little rock
501-375-9131
Fayetteville
479-695-1330
Covid-19 News

Main Street Lending Program

On April 9, 2020, in accordance with provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Federal Reserve issued a press release announcing the establishment of a Main Street Lending Program (the “Program”) intended to facilitate additional lending to small and medium sized businesses.  Below is a summary of the Program as of April 14, 2020.

Note: The Federal Reserve is accepting comments on the Program until April 16, 2020, therefore the terms described below are subject to change.

Program Summary:
The Program consists of two loan facilities: 1) the Main Street Expanded Loan Facility (the “Expanded Facility”), and 2) the Main Street New Loan Facility (the “New Facility”).  Eligible borrowers may only participate in either the Expanded Facility or the New Facility.  Eligible lenders may either originate new loans under the New Facility, or increase the size of an existing loan to an eligible borrower under the Expanded Facility.  The main differences in the terms of the Expanded Facility and the New Facility are the collateral terms and maximum loan size, as described further below.  Note: Unlike loans provided pursuant to the previously announced Paycheck Protection Program under the CARES Act, loans provided under the Expanded Facility and New Facility are not forgivable.

Which businesses are eligible to apply?
Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues are eligible to apply.  Each business must be a business organized in the United States, with significant operations in the United States, and a majority of its employees in the United States.

Who are the eligible lenders?

  • S. insured depository institutions;
  • S. bank holding companies; and
  • S. savings and loan holding companies.

Eligible lenders will retain a 5% percent share of the new loans made under the New Facility and the upsized tranche of loans under the Expanded Facility, and sell a 95% participation to a special purpose vehicle (SPV) established by the Federal Reserve.

Which existing loans are eligible for the Expanded Facility?
Under the Expanded Facility, borrowers who meet the requirements set forth above may apply for an increase in the size of their existing loan facility.  Secured and unsecured term loans made by an eligible lender to an eligible borrower that were originated before April 8, 2020 are eligible for the Expanded Facility, provided the upsized loan meets certain requirements.  Loans originated on or after April 8, 2020 must qualify under the New Facility.

What terms are required for loans under both the Expanded Facility and the New Facility?

  1. 4 year maturity;
  2. Amortization of principal and interest deferred for one year;
  3. Adjustable rate of Secured Overnight Financing Rate (SOFR) + 250-400 basis points;
  4. Minimum loan size of $1 million; and
  5. Prepayment permitted without penalty.

Is collateral required?
Expanded Facility: Collateral is not required, but any collateral securing an existing loan that is upsized through the Expanded Facility, or new collateral pledged at the time of such upsizing, will secure the loan participation on a pro rata basis.

New Facility: Loans originated under the New Facility must be unsecured.

What is the maximum loan amount?
Expanded Facility: The maximum loan size of a loan under the Expanded Facility 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 six times the borrower’s 2019 EBITDA.

New Facility: The maximum loan size of a loan under the New Facility is the lesser of (a) $25 million, or (b) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA.

What certifications are required by the borrower?
Borrowers under the New Facility and the Expanded Facility must make the following attestations:

  • The borrower will refrain from using the proceeds of the loan 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, unless the borrower has first repaid the Program loan in full.
  • The borrower will not seek to cancel or reduce any of its outstanding lines of credit with any lender.
  • The borrower requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
  • The borrower meets the EBITDA leverage conditions for the maximum size of the loan.
  • The borrower will follow certain compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under the CARES Act.
  • The entity is eligible to participate in the Program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.[1]

What certifications are required by the lender?
Lenders under the New Facility and the Expanded Facility must make the following attestations:

  • The proceeds of the loan will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower, including the pre-existing portion of a loan upsized through the Expanded Facility.
  • The lender will not cancel or reduce any existing lines of credit outstanding to the borrower.
  • The entity is eligible to participate in the Program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.[2]

What fees are required?

  • Origination Fee from Borrower: The borrower will pay the lender an origination/upsizing fee of 100 basis points of the principal amount of the loan, or the upsized tranche of the loan, as applicable.
  • Loan Servicing Fee from SPV: The SPV will pay the lender 25 basis points of the principal amount of its participation in the loan per annum for loan servicing.
  • New Facility Fee from Lender: The lender in a New Facility loan will pay the SPV a facility fee of 100 basis points of the principal amount of the loan participation purchased by the SPV. Note: The lender may require the borrower to pay this fee.

How long is the Program available?
The SPV created by the Federal Reserve will only purchase participations in loans until September 30, 2020.  However the Federal Reserve will continue to fund the SPV after such date until the SPV’s assets mature or are sold.

May a borrower participate in both the Expanded Facility and the New Facility?
No.  A borrower may only participate in either the Expanded Facility OR the New Facility.

May a borrower participate in both the Program and receive a loan under the Paycheck Protection Program (“PPP”)?
Yes.  A business that has taken advantage of the PPP may also take out a loan under the Program.  Note that, unlike loans under the PPP, loans taken out under the Program are not forgivable.

 

[1] No economic stabilization funds may be provided to entities in which the President, the Vice President, the head of an Executive Department or a Member of Congress (or their spouse, child, daughter-in-law or son-in-law) has a “controlling interest,” defined as direct or indirect control of 20%+ by vote or value of any class of equity.

[2] See, footnote 1.

Scroll to Top