an ESOP: to sell much or all of the company, they almost always have to take part of the payment in the form of a note. While many sellers are willing to do that, many others want or need more money up front. To do that with an ESOP, they would have to find very costly junior debt, and even that is available only for larger deals. That means many sellers just end up selling to a non-ESOP buyer.