On April 30th, 2020, the Federal Reserve Board announced it is expanding the scope and eligibility for the Main Street Lending Program previously announced on April 9th. As part of its broad effort to support the economy, the Federal Reserve developed the Main Street Lending Program to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic. When the initial terms of the Program were announced, the Board indicated that, because the financial needs of businesses vary widely, it was seeking feedback from the public on potential refinements. More than 2,200 letters from individuals, businesses, and nonprofits were received. In response to the public input, the Board decided to expand the loan options available to businesses and increased the maximum size of businesses that are eligible for support under the Program. The changes include:

  • Creating a third loan option, with increased risk sharing by lenders for borrowers with greater leverage;
  • Lowering the minimum loan size for certain loans to $500,000; and
  • Expanding the pool of businesses eligible to borrow

Additionally, businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible, compared to the initial program terms, which were for companies with up to 10,000 employees and $2.5 billion in revenue. The minimum loan size for two of the options was also lowered to $500,000 from $1 million. With these changes, the Program will now offer more options to a wider set of eligible small and medium-sized businesses. The combined size of government funding for the Program will be up to $600 billion.

Like the Paycheck Protection Program (PPP) and the Primary Market Corporate Credit Facility (PMCCF), the Main Street Facilities were created to assist companies that have been adversely affected by the COVID-19 pandemic. Each of these programs, however, was developed to provide liquidity to companies of different sizes:

  • PPP – The PPP was established by the CARES Act and implemented by the Small Business Administration (SBA) to support the payroll and operations of small businesses through the issuance of government-guaranteed loans that include a forgiveness feature for borrowers that satisfy the requirements of the PPP.
  • Main Street Loan Program – The Federal Reserve designed Main Street to support small and medium-sized businesses that were unable to access the PPP or that require additional financial support after receiving a PPP loan. Main Street loans are not forgivable.
  • PMCCF – The Federal Reserve established the PMCCF to support large companies through the purchase of eligible corporate bonds from, and lending through syndicated loans to, large companies. PMCCF loans are not forgivable.

Below is a comparison of the three types of Main Street Loan Facilities:

Main Street New Loan Facility (MSNLF)Main Street Priority Loan Facility (MSPLF)Main Street Expanded Loan Facility (MSELF)
Who are the lenders?
Eligible Lenders can be any of:

  • A U.S. federally insured depository institution (including a bank, savings association, or credit union)
  • A U.S. branch or agency of a foreign bank
  • A U.S. bank holding company
  • A U.S. savings and loan holding company
  • A U.S. intermediate holding company of a foreign banking organization, or a U.S. subsidiary of any of the foregoing
  • Who is an eligible borrower?
    An Eligible Borrower is a Business that:

