Some of the firms that those direct government programs miss — think the Gap, Dell Technologies and Kraft Heinz — are household names with huge work forces. If such companies were to run into problems gaining access to cash, it could precipitate job cuts, the researchers said.
But there is a reason that the business relief programs have avoided directly betting on more debt-laden big companies. Including shakier businesses in the Main Street facilities or the corporate bond program would increase the risk that companies would fail to pay the Fed and the Treasury back, ramping up the chances that the lending programs would lose money and — ultimately — cost taxpayers.
Adding in risky companies could also expose the Fed and the Treasury to accusations that they bailed out companies that private equity firms had loaded with debt to maximize profits. And Democratic lawmakers have specifically warned against helping companies that were struggling heading into the crisis.
The Fed should “refrain” from using the Main Street program “to help companies paper over existing problems arising from excessive leverage, international price competition and concerns about long-term viability,” Senator Sherrod Brown, the highest-ranking Democrat on the Senate Banking Committee, wrote in a letter to the Fed chair, Jerome H. Powell, and Mr. Mnuchin on May 18.
The Fed has helped risky companies less directly. One of its corporate bond programs will buy a limited amount of junk-bond exchange traded funds, which trade like stocks but track a broad basket of corporate debt. That, and the mere signal that investment-grade bond purchases are coming, has breathed life back into choked bond markets, including for junk debt.
But the fact that a group of companies has little to no access to direct assistance — essentially leaving those firms at the mercy of market conditions — could come at a cost if things worsen again, in which case borrowing is likely to become more difficult for high-yield companies that do not actually have Fed support to back them.
“You have to be a little careful about assuming you can just do things with magic,” said Mr. Stein, the analysis co-author who is a former Fed governor. While markets might assume the central bank will step in to help the market, if they don’t when push comes to shove, conditions could deteriorate sharply.