In mid-April 2020, as Covid cratered the U.S. economy, coal producer Ramaco Resources of Lexington, Ky., turned to taxpayers for help. A company filing shows it received $8.44 million under the Paycheck Protection Program, one of the larger such loans provided in that government assistance effort authorized under the CARES Act legislation.
PPP loans were aimed at companies that didn't have access to other funding, such as money potentially available in stock or bond markets or from well-heeled backers. Ramaco appeared to have both: Its shares are publicly traded on Nasdaq and it has backing from two prosperous private-equity firms, Yorktown Partners of New York City and Energy Capital Partners of Summit, N.J. Together, the firms hold 57 percent of Ramaco's stock, its most recent proxy filing shows.
During spring 2020, the federal government moved quickly to provide financial aid to individuals and businesses hammered by Covid-related shutdowns. Passed by Congress in late March 2020, CARES Act programs dispensed some $2 trillion in direct payments and loans. Targeted business recipients included hard-hit airlines, health-care providers, hospitality concerns and Mom-and-Pop companies with no other access to funding.
Tracking where all this money went is a challenge. But a comprehensive new report on CARES Act funding estimates that companies like Ramaco, backed by wealthy investment firms in the private-equity industry, received at least $5 billion. At the time these companies received the government funding, their large private-equity owners, a group of more than 100 firms that includes Energy Capital Partners, Apollo Global Management and Ares Management Corp., held $900 billion in uninvested cash, the report says.
Some $1.2 billion of PPP and Economic Injury Disaster Loan pandemic relief money, earmarked for small businesses, went to companies backed by these large and well-funded private-equity firms, according to the data analysis by the left-leaning nonprofit Americans for Financial Reform in partnership with the Anti-Corruption Data Collective and Public Citizen.
Some private-equity-backed companies that took federal CARES Act funding are now yielding significant profits for their investors. In March, DuPage Medical Group, a physician practice company in Chicago, paid its investors a $209 million dividend after receiving $80 million in non-PPP funding from taxpayers last year. And a recent sale of LifePoint Health, an Apollo-backed hospital system that netted more than $500 million in non-PPP funding, generated $1.6 billion in profits to Apollo and its investors.
The PPP program was designed to help companies pay their employees, and the low-interest loans could be forgiven in full if borrowers met certain conditions, such as using 60 percent of the money for payroll. About 11.5 million different loans worth nearly $800 billion were distributed, and as of Sunday, the Small Business Administration said it had forgiven $530 billion, or "67 percent of the total PPP loan value, in full or in part."
When PPP was first introduced at the start of the pandemic, there was no restriction on borrowing by companies that had access to other capital. After an outcry over big firms getting loans, on April 23, 2020, the Treasury Department said "PPP borrowers should consider their ability to access alternative sources of liquidity sufficient to support their ongoing operations" when certifying their need for a loan.
Compliance with that guideline, however, was effectively an honor system. Treasury and the Small Business Administration asked firms that had already received loans to review their applications and make sure they had met that bar and if not, repay the money by May 7, 2020. Ramaco got its loan on April 20 and didn't give the money back. Its loan was forgiven in July.
Much of the non-PPP CARES Act money had few such restrictions about access to alternative funding. And since so much of the assistance was targeted at health-care firms, an industry in which private equity has significant investments, it is not surprising that a good deal of taxpayer money found its way into the coffers of companies backed by firms with very deep pockets.
Still, as these well-funded entities tapped federal money, they may have crowded out needier enterprises, said Patrick Woodall, research director at Americans for Financial Reform.
"Private-equity titans are emblematic of a well-funded investor class who should be able to support their own companies in a crisis," said Woodall. "Their companies went with willing hands to take money from public support that could have gone to firms with less access to credit and greater need."
Rep. Bill Pascrell Jr., the New Jersey Democrat who heads the Oversight Subcommittee of the House Ways and Means Committee, agrees. "There may be no individuals who need government aid less than private equity leaders," he said in a statement. "Many private-equity heads make their living buying up companies, looting assets, firing workers, and skipping town. As chairman of the Oversight Subcommittee, we have repeatedly demonstrated the unfairness of this system."
When Ramaco applied for its PPP loan, the company said it had 381 employees; Ramaco said in a regulatory filing that it used the proceeds for "eligible payroll expenses, lease, interest and utility payments."
By Dec. 2020, Ramaco employed 340 people, including top executives, a regulatory filing shows. Three of those executives received compensation worth a combined $6.35 million last year, equal to 75 percent of the taxpayer money Ramaco received.
Ramaco's general counsel declined to comment on the record about the loan or the executive pay. Energy Capital Partners and Yorktown Partners did not respond to requests for comment.
Ramaco generated losses in 2020 but has returned to profitability this year. Its stock has more than tripled.
In recent years, private-equity firms have taken over broad swaths of American industry — health care, retailing and energy to name just a few. Using large amounts of debt to finance their acquisitions, private-equity firms acquire companies, aim to increase their profits, and then try to resell them a few years later for more than they paid. Outside investors, such as public pension funds and endowments, commit big money to these deals in the hopes of generating high returns.
Many executives managing these firms have seen their wealth balloon during the pandemic. Leon Black, co-founder and former head of Apollo, is worth almost $10 billion this year, Forbes says, up from $8.7 billion last year. Black recently took early retirement from Apollo after the company determined he had paid Jeffrey Epstein, the deceased sex offender, $158 million for financial and tax advice. Black said he retired for health reasons.
