The Main Street New Loan Facility (MSNLF) vs the Main Street Expanded Loan Facility (MSELF) – Comparison Chart

On April 9, 2020, the Federal Reserve announced additional actions to provide up to $2.3 trillion in loans to support the economy. This funding is aimed at small to medium-size businesses and state and local governments. Part of these new measures included the announcement of the Main Street Business Lending Program consisting of the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). These programs are aimed at businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. The programs do not specify a minimum number of employees that a business must employ in order to be eligible. The total size of the MSNLF and the MSELF is expected to be up to $600 billion. The MSNLF is intended for businesses that wish to take a new loan whereas the MSELF is intended for businesses that wish to increase the size of existing loans.

These facilities may be a good option for private equity or venture capital portfolio companies that may have otherwise been disqualified for the PPP program because of the SBA’s affiliation rules regarding employee headcount.

The terms of the Main Street Lending Programs are subject to further rulemaking and guidance from the Treasury and the Federal Reserve. As we receive these updates, we will update the chart below. Here is what we do know and how the two facilities differ.

Main Street New Loan Facility (MSNLF) Main Street Expanded Loan Facility (MSELF)
Who are the lenders and how is it funded?
  • Lenders will be U.S. federally insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies that qualify (Eligible Lenders).
  • The Federal Reserve will lend to a single purpose vehicle (SPV) in which the Treasury Department will make a $75 billion equity investment with funds from the CARES Act.
  • That SPV will then purchase 95% participation in eligible loans from Eligible Lenders, with those lenders retaining 5% of each loan.
  • The SPV and the Eligible Lender will share risk on a pari passu basis (i.e. on the same terms).
  • The SPV will continue to purchase participations from Eligible Lenders through September 30, 2020 and will continue to fund the SPV until its assets have either matured or have been sold.
  • Lenders will be U.S. federally insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies that qualify (Eligible Lenders).
  • The Federal Reserve will lend to a single purpose vehicle (SPV) in which the Treasury Department will make a $75 billion equity investment with funds from the CARES Act.
  • That SPV will then purchase 95% participation in eligible loans from Eligible Lenders, with those lenders retaining 5% of each loan.
  • The SPV and the Eligible Lender will share risk in the upsized tranche of the Eligible Loan on a pari passu basis (i.e. on the same terms).
  • The SPV will continue to purchase participations from Eligible Lenders through September 30, 2020 and will continue to fund the SPV until its assets have either matured or have been sold.
Who is an eligible borrower?
This program is intended for entities who originate a new loan on or after April 8th, 2020 and are:

  • Businesses and nonprofits with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. A minimum size requirement (for example, over 500 employees) has not been specified
  • Businesses must be created or organized in the United States or under the laws of the United States with significant operations in and a majority of employees based in the country. There is no limit on foreign ownership of the U.S. entity at this time.
  • The recipient cannot be a debtor in a bankruptcy proceeding
  • Recipients must have incurred or will incur losses as a result of the COVID-19 pandemic, including reduced demand, unbudgeted medical expenses and unavailability of credit
 This program is intended for entities who have a loan that originated before April 8th, 2020 but wish to increase the size of that loan and are:

