Moving Forward… What the Main Street Lending Program Means to Your Business

In mid-April, the Federal Reserve announced that it would provide economic assistance to small and medium-sized businesses under the new Main Street Lending Program (the “Program”). The Program will provide access to credit to certain eligible small and medium-sized businesses that were in sound financial condition prior to the onset of the novel coronavirus pandemic so that these businesses will be able to maintain operations and retain employees until economic conditions normalize. Businesses that received Paycheck Protection Program loans under the CARES Act may borrow under the Program provided such businesses meet the requirements of the Program.

At present, under the Program, the Federal Reserve plans to fund up to $600 billion in participations in qualifying loans through multiple loan facilities. To accomplish this, the Department of the Treasury and the Federal Reserve Bank of Boston will capitalize a special purpose vehicle that will in turn purchase 85% or 95% participations in eligible loans made to eligible borrowers. The originating lenders will maintain a 5% to 15% interest in the eligible loans.

As of the date of this client alert, the Federal Reserve has not officially launched the Program, however, the Federal Reserve has released certain information concerning borrower eligibility, lender eligibility, and the general terms and conditions of the various loan facilities, among other information. The final details and terms of the Program remain in flux. The Federal Reserve most recently updated the terms of the Program on April 30, 2020.

Currently, the Program will establish three new loan facilities: (i) the Main Street New Loan Facility (the “MSNLF”); (ii) the Main Street Priority Loan Facility (the “MSPLF”); and (iii) the Main Street Expanded Loan Facility (the “MSELF”).  Lenders may originate new loans under the MSNLF and MSPLF or increase the amount of existing credit facilities under the MSELF.

The loan facilities provide for secured or unsecured loans with 4-year maturities, deferred principal and interest payments for one year (with unpaid interest capitalized), an interest rate of LIBOR (1 or 3 month) plus 300 basis points, prepayment of the loans without penalty, no full or partial forgiveness of the loans, and minimum loan amounts of $500,000 (except for the MSELF, which has a $10 million minimum loan amount). In addition, the Program provides for maximum loan amounts of the lesser of $25 million or a calculated amount tied to the borrower’s 2019 EBITDA (except for the MSELF, which has a maximum loan amount of the lesser of $200 million, 35% of the borrower’s outstanding and undrawn available debt that is pari passu in priority to the loan and equivalent in secured status, or a calculated amount tied to the borrower’s 2019 EBITDA). All loans will fully amortize within the 4-year term of the loan.

Only eligible borrowers may apply for loans under the Program.  A borrower is considered eligible to apply for a loan under the Program if:

  1. The borrower was established prior to March 13, 2020;
  2. The borrower is not an ineligible business as defined in 13 CFR 120.110(b)-(j) and (m)-(s) (ineligible borrowers include but are not limited to non-profit businesses, passive businesses owned by developers and landlords, businesses located in a foreign country, businesses engaged in illegal activities, and financial businesses primarily engaged in lending such as banks, financing companies, and factors);
  3. The borrower has (a) no more than 15,000 employees, or (b) 2019 annual revenue of no more than $5 billion;
  4. The borrower was formed under U.S. law and has significant operations, and a majority of its employees based, in the U.S.;
  5. The borrower participates only in one of the three loan facilities under the Program and the borrower does not also have an outstanding Primary Market Corporate Credit Facility (a separate facility established by the Federal Reserve to provide access to credit to large employers for new bond and loan issuances so that those large employers can continue operations and retain employees during the coronavirus pandemic);
  6. The borrower did not receive specific support under Section 4003(b)(1)-(3) of the CARES Act (i.e., airline industry businesses, cargo air carrier businesses and national security related businesses); and
  7. The borrower can satisfy all the certifications and covenants required under the Program.

Below are links to Frequently Asked Questions and the current Term Sheets for each of the three facilities as published by the Federal Reserve.

This client alert is intended for informational purposes only and is a non-exhaustive overview of the Main Street Lending Program. It should not be relied upon as legal advice. Please consult with your SMDK attorney to provide you with advice specific to your situation.