While the executives heading private-equity firms have benefitted greatly from their operations, there are costs for workers and other stakeholders in these debt-fueled takeovers, academic research shows. They include a greater likelihood of bankruptcy — one study showed such failures occurred at 10 times the rate of other companies. Reduced levels of employment at companies bought by private-equity firms also follow those acquisitions, another study found.
In addition, because private-equity firms have relatively short time horizons for their investments, some are more likely to keep alive environmentally risky operations that other companies shun. In recent years, as investor criticism has prompted some public companies to dump fossil fuel assets, private-equity firms have been ready buyers.
Energy Capital Partners and Yorktown Partners bought into coalminer Ramaco in 2016 and oversaw its public offering of stock later that year as the coal-friendly Trump administration was coming to power.
A 2021 regulatory filing by Ramaco shows its operations received 126 citations under the Mine Safety and Health Act of 1977 last year for alleged violations of mandatory health or safety standards that "could significantly and substantially contribute to a coal mine health and safety hazard." Ramaco faced $276,000 in assessments under those citations, the company's filing said, noting that "violations, orders and citations can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed."
Ramaco declined to provide further information or comment on these citations.
The American Investment Council is a major lobbying group for the private-equity industry, and it contends that private equity improves society. The industry "is having an overwhelmingly positive impact in every state across the country and is fueling America's economic recovery," said Drew Maloney, the Council's chief executive. "Throughout the Covid-19 pandemic, private-equity investment has helped thousands of small businesses stay open, millions of workers stay employed, and medical innovation move forward."
In addition, the Council's spokeswoman said the AFR report is wrong to consider that the billions of dollars in uninvested cash held by private-equity firms — known as "dry powder" — is available to shore up troubled companies. Private equity's "investment capital largely comes from pension funds and college endowments," the spokeswoman said. "Dry powder is simply retiree pension and college endowment money that has not been invested yet."
Early in the Covid crisis, some private-equity firms sought help from the government for their operations. Executives from Apollo, which had $455 billion in assets at the end of last year, were among those arguing in March 2020 that the economic fallout from the shutdowns could be disastrous and that federal assistance was needed.
One Apollo holding is LifePoint Health, a hospital system with some 80 facilities in small towns across the country. LifePoint received over $1.4 billion in loans and other federal payments via the CARES Act during 2020, documents and the new report show.
Federal aid to LifePoint consisted of $5.3 million covering Covid testing for uninsured patients, $557 million in Provider Relief funds from the Health Resources and Services Administration and $884 million in advanced payments under Medicare that are supposed to be repaid, AFR said. LifePoint has fully repaid the Medicare advances it received, a spokeswoman said, adding that grant money went to LifePoint's operations to offset $1.1 billion in expenses and lost revenue due to COVID.
The spokeswoman provided a statement saying the federal assistance "allowed us to continue operating our business, keeping the doors open for health-care providers in more than 80 communities across the country and protecting the jobs of nearly 55,000 employees, many of whom are on the frontlines fighting this pandemic, which continues to strain our hospitals and caregivers as the Delta variant surges."
After LifePoint received those taxpayer funds, Apollo recorded a $1.6 billion gain on its majority stake in the company this year when it sold the holding in an unusual transaction.
An Apollo investment fund launched in 2013 held the LifePoint stake; in July it sold the stake at a profit to another Apollo fund created in 2017, Bloomberg News reported. Transactions involving related buyers and sellers often raise questions about whether the agreed-upon prices were fair.
An Apollo spokeswoman declined to comment. Earlier this year, the spokeswoman told Bloomberg News that the firm's existing investors, independent advisers and new investors worked together to "reach a fair and attractive transaction for both funds."
Investors in another private-equity-backed company also reaped returns after it received CARES Act help in 2020, the AFR report noted. DuPage Medical Group, a large physician's practice company in Chicago, is owned by funds managed by private-equity firm Ares Management Corp., and a physician group. DuPage did not get a PPP loan, but received a total of almost $80 million under the Department of Health and Human Services Provider Relief Fund and Medicare Advance Payments, the report said.
In March, DuPage refinanced some loans and distributed $209 million to investors.
An analyst at Moody's Investors Service, a credit ratings agency, said in a contemporaneous report that the transaction "points to the aggressive nature of DuPage's financial policies," and characterized it as a negative factor for the company's credit outlook.
A DuPage spokeswoman said the refinancing was "a result of positive market conditions and an improved performance outlook," and that the deal "enabled us to further strengthen our balance sheet and reduce our interest expense."
An Ares spokesman said in a statement, "During the Covid-19 pandemic, the Department of Health and Human Services made funds available for all health-care companies as they sought to protect their patients and caregivers while they continued to provide health care to their communities. DuPage participated in this HHS program by receiving a loan and a grant and the company has fully complied with the intended purpose for the funding." DuPage is repaying the required amounts, he added.
Because private-equity firms are secretive and their ownership stakes often hard to track, Woodall, the author of the report, said the analysis probably missed a lot of taxpayer funding that went to such companies.
"This is a snapshot and an estimate," he said, "that demonstrate private-equity backed companies were able to access public support when many companies were really, really struggling."