In addition to the SBA’s Payment Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), on April 9, 2020, the Federal Reserve announced that it was going to provide up to $2.3 trillion in loans to support the economy through various programs, including the Main Street Lending Program (“MSLP”). The MSLP will support credit flow to small and mid-sized businesses by providing support to businesses that were in good financial standing prior to the COVID-19 crisis. This is a new loan program authorized by the CARES Act. We will continue to update this summary as more information becomes available.
The MSLP will operate through two facilities: the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). MSNLF will provide new unsecured loans up to $25 million and the MSELF will provide new tranches to existing loans of up to $150 million using existing collateral. Under both the MSNLF and MSELF, a Federal Reserve Bank will commit to lend to a single common special purpose vehicle (“SPV”) on a recourse basis. The SPV will purchase 95% participations in Eligible Loans. There are no forgiveness provisions. Term sheets for each facility providing more information regarding eligibility and conditions can be found here
The Federal Reserve is currently working to create the MSLP infrastructure. 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 MSLP is operational, small and medium-sized businesses interested in the MSLP may apply for MSNLF or MSELF loans through an eligible lender.
To take advantage of the MSLP, you should contact your lender now to discuss your company’s financial position, potential funding needs, and existing debt structure, so you will be in position to submit your application when it is released. You should also review with your lender and advisors the terms of your existing credit facilities for any covenants that may restrict your participation, including limitations imposed on incurring additional debt
a. The Main Street New Loan Facility (MSNLF)
The Main Street New Loan Facility (“MSNLF”) for unsecured term loans originated on or after April 8, 2020 in principal amounts up to $25 million.
Eligible Lenders: Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. Eligible Lenders will retain 5% of each Eligible Loan.
Eligible Borrowers: Eligible Borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each Eligible Borrower must be a business that 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. Eligible Borrowers that participate in the Facility may not also participate in the MSELF or the Primary Market Corporate Credit Facility.
Minimum loan, $1 million. Maximum loan size is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
The SPV will purchase a 95% participation in an Eligible Loan at par value, and the Eligible Lender will retain 5% of the Eligible Loan. The SPV and the Eligible Lender will share risk on a pari passu basis
iii. Loan Terms
- 4-year maturity;
- Amortization of principal and interest deferred for one year.
iv. Interest Rate
Adjustable interest rate of Secured Overnight Financing Rate (SOFR) plus 250-400 basis points.
New loans will be unsecured.
The total fee can be up to 200 basis points of the principle amount to the borrower. There are two fees:
- Facility Fee: The lender is required to pay a facility fee of 100 basis points of 95 percent of the principal amount, which the lender may pass through to the borrower
- Loan Origination and Servicing: The borrower is required to pay an origination fee of 100 basis points of the principal amount of the loan.
- Lenders. Lenders will receive a Servicing Fee of 25 basis points of the principal amount from the Federal Reserve.
vii. How to Apply for MSNLF
Borrowers will apply through eligible lenders. The application and procedures have not yet been established We will update this summary, once the regulations are released.
The Borrower must attest, in part, that:
- Proceeds will not be used to repay other loan balances;
- The borrower will refrain from repaying other debt of equal or lower priority with the exception of mandatory principal payments;
- The borrower will not seek to cancel or reduce existing lines of credit;
- The borrower requires financing due to the exigent circumstances presented by COVID-19; and
- The borrower will “make reasonable efforts to maintain its payroll and retain its employees” during the loan term.
The Borrower must agree during the loan and for a period of 12 months from the date such loan is no longer outstanding:
- Not to buy back any equity securities of the borrower or any parent company that are listed on any national securities exchange (other than to the extent required under a contractual obligation in effect prior to the enactment of the CARES Act);
- Not to pay any dividend or make any other capital distribution;
- To freeze total compensation to any officers or employees exceeding $425,000 to 2019 amounts; and
- To limit total compensation to any officers or employees exceeding $3 million to the sum of (i) $3 million and (ii) 50% of the excess over $3 million received by the officer or employee in 2019).
ix. Affiliate Rules
There has been no indication to date that the SBA affiliation rules will apply to the Main Street Lending Programs.
b. Main Street Expanded Loan Facility (MSELF)
The Main Street Expanded Loan Facility (MSELF) provides funding for an upsized tranche of an existing term loan that was originated before April 8, 2020 for Eligible Borrowers. The upsized tranche must have a minimum loan size of $1 million and a maximum loan size that is the lesser of (a) $150 million, (b) 30% of the Borrower’s existing outstanding and committed but undrawn bank debt, or (c) an amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt, does not exceed 6 times EBITDA. Any collateral securing an Eligible Loan, whether such collateral was pledged under the original terms of the Eligible Loan or at the time of upsizing, will secure the loan participation on a pro rata basis. The primary differences with the MSNLF relate to maximum amount and the collateral. The other terms and restrictions discussed above for the MSNLF also apply to the MSELF program.
For more information on the Main Street Lending Programs or other COVID-19 related lending programs like the Paycheck Protection Program (PPP) and the SBA Economic Injury Disaster Loan (EIDL) program, please see our COVID-19 Lending Resource Page.
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