WOODLAND HILLS, CA – JANUARY 23: A resident walks past a tiny home made by artist Alex Gano on . Thursday, January 23, 2020 in Woodland Hills. Julien, 28, who has been homeless for three years and living along the Ventura Boulevard corridor from Studio City to Woodland Hills, says he feels less homeless and warmer at night in his new home. The house has become controversial in the neighborhood. (Photo by Sarah Reingewirtz/MediaNews Group/Pasadena Star-News via Getty Images)
The world’s response to COVID-19 is throwing people out of work — over 26 million had filed for unemployment as of April 23, according to the New York Times.
The $349 billion Paycheck Protection Program (PPP) was supposed to go to small businesses to pay their employees for a bit over two months — and the loans will be forgiven if at least 75% of the loan — which sports a 1% fixed interest rate — is used to cover payroll costs, according to the Treasury Department.
Not all PPP recipients were small businesses. 103 publicly-traded companies received more than $380 million in PPP loans, according to the Wall Street Journal.
And among the 40 public companies t hat received the largest PPP loans, reported by MarketWatch, is Legacy Housing Corporation which earned a whopping 17% net profit margin — $28.8 million in net income to $169 million in revenue — in the last twelve months.
Not only is it highly profitable — but it employs far more than the 500 people that the Treasury Department designated as the limit for the PPP loans. According to its latest 10K, Legacy had about 800 people on its payroll at the end of 2019.
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Legacy’s PPP loan was for $6.5 million at a 1% per annum interest rate, according to an SEC filing. Until November 10, Legacy does not have to make payments and the loan can be forgiven as long as the company uses the proceeds “for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations.”
According to a statement from Legacy’s president and CEO, Kenny Shipley, “We sought PPP funds for very simple reasons — we wanted to ensure our operations would continue to provide affordable housing, to maintain our payroll, and to keep our employees. Prior to being approved by SBA and receiving PPP funds, we had undertaken a series of layoffs, lowered the prices of our products, and decreased salaries across the company. However, in light of recent guidance from the SBA, we have made the difficult decision to return the funds.”
Legacy — whose stock trades 44% below its December 2019 high of $16.76 — enjoyed 4.4% revenue growth for 2019 while net income rose 24%, according to a March 30 earnings press release.
Legacy took pleasure from its 2019 results. As Curtis D. Hodgson, Executive Chairman of the Board, said, “2019 was the best revenue year in Legacy’s history. We were particularly pleased we ended the year, which is typically a slower part of our sales cycle, with a lot of momentum, growing our fourth quarter revenue by approximately 24% from the same period in 2018 and our net income by a robust 147% compared to the fourth quarter of 2018.”
COVID-19 is hurting Legacy’s business and the company is responding with price discounts and some cost cutting. We are “offering discounts for the sale of aged inventory sitting direct lenders for installment loans on dealer and company-owned store lots. and new units, and reducing down payment requirements for certain manufactured home community operators,” he said.
Legacy has “suspended most overtime and modified rates of pay for non-production workers” and “slightly reduced” production labor in “anticipation of reduced demand in the immediate future,” said Hodgson.
Yet Legacy — whose homes range from 390 to 2,667 square feet and are priced between $22,000 and $140,000 — expects things to recover. “Our order book is still strong and we are well-positioned once the situation begins to normalize,” he concluded.
Along with its PPP loan, Legacy was also able to get a big increase in its bank line. On April 1, Legacy Housing boosted its line of credit by 56% to $70 million, according to SeekingAlpha, at a lower interest rate to one-month LIBOR plus 2% .
Legacy is pleased with the deal. CFO Cornelius “Cork” Van Den Handel said, “The new agreement will provide the company with operational liquidity at extremely competitive rates, and provides room for the continued growth of our business and financial flexibility.”