The Main Street Lending Program was introduced in April as part of the CARES Act to provide expanded relief for small and medium sized businesses. The $600 billion lending facility runs through banks and offers four-year loans to eligible borrowers. On July 17, 2020, the Federal Reserve released modified terms specifically to provide greater access to credit for not-for-profit organizations.
The program now outlines two new not-for-profit facilities: Nonprofit Organization New Loan Facility (NONLF) and Nonprofit Organization Expanded Loan Facility (NOELF). Each has several key distinctions, including maximum loan amount, required origination date of the eligible loan, fees, collateral securing of the loan and the degree of loan participation by the Special Purpose Vehicle.
Not-for-profit organizations must meet the following criteria to participate. They must:
- Be a 501(c)(3) or 501(c)(19) tax-exempt nonprofit organization with at least 10 employees and have been in continuous operation since January 1, 2015.
- Either have 15,000 employees or fewer OR have had 2019 annual revenues of $5 billion or less. The borrower must also have an endowment of less than $3 billion.
- Have total non-donation revenues from 2017 to 2019 that were equal to or greater than 60% of expenses.
- Fall within all of the following ratios:
- Adjusted 2019 EBIDA to unrestricted 2019 operating revenue of at least 2%.
- Liquid assets at the time of loan origination to average daily expenses over the previous year, equal to or greater than 60 days.
- Unrestricted cash and investments to existing outstanding and undrawn available debt, plus the amount of any loan under the facility, plus the amount of any CMS accelerated and advance payments, that is greater than 55%.
>> Read the latest updates to the “Federal Reserve Introduces Main Street Lending Program”
Eligible borrowers may participate in only one facility: NONLF or NOELF, or the New Loan Facility, Expanded Loan Facility, Priority Loan Facility and/or the Primary Market Corporate Credit Facility, which are separate programs. 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. These loans will be available through September 30, 2020.
Nonprofit Organization New Loan Facility
The Nonprofit Organization New Loan Facility loan is a term loan (secured or unsecured) that was originated after June 15, 2020.
- Minimum loan size: $250,000
- Maximum loan size is the Lesser of:
- $35 million or
- The borrower’s average 2019 quarterly revenue
Other Pertinent Details
- Loans have a five-year maturity with an adjustable interest rate of LIBOR (one or three month) plus 300 basis points.
- Amortization of principal will be deferred two years and interest will be deferred for one year (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 may need to 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.
>> Read more on the Nonprofit Organization New Loan Facility
Nonprofit Organization Expanded Loan Facility
The Nonprofit Organization Expanded Loan Facility loan has similar terms, with the following differences:
- The eligible loan is a term loan that was originated on or before June 15, 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 may have to 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.
- Minimum loan size: $10 million
- Maximum loan size is the lesser of:
- $300 million
- The borrower’s average 2019 quarterly revenue
>> Read more on the Nonprofit Organization Expanded Loan Facility
Borrower and Lender Attestations
In addition, for a loan to be deemed an eligible loan under the 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 EBIDA (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 June 15, 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.
- 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.
Contact Adam Hill at firstname.lastname@example.org, Peter Myeroff at email@example.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.