Federal Guidance Issued on Main Street Lending Program

April 11, 2020Alerts

On April 9, 2020, the Treasury Department and the Federal Reserve Board of Governors announced initial details of the Main Street New Loan Facility and Main Street Expanded Loan Facility programs. These programs will provide much needed relief to small and mid-sized businesses as part of the Coronavirus Economic Stabilization Act (CESA), which was passed in conjunction with the CARES Act.

The Main Street New Loan Facility will provide new loans to borrowers while the Main Street Expanded Loan Facility will allow borrowers to increase the size of pre-existing loans (an “expanded loan”). Importantly, this program is designed to provide much-needed relief not only to small businesses, but those businesses that have from 500 to 10,000 employees and may have been ineligible for a loan under the Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL) provisions in the CARES Act. Together, the programs will facilitate up to $600 billion in loans.

Below is a summary of the issued guidance on the two programs:

Who Qualifies?

To qualify, a business:

  • Cannot have more than 10,000 employees or more than $2.5B in 2019 annual revenue;
  • Must have been created or organized in the United States;
  • Must have significant operations, and a majority of its employees based, in the United States;
  • Cannot receive support from both the Main Street New Loan Facility and the Main Street Expanded Loan Facility;
  • Cannot receive support from the Primary Market Corporate Credit Facility; and
  • Must have been in good financial standing prior to the Coronavirus pandemic.

Notably, these loans are available even if the business received a loan under the PPP.

What are the Loan Terms for New Loans and Expanded Loans?

  • New loans must be originated on or after April 8, 2020.
  • With respect to an expanded loan, the underlying loan must have been originated before April 8, 2020.
  • Four-year maturity.
  • Amortization of principal and interest will be deferred for one year.
  • Adjustable rate of Secured Overnight Financing Rate (“SOFR”) + 250-400 basis points.
  • Loan Size:
    • Minimum: $1 million
    • Maximum
      • New Loans: 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 borrower’s 2019 EBITDA (earnings before interest, taxes, depreciation and amortization)
      • Expanded Loans (the maximum includes the underlying loan being expanded): The lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt or (iii) 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
  • Prepayment may be made without penalty.
  • New loans are unsecured, and expanded loans are secured solely to the extent the underlying loan is secured.

With respect to an expanded loan, the above terms, unless otherwise stated, apply only to the expanded portion of the loan.

What Attestations Must a Borrower Make?

A borrower must make several attestations, including, but not limited to, the following:

  • That borrower will not use the loan proceeds to repay or refinance pre-existing loans or lines of credit with the lender although mandatory principal payments may be made;
  • That borrower will not use the loan proceeds to repay other loan balances or debt of equal or lower priority (excluding mandatory principal payments);
  • That borrower will not cancel or reduce any outstanding lines of credit;
  • That borrower requires financing due to the impacts of COVID-19 and that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan; and
  • That borrower will follow the compensation, stock repurchase and capital distribution restrictions that apply pursuant to the CESA.

With respect to an expanded loan, the above attestations apply only to the expanded portion of the loan.

Lenders may charge borrower’s origination and upsizing fees of 100 basis points. Facility fees associated with new loans may also be passed on to the borrower by the lender.

Application will be made through participating insured depository institutions, bank holding companies and savings and loan holding companies. At this time, it is unclear when lending institutions will begin accepting applications for loans under either program. The Federal Reserve is currently seeking feedback on the programs through April 16. Feedback can be submitted here.

Due to the fluidity of the situation, changes may be made to the programs, including the guidelines issued on April 9, 2020, that are discussed above. We suggest you check regularly for updates.