Federal Reserve Introduces Main Street Lending Program– April 10, 2020 by Adam Hill

** This blog was updated on 6/8/20 as a result of new guidance from the Federal Reserve and the Treasury **

On April 9, 2020, the Federal Reserve introduced the Main Street Lending Program, aimed at providing expanded relief for small and medium sized businesses as part of the CARES Act. This new $600 billion lending facility will run through banks and offer four-year loans to businesses, including nonprofits, employing less than 15,000 people and having less than $5 billion in 2019 annual revenue.

The Fed and the Treasury sought comments on this program through April 16, 2020, receiving over 2,200 responses, including Cohen & Company’s comment letter. As a result, they issued additional guidance on June 8, 2020, outlining changes to the program and adding that Treasury is in the process of making this program operational. Once the program opens up, businesses will be able to apply through any eligible lender.

Under the Main Street Lending Program, there are three facilities: Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF) and Main Street Expanded Loan Facility (MSELF). Each has several key distinctions, including maximum loan amount; required origination date of the eligible loan; fees; collateral securing the loan and the degree of loan participation by the Special Purpose Vehicle.

Eligible borrowers may participate in only one facility: New Loan Facility, Expanded Loan Facility, Priority Loan Facility OR the Primary Market Corporate Credit Facility, which is a separate program not discussed in this article. Each eligible borrower that participates in the program will make commercially reasonable efforts to maintain its payroll and retain employees during the time the eligible loan is outstanding. All term sheets released on June 8, 2020, also make reference to the “Ineligible Businesses” definition established by the SBA, disqualifying real estate investment firms from participating. These loans will be available through September 30, 2020. Find more details on each facility below.

Main Street New Loan Facility

The Main Street New Loan Facility loan is a term loan (secured or unsecured) that was originated after April 24, 2020.

Loan Size

  • Minimum loan size: $250,000
  • Maximum loan size is the Lesser of:
    • $35 million or
    • An amount that, when added to the eligible 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)

Eligible Borrowers

  • Must be established prior to March 13, 2020, and must be a business that is created or organized in the U.S. or under the laws of the U.S., with significant operations in and a majority of its employees based in the U.S.
  • Must either have 15,000 employees or fewer OR have had 2019 annual revenues of $5 billion or less. The borrower must not have received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act), which include airlines, cargo air carriers and business critical to maintaining national security.
  • Recipients of the Paycheck Protection Program (PPP) loan are permitted to borrow under this facility.

Other Pertinent Details

  • Loans have a five-year maturity with an adjustable interest rate of LIBOR (one or three month) + 300 basis points.
  • Amortization of principal and interest will be deferred two years (unpaid interest will be capitalized), and prepayment is permitted without penalty.
  • Principal will be amortized as follows: 15% at the end of the third year, 15% at the end of the fourth year; and a balloon payment of 70% at maturity at the end of the fifth year.
  • The loan may not be contractually subordinated in terms of priority to any of the eligible borrower’s other loans or debt instruments.
  • The borrower will pay the lender an origination fee of up to 100 basis points of the principal amount of the eligible loan.
  • The Special Purpose Vehicle will purchase 95% participation in eligible loans and the eligible lender must retain the remaining 5% through maturity or sale of the Vehicle’s entire participation in the loan. Risk will be shared on a pari passu basis.

Main Street Priority Loan Facility

The Main Street Priority Loan Facility has nearly identical loan terms to the Main Street New Loan Facility, with the following differences:

  • Maximum loan size is the Lesser of: $50 million or an amount that, when added to the eligible borrower's existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrower's 2019 earnings before interest, taxes, depreciation and amortization (EBITDA)
  • The eligible borrower may, at the time of origination of the loan, refinance existing debt the borrower owes to a lender other than the eligible lender;
  • The loan may be contractually subordinated in terms of priority to any of the eligible borrower’s other loans or debt instruments, other than mortgage debt.

Main Street Expanded Loan Facility

The Main Street Expanded Loan Facility loan has similar terms to the previous two, with the following differences:

  • The eligible loan is a term loan that was originated on or before April 24, 2020, and that has a remaining maturity of at least 18 months.
  • At the time of the upsizing, and at all times the upsized tranche is outstanding, the upsized tranche is senior to or pari passu with, in terms of priority and security, the eligible borrower’s other loans or debt instruments, other than mortgage debt. The borrower will pay the lender a fee of up to 75 basis points of the principal amount of the upsized tranche of the loan at the time of upsizing.
  • The borrower will pay the lender an origination fee of up to 75 basis points of the principal amount of the eligible loan.
  • The Special Purpose Vehicle will purchase 95% participation in the upsized tranche of the eligible loans, and the eligible lender must retain the remaining 5% (of both the upsized tranche and the underlying loan) through maturity or sale of the Vehicle’s entire participation in the loan. Risk will be shared on a pari passu basis.

Loan Size

  • Minimum loan size: $10 million
  • Maximum loan size is the lesser of:
    • $300 million
    • An amount that, when added to the borrower's existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrower's 2019 EBITDA

Borrower & Lender Attestations

In addition, for a loan to be deemed an eligible loan under the Main Street Lending Facility, attestations will be required to syndicate the loan to the applicable Federal Reserve entity. The eligible lender must attest to that it will:

  • Not request repayment of principal or pay interest on such outstanding obligations, until the eligible loan is repaid in full, unless the debt or interest payment is mandatory and due or in the case of default and acceleration.
  • Will not cancel or reduce any existing committed lines of credit outstanding to the eligible borrower, except in the event of default.
  • Use the same methodology for calculating the eligible borrower’s adjusted 2019 EBITDA (for the leverage requirement in section 6(ii) of the eligible loan paragraph) as previously used for adjusting EBITDA when extending credit to the borrower or similarly situated borrowers on or before April 24, 2020.
  • Certify that the entity is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act, which ultimately says no covered entity may be eligible to apply for these loans.

Similarly, the eligible borrower also must attest that it:

  • Will refrain from repaying the principal balance of, or paying any interest on, any debt until the eligible loan is repaid, unless the debt or interest payment is mandatory and due.
  • Will not seek to cancel or reduce any of its committed lines of credit with the eligible lender or any other lender.
  • Has a reasonable basis to believe that, as of the date of origination of the eligible loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
  • Will follow compensation, stock repurchase and capital distribution restrictions that apply to direct loan programs until 12 months after the date on which the direct loan is no longer outstanding as stated under section 4003(c)(3)(A)(ii) of the CARES Act. A passthrough entity does have the ability to make tax distributions to the owners. 
  • Will certify that the entity is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act, which ultimately says no covered entity may be eligible to apply for these loans.

>> Review the term sheets and additional FAQs on these Main Street Lending Program Facilities.

Contact Adam Hill at ahill@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.