Client Alert

Main Street Lending Program: Federal Reserve, Treasury Department Take Action to Combat COVID-19

April 13, 2020

Federal Reserve 1200
Image Source – Shutterstock

Pursuant to its mandate from Congress to promote maximum employment, stable prices and market stability, the Federal Reserve announced on April 9, 2020, that it is taking measures to provide up to $2.3 trillion to further assist households and employers of all sizes during the COVID-19 pandemic.

The actions taken by the Federal Reserve, in part, create the Main Street Lending Program (the “MSLP”), which is authorized to purchase, via a newly-created single purpose vehicle (“SPV”), up to $600 billion in MSLP loans from the program’s two separate lending facilities: the Main Street New Loan Facility (the “MSNLF”) and the Main Street Expanded Loan Facility (the “MSELF”). The MSNLF is designed for new loan facilities, and the MSELF is designed for the expansion of existing credit facilities, in each case by “Eligible Lenders” to “Eligible Borrowers.”  The Treasury Department will also provide $75 billion to the MSLP using funding from the CARES Act.

Because the Federal Reserve and Treasury Department are seeking input from lenders, borrowers and other stakeholders on the MSLP until April 16, 2020, the terms of the MSNLF and MSELF loans are subject to change in the coming days.  The Federal Reserve stated on Friday, April 10, 2020, that the date upon which the MSLP will go into effect is likely “two to three weeks away.”

[expandsub1 title=”Main Street New Loan Facility“]An MSNLF loan is an unsecured term loan made by an Eligible Lender to an Eligible Borrower that was originated on or after April 8, 2020, and has the following terms:

  • Eligible Lenders: U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies.
  • Eligible Borrowers: businesses that meet each of the following:
    • were organized in the U.S. (or under the laws of the U.S.);
    • do not have more than 10,000 “workers” or had less than $2.5 billion in 2019 annual revenues; and
    • have significant operations in, and a majority of its employees based, in the U.S.
  • Loan Term: four (4) years.
  • Minimum Loan Amount: $1,000,000.
  • Maximum Loan Amount: The lesser of:
    • $25,000,000; and
    • an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four (4) times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization.
  • Interest Rate: adjustable rate of the secured overnight financing rate (“SOFR”) plus 250 – 400 basis points.
  • Principal and Interest Payments: deferred for one (1) year.
  • Borrower’s Fees:
    • an Eligible Lender will pay the SPV an MSNLF fee of 1.0% of the principal amount of the loan participation purchased by the SPV. The Eligible Lender may require the Eligible Borrower to pay all or a portion of this fee.
    • an Eligible Borrower will pay an Eligible Lender an origination fee of 1.0% of the principal amount of the MSNLF Loan.
  • Prepayment: no penalty.
  • Restrictions: borrowers must follow compensation, stock repurchase and dividend restrictions that apply to direct loan programs under the CARES Act.
  • Compatibility with Other Lending Programs:
    • borrowers that have been issued loans under the Paycheck Protection Program (“PPP Loans”) may also receive an MSNLF loan.
    • borrowers that participate in the MSNLF may not participate in the MSELF or the Primary Market Corporate Credit Facility.
  • Borrower Attestations: an Eligible Borrower must:
    • attest that the MSNLF loan will not be used to repay or refinance pre-existing loans or lines of credit made to it by the Eligible Lender;
    • commit to refrain from using the MSNLF loan to repay other loan balances;
    • commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless it has first repaid the MSNLF loan in full;
    • attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender;
    • attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the MSNLF loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the MSNLF loan;
    • attest that it meets the EBITDA leverage condition described above specifying required features of an MSNLF loan;
    • attest 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; and
    • certify that the entity is eligible to participate in the MSNLF, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
  • Duration of MSNLF: September 30, 2020, unless extended by the Federal Reserve or the Treasury Department.

[expandsub2 title=”Main Street Expanded Loan Facility“]An MSELF loan is a term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated before April 8, 2020, and is designed to enable Eligible Borrowers to expand their existing credit facilities with Eligible Lenders.  The SPV will purchase ninety-five percent (95%) participations in the upsized tranche of MSELF loans from Eligible Lenders who will retain five percent (5%) of the upsized tranche of each MSELF loan.  Eligible MSELF loans have the following terms:

  • Eligible Lenders: U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies.
  • Eligible Borrowers: businesses that meet each of the following:
    • were organized in the U.S. (or under the laws of the U.S.);
    • do not have more than 10,000 “workers” or had less than $2.5 billion in 2019 annual revenues; and
    • have significant operations in and a majority of its employees based in the U.S.
  • Loan Term: four (4) years.
  • Minimum Loan Amount: $1,000,000.
  • Maximum Loan Amount: the lesser of:
    • $150,000,000;
    • thirty percent (30%) of the borrower’s existing outstanding and committed but undrawn bank debt, and
    • an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six (6) times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization.
  • Interest Rate: SOFR plus 250 – 400 basis points.
  • Principal and Interest Payments: deferred for one (1) year.
  • Borrower’s Fees:
    • an Eligible Borrower will pay an Eligible Lender a fee of 1.0% of the principal amount of the upsized tranche of the MSELF loan at the time of upsizing.
  • Prepayment: no penalty.
  • Compatibility with Other Lending Programs:
    • borrowers that have been issued a PPP loan may also receive an MSELF loan.
    • borrowers may not participate in the MSNLF or the Primary Market Corporate Credit Facility.
  • Borrower Attestations: an Eligible Borrower must:
    • attest that the proceeds of the upsized tranche of the MSELF loan will not be used to repay or refinance pre-existing loans or lines of credit made to it by the Eligible Lender, including the pre-existing portion of the MSELF loan;
    • commit to refrain from using the proceeds of the upsized tranche of the MSELF loan to repay other loan balances;
    • commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the MSELF loan in full;
    • attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower;
    • attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender;
    • attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the upsized tranche of the MSELF loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the upsized tranche of the MSELF loan;
    • attest that it meets the EBITDA leverage condition stated above specifying required features of an MSELF loan;
    • attest 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; and
    • certify that it is eligible to participate in the MSELF.
  • Duration: September 30, 2020, unless extended by the Federal Reserve or the Treasury Department.

*             *             *             *             *

While not covered in detail in this Client Alert, the Federal Reserve’s announcement stated that its actions will also:

  • enable the Paycheck Protection Program Liquidity Facility (PPPLF) to extend credit to eligible financial institutions that originate PPP Loans, taking the loans as collateral at face value;
  • increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury Department; and
  • help state and local governments manage cash flow stresses caused by the COVID-19 pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury Department will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

*             *             *             *             *

This situation is continuing to evolve.  Fox Swibel will continue to monitor developments and stands ready to advise clients in connection with financing available to businesses and non-profits.  If you have questions about qualifying for or applying for emergency funding, please contact David Morris or the Fox Swibel attorney with whom you regularly work.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances.  Under applicable rules of professional conduct, this content may be regarded as attorney advertising.

Scroll to Top