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Ashford Group Of Companies Returns Controversial PPP Funding, Blames Inconsistent Fed Rules

After a period of intense media and public scrutiny, Ashford Inc. and its hotel affiliates — Ashford Hospitality Trust and Braemer Hotels & Resorts — announced plans this weekend to return all funds collected under the Small Business Administration's Paycheck Protection Program.

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The Dallas-based hotel company, its affiliates and the founder of the hotel network, Monty Bennett, faced weeks of criticism and threats of congressional investigation after the firm and affiliates collected roughly $59M in loans from the PPP program.

PPP was designed by Congress to help firms cover payroll and other critical expenses during the coronavirus crisis. Initial high level guidance said the program was for companies with less than 500 employees, and said the loans would be capped at $10M. The program and some recipients received significant criticism when news reports showed larger corporations received funds while small businesses struggled to gain entry into the program. 

Ashford received the most PPP funding of any recipient thus far, and that, and the company's overall size — it owns 128 hotels and earned more than $2B in revenue last year — drew criticism that it was misusing the program. It has long contended the program was meant to include the suffering hotel industry, and said in a statement that allegations the firm used loopholes to access funds are false. 

The DFW-based firm said it did nothing wrong in securing the funds and blames inconsistent federal guidelines for creating confusion among borrowers. 

Ashford said in a press statement that federal officials kept changing how the PPP program treats single-business entities and firms with multiple affiliates and locations in their networks. The company also claims the PPP was originally designed to create SBA exceptions to certain rules to ensure firms with multiple hotels facing the threat of collapse could obtain loans for their properties. 

The government has issued guidance saying individual hotels and restaurants can be eligible for PPP loans if the physical location has less than 500 employees and has a separate employer identification number, even if the overall company tops 500 workers. Ashford said under this guidance, it acted in good faith when it applied for separate PPP loans for its hotels. As other larger companies like Shake Shack voluntarily returned their funds when the program ran out of money, Ashford resisted.

On April 30, federal agencies issued a note saying, "in light of the previous lapse of PPP appropriations and the high demand for PPP loans, businesses that are part of a single corporate group shall in no event receive more than $20M of PPP loans in the aggregate."

On May 2, Ashford said it would return all funding it received from the program, but it said it did not act unfairly by using the program when it was allowed.

Ashford said in its statement that the firm had "no intention of crowding out any business from gaining equal access to the PPP funds, and could not have known that congressional appropriations for the program would be insufficient to cover the needs of all other businesses in the nation that have suffered similar harm."

The company also defended itself against news reports saying larger companies have more access to capital and thus shouldn't have applied for PPP loans even when it was legally permissible.

"Ashford companies do not have 'substantial market value' compared to the majority of other publicly traded companies or even Ashford’s own market values before the government shutdown actions," it wrote. "We also now have limited access to the capital markets across our companies."

Government officials previously indicated that any borrower who returns PPP funds by May 7 will receive a safe harbor from liability, according to Law.com.  Ashford said it intends to return all PPP funds by the deadline date. 

Despite its decision to return the funds, Ashford says its network of hotels remains under financial stress and some type of federal intervention is required for the hotel industry to remain viable going forward. 

The Dallas-Fort Worth hotel community, where Ashford Hospitality Trust is based, faces extreme hardship with revenue per available room, falling 75% year-over-year to less than $20 during the week ending April 18, according to data from STR

And as of mid-April, Ashford Hospitality Trust, a publicly traded REIT, is no longer compliant with New York Stock Exchange listing criteria as the firm's share price has fallen below $1, the company said in a statement. The REIT has six months to become compliant with NYSE listing standards before being delisted. 

This is not the only public controversy the hotel network faced in the wake of the coronavirus shutdown. 

Ashford Hospitality Trust said in an April Securities and Exchange Commission filing that its lender, Brookfield Asset Management, sent a litigation threat to the company, raising questions over a transfer of funds from one of the trust's subsidiaries to the controlling company. A letter found online from Brookfield's representatives to Ashford Hospitality Trust shows the lender questioned a transfer of funds from the Ashford subsidiary to the holding company, particularly since the transfer occurred around the time the subsidiary defaulted on its debt payment to Brookfield.