October 26, 2020

Volume X, Number 300

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October 26, 2020

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COVID-19 von Briesen Task Force Resource: New Detail Available Regarding Main Street Loan Facilities

This Legal Update follows our earlier update entitled CARES Act Programs for Businesses Too Large for the Paycheck Protection Program. The Federal Reserve recently released term sheets that detail the Main Street Loan Facilities for businesses with too many employees to qualify for the Paycheck Protection Program. This Legal Update discusses those released details.

Many businesses have found that they do not qualify for financial assistance under the Paycheck Protection Program. However, a business in this circumstance still may qualify for a different assistance program under the Main Street Loan Facilities.

Eligibility

Any business with up to 10,000 employees or up to $2.5 billion in revenue in 2019 which is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States is eligible for a Main Street Expanded Loan Facility or Main Street New Loan Facility. The term sheets released by the Federal Reserve did not explicitly define the term “business,” so it is unclear at this time whether non-profit organizations would qualify for these loans.

As a requirement of receiving the loan, the borrower must certify:

  • That it will refrain from using the proceeds of the loan to repay other loan balances.

  • That it will not repay any other debt of equal or lower priority; however, the borrower may still pay mandatory principal payments.

  • That it will not cancel or reduce any of its outstanding lines of credit with any lender.

  • That it requires financing due to the COVID-19 pandemic and will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.

  • That its meets the EBITDA leverage condition of six times 2019 EBITDA for Main Street Expanded Loan Facilities or four times 2019 EBITDA for Main Street New Loan Facilities.

  • That it will comply with the following restrictions of Section 4003(c)(3)(A)(ii) of the CARES Act:

    • For 12 months after the loan is no longer outstanding, the borrower will not buyback any equity security in the borrower or a parent company listed on a national securities exchange;

    • For 12 months after the loan is no longer outstanding, the borrower will not pay any dividends or make any capital distributions with respect to common stock of the borrower; and

    • The borrower will comply with the following compensation limits as applicable:

      • An officer or employee whose total compensation exceeded $425,000 in 2019 may not receive more compensation than that officer or employee did in 2019, and may not receive any severance pay or termination benefits which exceed twice the maximum total compensation received in 2019.

      • An officer or employee whose total compensation exceeded $3,000,000 in 2019 may not receive more than the sum of $3,000,000 plus 50% of the excess over $3,000,000 of the total compensation received by the officer or employee in 2019.

  • That it is eligible to participate in the facility and is not subject to the conflict of interest which is prohibited by Section 4019(b) of the CARES Act.

Loan Features

The Main Street Loan Facilities fall into two categories: (i) loans that originated on or after April 8, 2020, referred to as “Main Street New Loan Facilities,” and (ii) loans that originated before April 8, 2020, referred to as “Main Street Expanded Loan Facilities.” All Main Street Loan Facilities have the following features:

  • 4 year maturity

  • Amortization of principal and interest on the facility is deferred for one year

  • An adjustable interest rate of SOFR (the Secured Overnight Financing Rate) plus 250-400 basis points

  • Minimum loan size of $1 million

  • Maximum loan size that is the lesser of:

    • For Main Street Expanded Loan Facilities, (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

    • For Main Street New Loan Facilities, (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

  • Prepayment is allowed without penalty

Facility Fees

A borrower seeking a Main Street Loan Facility will be required to pay a fee for the facility. A borrower of a Main Street Expanded Loan Facility is required to pay a fee equal to 100 basis points of the principal amount of the upsized tranche of the facility at the time of upsizing to the lender. A borrower of a Main Street New Loan Facility is required to pay a fee equal to 100 basis points of the principal amount of the loan. In addition, the borrower may be required to pay an additional facility fee equal to 100 basis points of the principal amount of the loan participation purchased by the special purpose vehicle established for the facility.

Application

Unlike the SBA Paycheck Protection Program, no application is available at this time. Loans under these programs will be made through eligible lenders and a borrower will need to apply directly with its bank.

©2020 von Briesen & Roper, s.cNational Law Review, Volume X, Number 107
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James Wawrzyn, von Briesen Roper Law Firm, Milwaukee and Waukesha, Corporate and Healhcare Law Attorney

James Wawrzyn counsels clients on commercial contract negotiation, mergers and acquisitions, supply-chain alternatives, and general corporate matters. James collaborates with clients to identify and implement their priorities. For each project, James has a results-oriented approach. He continuously engages the stakeholders to recognize and actively address obstacles to finalizing priority items.

James is skilled in the preparation and negotiation of technology-based agreements such as master services, development and licensing...

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Steven M. Szymanski Banking and Commercial Finance Attorney von Briesen & Roper Milwaukee, WI
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Steve Szymanski is a Shareholder in the Business Practice Group in the Milwaukee Office. Steve is a trusted advisor to his clients. Steve draws upon his background in tax, finance and the law to help his clients identify legal and business issues, and work with his clients and their advisors to provide practical and effective solutions. Steve represents privately and publicly held clients in all aspects of their corporate and business needs, including:

  • general corporate and contract matters, including, terms and conditions of sale, non-competition and confidentiality agreements, manufacturing and supply agreements, employee and executive agreements, and shareholder agreements;
  • business formation, finance and governance;
  • business succession planning, including, management buy-outs and family transitions;
  • mergers and acquisitions;
  • complex commercial transactions and negotiations;
  • commercial real estate, including, the purchase, sale and leasing of real estate, structuring and drafting of ownership arrangements, and implementation of tax-deferred transactions;
  • banking and finance;
  • taxation.

Steve represents clients in a wide variety of industries, including, manufacturing, transportation, construction, distribution, technology, professional services, real estate, finance and banking.

Steve is a member of the firm’s Mergers and Acquisitions Section. He has extensive mergers and acquisition experience having represented buyers, sellers, lenders and investors in transactions of various sizes (e.g., $100,000 to $250,000,000) and complexities. His experience includes transactions involving private equity, strategic purchasers and sellers, and management buy-outs. Steve brings years of experience to his clients’ advantage with his main objective being to  find solutions that achieve a successful closing.

Prior to starting his legal career, Steve was a member of the tax department in the Milwaukee office of Arthur Andersen.  He uses his background in tax, finance and accounting to understand his clients’ finances, build a rapport with their advisors, and structure transactions in a favorable manner.

414-287-1406
Madelein Schmid, Von Briesen, business and corporate lawyer
Attorney

Madeline Schmid is a member of the Business Practice Group. Her practice focuses on general business and corporate matters.

She has significant experience working in manufacturing and small businesses. This experience provided a unique understanding of, and the ability to anticipate, the needs and problems that arise in these types of businesses. In addition, she has experience implementing and maintaining compliance with the Good Manufacturing Practices (GMP) required by the FDA for the manufacture of over-the-counter drugs.

During law school, Madeline...

(414) 287-1264
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