Introduction

If your business did not meet the size limitations of the Paycheck Protection Program (PPP) there are facilities being developed for larger businesses (although they are also available for firms with PPP loans). One of those programs is the Main Street Loan Facility. This program provides for unsecured terms loans in which the bank lender holds 5% and sells 95% of the loan to the Federal Reserve. Key program details are:

• The loan amount is between $1 million and the lesser of (a) $25 million or (b) 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.

• Amortization of principal and interest deferred for one year

• Adjustable rate of SOFR + 250-400 basis points

• Businesses can borrow under both the Paycheck Protection Program (PPP) program and the Main Street loan program

Please note that these loan facility programs are not subject to loan forgiveness.

Overview

On April 9, 2020 the Federal Reserve announced that it will take additional actions to provide up to $2.3 trillion in loans to support the U.S. economy during the COVID-19 pandemic and introduced two new lending facilities: (1) the Main Street New Loan Facility, and (2) the Main Street Expanded Loan Facility. The two loan facilities are intended to facilitate lending to small and medium-size businesses by eligible lenders. The Federal Reserve Bank will commit to lend a single common special purpose vehicle (SPV) on a recourse basis, which will purchase 95% of eligible loans (up to $600 billion in total principal amount between the two new facilities) and the lenders will retain 5% of the eligible loan.

Coordination with PPP Loans

Firms that have taken advantage of the PPP may also take out Main Street loans.

Eligible Lender

Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.

Eligible Borrower

Under the Main Street New Loan Facility and Main Street Expanded Loan Facility, eligible borrowers are:

• Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues; 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.

• Key Note: Borrowers that participate in the Main Street New Loan Facility may not also participate in the Main Street Expanded Loan Facility (and vice versa) or the Primary Market Corporate Credit Facility.

Eligible Loans (Main Street New Loan Facility)

An eligible loan is an unsecured term loan made by an eligible lender to an eligible borrower that was originated on or after April 8, 2020.

• Loan terms:

  • Four year maturity

  • Amortization of principal and interest deferred for one year

  • Adjustable rate of SOFR + 250-400 basis points

  • Minimum loan size: $1 million

  • Maximum loan size: equal to the lesser of (a) $25 million or (b) 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.

Eligible Loans (Main Street Expanded Loan Facility)

An eligible loan is a term loan made by a lender that was originated before April 8, 2020.

• Loan terms:

  • Four year maturity

  • Amortization of principal and interest deferred for one  year

  • Adjustable rate of SOFR + 250-400 basis points

  • Minimum loan size: $1 million

  • Maximum loan size: equal to the lesser of (a) $150 million, (b) 30% of the borrower’s existing outstanding and committed but undrawn bank debt or (c) 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.

Additional Requirements - Main Street New Loan Facility and Main Street Expanded Loan Facility

• Lenders must attest that the proceeds will not be used to repay or refinance pre-existing loans or borrower’s line of credit.

• Borrower must refrain from using the proceeds of the loan to repay other loan balances and must refrain from repaying other debt of equal or lower priority (with the exception of mandatory principal payments).

• Lender must attest that it will not cancel or reduce any existing line of credit outstanding to the borrower, and borrower must not seek to cancel or reduce any of its outstanding lines of credit with the lender or other lenders.

• Borrower must attest that it requires financing to due circumstances created by COVID-19 pandemic and that it will use reasonable efforts to maintain its payroll and retain its employees during the term of the loan.

• Borrower must attest that it meets EBITDA conditions specified in the terms required under each loan facilities terms.

• Borrower must agree that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under Section 4003(c)(3)(A(ii) of the CARES Act.

• Lenders and borrowers will be required to certify that the entity is eligible to participate in the facilities, with regard to the conflicts of interest prohibition in Section 4019(b) of the CARES Act.

Termination

The SPV will cease purchasing participations in eligible loans on September 30, 2020, unless extended.

The Federal Reserve has allowed interested parties to comment on these programs through April 16, 2020 and as such, adjustments may be made to the terms and conditions.