  • Businesses and nonprofits with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. A minimum size requirement (for example, over 500 employees) has not been specified
  • Businesses must be created or organized in the United States or under the laws of the United States with significant operations in and a majority of employees based in the country. There is no limit on foreign ownership of the U.S. entity at this time
  • The recipient cannot be a debtor in a bankruptcy proceeding
  • Recipients must have incurred or will incur losses as a result of the COVID-19 pandemic, including reduced demand, unbudgeted medical expenses and unavailability of credit
What are the terms of the loans?
  • Unsecured
  • 4-year maturity
  • Amortization of principal and interest deferred for one year
  • Adjustable interest rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points (2.5%-4%). The SOFR has been at 0.01% (1 basis point) since 3/24/2020
  • Minimum loan size of $1 million
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the borrowers existing outstanding and committed but undrawn debt, does not exceed four times the borrowers 2019 earnings before interest, taxes, depreciation, and amortization (4 x EBITDA) – see Note 1 below
  • Prepayment permitted without penalty
  • Borrowers will pay an origination fee of 100 basis points (1%) of the principal amount of the Eligible Loan
  • If original loan is secured, the loan extension is secured on a pari passu basis with the original loan. If the original loan is unsecured, extension is unsecured.
  • 4-year maturity
  • Amortization of principal and interest deferred for one year
  • Adjustable interest rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points (2.5%-4%). The SOFR has been at 0.01% (1 basis point) since 3/24/2020
  • Minimum loan size of $1 million
  • Maximum loan size that is the lesser of (i) $150 million, (ii) 30% of the borrowers existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrowers existing outstanding and committed but undrawn debt, does not exceed six times the borrowers 2019 earnings before interest, taxes, depreciation, and amortization (6 x EBITDA) – see Note 1 below
  • Borrowers will pay a fee of 100 basis points (1%) of the principal amount of the upsized tranche of the Eligible Loan at the time of upsizing.
  • Prepayment permitted without penalty
How do these affect other government back loans I received or have applied for?
  • Borrowers that participate in the MSNLF cannot also participate in the MSELF
  • Issuers of bonds or syndicated loans under the Primary Market Corporate Credit Facility will not be eligible for the MSNLF
  • However, borrowers who have applied for or received a PPP loan are eligible for the MSNLF
  • Borrowers that participate in the MSELF cannot also participate in the MSNLF
  • Issuers of bonds or syndicated loans under the Primary Market Corporate Credit Facility will not be eligible for the MSELF
  • However, borrowers who have applied for or received a PPP loan are eligible for the MSELF
What are the additional terms and restrictions?
  • The borrower cannot use proceeds of the MSNLF to repay other loan balances
  • The borrower cannot repay other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the MSNLF in full
  • Borrower cannot seek to cancel or reduce any of its outstanding lines of credit
  • The borrower must attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic
  • Borrower must attest that, in using the proceeds of the MSNLF, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan
  • Borrower must attest that it meets the EBITDA leverage condition stated above
  • Borrower must follow the executive compensation limitations, stock repurchase restrictions, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act (see Note 2 below)
  • Both the borrower and the lender are required to certify that the borrower is eligible to participate in the facility, including conflict of interest prohibitions set forth under Section 4016 of the CARES Act (see Note 3 below)
 Same as MSNLF
Is there a loan forgiveness program?
No No
When can I apply?
The Federal Reserve has not provided guidance as to when Eligible Lenders may commence taking applications for either loans. Given that the Federal Reserve will be taking comments through April 16, 2020 and has indicated that either it or the Treasury may make adjustments to the terms and conditions of these programs, it may take several weeks before a formal application process is rolled out by Eligible Lenders. See MSNLF
How does this affect my current debt?
We recommend you review your current debt and determine whether any amendments are required to permit new debt and the subordination of payments. This will be easier to achieve if the MSNLF is taken through your current lender. As the MSELF is an upsizing of current debt, terms have to be agreed with your current lender. The lender does not have to participate in the Federal Reserve buyback program for any upsizing of your current debt.
  1. The terms described by the Federal Reserve do not address whether a borrower’s EBITDA will be determined on a basis consistent with existing credit facilities or whether the borrower would receive the benefit of non-GAAP add-backs to EBITDA in certifying as to the maximum loan amount requirement for eligible loans
  2. Until 12 months after the loan is no longer outstanding, the borrower may not:
    1. participate in stock buybacks
    2. pay dividends or other capital distributions
    3. must comply with the limitations on compensation in Section 4004 of the CARES act which limits compensation to officers and employees
  3. Certain government and political officials and their respective families cannot participate in this program

Sources:
https://www.federalreserve.gov/monetarypolicy.htm#:~:text=Monetary%20policy%20in%20the%20United,the%20Federal%20Reserve%20to%20pursue.
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200409a7.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200409a4.pdf
https://www.congress.gov/bill/116th-congress/house-bill/748/text

About the Author

Paren Knadjian, Practice LeaderParen Knadjian
Mergers & Acquisitions, Technology, PPP Forgiveness
Paren is the practice leader of the M&A and Capital Markets group at KROST. He comes with over 20 years of experience in mergers and acquisitions as well as equity and debt financings. In that time, Paren successfully completed over 200 M&A and Capital Markets transactions worth over $1 billion, acting as both a buy-side and sell-side advisor. » Full Bio