Apr 20, 2020

The Main Street Lending Program Offers Additional Assistance to Small and Mid-Size Businesses

By Jason A. Rubin, Esq.

On April 9, 2020, the Federal Reserve announced the initial terms of the Main Street Lending Program. The Main Street Lending Program is primarily designed to assist businesses with over 500 employees who were ineligible to receive assistance through the Paycheck Protection Program (PPP) or an Economic Injury Disaster Loan (EIDL) pursuant to the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loans will be made by U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies. The Federal Reserve will then purchase a 95% participation in each loan, with lenders retaining 5% of the facility. 

The Main Street Lending Program consists of two types of loans: (1) the Main Street New Loan Facility (“New Loan Facility”) allows lenders to provide new loans to eligible borrowers and (2) the Main Street Expanded Loan Facility (“Expanded Loan Facility”) allows eligible borrowers to increase the size of pre-existing loans that were originated prior to April 8, 2020.

Eligible Borrowers:

  • No more than 10,000 employees or no more than $2.5 billion in 2019 revenues;
  • Must have been created or organized in the United States and have significant operations and a majority of its employees based in the United States;
  • Must have been in good standing before the COVID-19 pandemic;
  • Prohibited from receiving a New Loan Facility and an Expanded Loan Facility; and
  • Permitted to receive a loan under the Main Street Loan Program if the borrower previously received a loan under PPP or EIDL.

Loan Terms:

  • New Loan Facility - must be originated on or after April 8, 2020;
  • Expanded Loan Facility – The underlying loan must have been originated before April 8, 2020;
  • 4-year maturity;
  • Amortization of principal and interest deferred for one year;
  • Adjustable interest rate of SOFR (Secured Overnight Financing Rate) plus an additional 250-400 basis points;
  • Minimum loan amount of $1 million;
  • Maximum loan amount of New Loan Facility – The lesser of (i) $25 million or (ii) 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;
  • Maximum loan amount of Expanded Loan Facility - The lesser of (i) $150 million or (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;
  • No prepayment penalty;
  • Fees - An origination/servicing fee of 1% of the principal amount of the New Loan Facility, or the upsized amount of the Expanded Loan Facility, will be charged. The lender is required to pay a facility fee in the amount of 1% of the loan participation purchased by the Federal Reserve in the case of a New Loan Facility but the lender is permitted to pass this fee on to the borrower;
  • The New Loan Facility will be unsecured. The collateral pledged under the terms of the existing loan will secure the Expanded Loan Facility on a pro rata basis; and
  • Main Street Lending Program loans are not subject to forgiveness.

Required Certifications:

Borrowers are required to certify that:

  • The loan proceeds will not be used to repay other debt of equal or lower priority until the loan is paid in full (with certain exceptions);
  • They will not use the loan proceeds to cancel or reduce any existing lines of credit;
  • The loan is necessitated due to the COVID-19 pandemic, and that using the proceeds of the loan they will make reasonable efforts to maintain payroll and retain their employees during the term of the loan;
  • They satisfy the debt-to-EBITDA loan size limit; and
  • They will comply with the compensation, stock repurchase, dividend and capital distribution restrictions under the CARES Act.   

The comment period relating to the Federal Reserve’s initial guidance on the Main Street Lending Program expired on April 16, 2020. The final terms and conditions of the Main Street Loan Program are expected to be issued by the Federal Reserve shortly at which point the program will be formally rolled out. 

In the meantime, please feel free to contact any of our banking and finance attorneys at Schenck, Price, Smith & King, LLP to assist with questions related to the Main Street Lending Program.

DISCLAIMER:  This Alert is designed to keep you aware of recent developments in the law.  It is not intended to be legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of the client.

 

 
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