On April 9, 2020, the Federal Reserve released term sheets for two Main Street Lending Programs with a combined size of up to $600 billion to assist small and medium sized businesses impacted by the COVID-19 pandemic. The Main Street Expanded Loan Facility (MSELF) applies to upsized tranches of existing loans originated prior to April 8, 2020. The Main Street New Loan Facility (MSNLF) applies to eligible loans originated on or after April 8, 2020. While these loan facilities are separate from the disaster loans available through the United States Small Business Administration and the Payroll Protection Program (PPP) established under the CARES Act, businesses that have taken advantage of the PPP loans may also take advantage of one of the Main Street Lending Programs. However, a borrower may only participate in one of the following: (i) MSELF, (ii) MSNLF or (iii) the Federal Reserve’s Primary Market Corporate Credit Facility.
The Federal Reserve is working out final operational details of MSELF and MSNLF. The Department of Treasury will make a $75 billion investment in a SPV in connection with the Main Street Lending Programs. The SPV will purchase a 95% participation in each Loan, and the originating lender will retain 5% of each Loan. Such
participations will be purchased until September 30, 2020, unless the Main Str
eet Lending Programs are extended. The Federal Reserve will continue to fund the SPV until the underlying assets mature or are sold. MSELF and MSNLF are substantially similar to each other and are summarized below.
Lenders:
Loans under the two Main Street Lending Programs are obtained from eligible private lenders, which include U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies.
Eligible Borrowers:
Eligible borrowers are businesses with 10,000 employees or less or with up to $2.5 billion in annual revenues for 2019. Such businesses must be organized under the laws of the United States and the majority of operations and employees for such business must be located in the U.S. It is currently unclear whether an eligible borrower is required to have employees to be eligible for the Main Street Lending Programs. Companies that are considering borrowing money under the Main Street Lending Programs should also scrutinize their other agreements, including loan documents, to ensure that borrowing under one of the Main Street Lending Programs
does not require any consents from a lender or other counterparty or cause any defaults under any loan documents or other agreements.
Loan Features:
- Four year maturity;
- Amortization of principal and interest are deferred for one year;
- Adjustable rate of interest = secured overnight financing rate plus 250 to 400 basis points;
- Prepayments permitted without penalty;
- Loan size:
- Minimum loan amount of $1 million;
- Maximum loan amount for MSELF: least of (i) $150 million, (ii) 30% of a borrower’s existing outstanding and committed but undrawn bank debt or (iii) an amount that, when added to a borrower’s existing outstanding and committed but undrawn debt, does not exceed six times such borrower’s 2019 EBITDA;
- Maximum loan amount for MSNLF: lesser of (i) $25 million or (ii) an amount that, when added to a borrower’s existing outstanding and committed but undrawn debt, does not exceed four times such borrower’s 2019 EBITDA.
Fees:
- Facility Fee for MSNLF: Lenders will pay the SPV a facility fee of 100 basis points of the principal amount of the loan participation purchased by the SPV. This fee can be passed on to a borrower.
- Origination and Servicing Fees for MSELF and MSNLF: Borrowers will pay the Lender an origination fee of 100 basis points of the principal amount of the Loan (or the upsized tranche in the case of MSELF loans). SPV will pay Lender 25 basis points of the principal amount of its participation in the Loan (or upsized tranche in the case of MSELF loans) per annum for loan servicing.
Borrower’s Required Attestations:
To obtain MSELF or MSNLF, a borrower must attest to the following, among other things:
- Such borrower requires financing due to exigent circumstances caused by the COVID-19 pandemic. Using the proceeds of the upsized tranche or the loan, as the case may be, the borrower will make reasonable efforts to maintain its payroll and retain its employees during the term of the upsized tranche or the loan;
- Such borrower meets the applicable EBITDA leverage condition set forth above;
- Such borrower certifies it is not a business more than 20% directly or indirectly owned by certain governmental officials (including the President, senior executive branch officials or members of Congress) or certain of their immediate family members;
- Such borrower will follow compensation, stock repurchase and capital distribution restrictions under Section 4003(c)(3)(A)(ii) of the CARES Act, which includes certain limitations regarding employee and officer compensation, and for the term of the loan and during one year after the loan is no longer outstanding, the borrower agrees to (a) not purchase any listed equity security of itself or any parent company (unless it had a pre-existing contractual obligation to do so prior to the loan) or (b) not pay dividends or other capital distributions with respect to common stock;
- The upsized tranche or the loan shall not be used to repay or refinance pre-existing loans or lines of credit with the lender, or other loan balances. The borrower must also undertake to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, until the borrower has paid the MSELF or MSNLF loan in full; and
- Such borrower must not cancel or reduce any of its outstanding lines of credit.
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If you have any questions or would like additional information, please contact Melanie Chieu (
mchieu@egsllp.com
, 646-895-7171) or the primary EGS attorney with whom you work.