  • Was established prior to March 13, 2020, and
  • Meets at least one of the following two conditions: (i) has 15,000 employees or fewer, or (ii) had 2019 annual revenues of $5 billion or less
  • Is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States, and
  • Does not also participate in more than one of the MSNLF, the MSPLF, the MSELF, or the PMCCF, and
  • Has not received specific support pursuant to the CARES Act of 2020. For the avoidance of doubt, Businesses that have received PPP loans are permitted to borrow under the Main Street Loan Facility
  • What is the definition of a Business?
  • For the purposes of the Facility, a Business is an entity that is organized for profit as a partnership; a limited liability company; a corporation; an association; a trust; a cooperative; a joint venture with no more than 49 percent participation by foreign business entities; or a tribal business concern as defined in 15 U.S.C. § 657a(b)(2)(C)
  • Other forms of organizations may be considered for inclusion as a Business under the Facility at the discretion of the Federal Reserve
  • Ineligible Businesses include Businesses listed in 13 CFR 120.110(b)-(j), (m)-(s) (see Note 4 below), as modified and clarified by SBA regulations for purposes of the PPP on or before April 24, 2020. Such modifications and clarifications include the SBA’s recent interim final rules. The Federal Reserve may further modify the application of these restrictions to Main Street.
  • What are the terms of the loans?
  • New secured or unsecured loan
  • Originated after April 24, 2020
  • 4-year maturity
  • Adjustable interest rate of LIBOR (1 or 3 month) plus 300 basis points (LIBOR plus 3 %)
  • An origination fee of up to 100 basis points (1%) of the principal amount of the Eligible Loan at the time of origination
  • Upsizing existing secured or unsecured term loan or revolving credit facility
  • Originated on or before April 24, 2020, and that has a remaining maturity of at least 18 months (taking into account any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing), provided that the upsized tranche of the loan is a term loan that has all of the following features:
  • 4-year maturity
  • Adjustable interest rate of LIBOR (1 or 3 month) plus 300 basis points (LIBOR plus 3 %)
  • An origination fee of up to 75 basis points (0.75%) of the principal amount of the upsized tranche of the Eligible Loan at the time of upsizing
  • Principal and interest payments deferred for one year (unpaid interest will be capitalized)
  • Prepayment permitted without penalty
  • If the Eligible Borrower had other loans outstanding with the Eligible Lender as of December 31, 2019, such loans must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date
  • Eligible Lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of the potential borrower’s application
  • Minimum loan size of $500,000
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”) – see Note 1 below
  • Principal amortization of one-third at the end of the second year, one-third at the end of the third year, and one-third at maturity at the end of the fourth year
  • The Eligible Loan must not be, at the time of origination or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments. This means that an MSNLF Loan may not be junior in priority in bankruptcy to the Eligible Borrower’s other unsecured loans or debt instruments. However, there is otherwise no prohibition against the MSNLF loan being actually or structurally subordinated to senior debt, or for that matter, any requirement that the loan be secured at all
  • Minimum loan size of $500,000
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”) – see Note 1 below
  • Principal amortization of 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity at the end of the fourth year
  • At the time of origination and at all times thereafter, the Eligible Loan must be senior to or pari passu (i.e. on the same terms) with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt
  • Eligible Borrowers may, at the time of origination of the loan, refinance existing debt owed by the Eligible Borrower to a lender that is not the Eligible Lender
  • Minimum loan size of $10 million
  • Maximum loan size that is the lesser of (i) $200 million, (ii) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that is pari passu (i.e. on the same terms) in priority with the Eligible Loan and equivalent in secured status (i.e., secured or unsecured), or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”);”) – see Note 1 below
  • Principal amortization of 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity at the end of the fourth year
  • At the time of upsizing and at all times the upsized tranche is outstanding, the upsized tranche is senior to or pari passu (i.e. on the same terms) with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt
  • What are the additional terms and restrictions?
  • Each Eligible Borrower that participates in the Facility should make commercially reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding
  • The Eligible Borrower must commit to refrain from repaying the principal balance of, or paying any interest on, any debt until the Eligible Loan or upsized tranche of the Eligible Loan is repaid in full, unless the debt or interest payment is mandatory and due
  • The Eligible Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender
  • The Eligible Borrower must certify that it has a reasonable basis to believe that, as of the date of origination of the Eligible Loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period
  • The Eligible Borrower must commit that it will follow compensation, stock repurchase, 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), except that an S corporation or other tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings
  • The Eligible Borrower must certify that it is eligible to participate in the Facility, including the conflicts of interest prohibition in section 4019(b) of the CARES Act (see Note 3 below)
  • How are these loans funded?
    The Federal Reserve Bank of Boston 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
  • The SPV will purchase, at par value, a 95% participation in the Eligible Loan
  • The SPV and the Eligible Lender will share risk in the Eligible Loan on a pari passu basis (i.e. on the same terms)
  • The Eligible Lender must retain its 5% of the Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first
  • The SPV will purchase, at par value, a 85% participation in the Eligible Loan
  • The SPV and the Eligible Lender will share risk in the Eligible Loan on a pari passu basis (i.e. on the same terms)
  • The Eligible Lender must retain its 15% of the Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first
  • The SPV will purchase at par value a 95% participation in the upsized tranche of the Eligible Loan, provided that it is upsized on or after April 24, 2020
  • The SPV and the Eligible Lender will share risk in the upsized tranche on a pari passu basis (i.e. on the same terms)
  • The Eligible Lender must be one of the lenders that holds an interest in the underlying Eligible Loan at the date of upsizing
  • The Eligible Lender must also retain its interest in the underlying Eligible Loan until the underlying Eligible Loan matures, the upsized tranche of the Eligible Loan matures, or the SPV sells all of its 95% participation, whichever comes first
  • Any collateral securing the Eligible Loan (at the time of upsizing or on any subsequent date) must secure the upsized tranche on a pro rata basis
  • The sale of a participation in the Eligible Loan to the SPV will be structured as a “true sale” and must be completed expeditiously after the Eligible Loan’s origination
  • The SPV will cease purchasing participations in Eligible Loans on September 30, 2020, unless the Board and the Department of the Treasury extend the Facility
  • The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold
  • How do these affect other government back loans I received or have applied for?
  • Borrowers may only participate in one of the Main Street facilities (MSNLF, MSPLF, or MSELF) and may not also participate in the PMCCF
  • However, borrowers who have applied for or received a PPP loan are eligible for one of the MSNLF, MSPLF or MSELF
  • Is there a loan forgiveness program?
    No
    When can I apply?
    Federal Reserve is currently working to create the infrastructure necessary to operationalize the program. More information will be posted here as it becomes available regarding Program terms and how Eligible Lenders can sell Eligible Loan participations to the SPV. Once the program is operational, small and medium-sized businesses interested in the program should seek to apply for Program loans from an eligible lender.
    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
  • Notes:

    1. Under the MSNLF and MSPLF, the methodology used by the Eligible Lender to calculate adjusted 2019 EBITDA must be the methodology it has previously used for adjusting EBITDA when extending credit to the Eligible Borrower or similarly situated borrowers on or before April 24, 2020. Under the MSELF, the methodology used by the Eligible Lender to calculate adjusted 2019 EBITDA must be the methodology it previously used for adjusting EBITDA when originating or amending the Eligible Loan on or before April 24, 2020.
    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
    4. Ineligible Businesses include:
      1. Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors (pawn shops, although engaged in lending, may qualify in some circumstances);
      2. Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies under § 120.111);
      3. Life insurance companies;
      4. Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify);
      5. Pyramid sale distribution plans;
      6. Businesses deriving more than one-third of gross annual revenue from legal gambling activities;
      7. Businesses engaged in any illegal activity;
      8. Private clubs and businesses which limit the number of memberships for reasons other than capacity;
      9. Government-owned entities (except for businesses owned or controlled by a Native American tribe);
      10. Loan packagers earning more than one-third of their gross annual revenue from packaging SBA loans;
      11. Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude;
      12. Businesses in which the Lender or CDC, or any of its Associates owns an equity interest;
      13. Businesses which:
        1. Present live performances of a prurient sexual nature; or
        2. Derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature;
      14. Unless waived by SBA for good cause, businesses that have previously defaulted on a Federal loan or Federally assisted financing, resulting in the Federal government or any of its agencies or Departments sustaining a loss in any of its programs, and businesses owned or controlled by an applicant or any of its Associates which previously owned, operated, or controlled a business which defaulted on a Federal loan (or guaranteed a loan which was defaulted) and caused the Federal government or any of its agencies or Departments to sustain a loss in any of its programs. For purposes of this section, a compromise agreement shall also be considered a loss;
      15. Businesses primarily engaged in political or lobbying activities;
      16. Speculative businesses (such as oil wildcatting).

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