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November 30, 2020

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Main Street Lending Program — Federal Reserve Bank of Boston Issues Required Forms and Revised Guidance

On May 27, 2020, the Federal Reserve Bank of Boston (FRBB) released the legal forms and agreements for eligible borrowers and eligible lenders to participate in the Main Street Lending Program (MSLP). The FRBB also published updated Frequently Asked Questions (FAQs), which include numerous new questions and answers regarding eligibility, loan terms and conditions, borrower certifications and covenants, regulatory requirements and reporting, and other issues.

On April 30, 2020, the Federal Reserve Board (Federal Reserve) had issued the terms and conditions for three MSLP facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). Copies of all documents can be found on the FRBB’s Main Street Lending Program Forms and Agreements webpage.

In the May 27 release, the term sheets for the three MSLP facilities were not amended from the forms released on April 30, and the definitions of “Eligible Borrower” and “Eligible Lender” remain unchanged. An overview and summary of the previously issued term sheets, including eligible borrower and eligible lender requirements, can be found here. A list of covenants and commitments required to be made by eligible borrowers and lenders — including compliance with the CARES Act’s compensation, stock repurchase, and capital distribution restrictions — is also detailed.

Although the MSLP has not yet been launched, the documents, checklists, and revised guidance issued on May 27 appear to be final, subject to future Federal Reserve interpretation and refinement. Accordingly, eligible borrowers and eligible lenders should review the available guidance and documentation, and address potential issues surrounding the facilities’ terms and conditions with their counsel now. We expect that the Federal Reserve and FRBB will announce the program start date in the coming days.

Lender Documents

Through the FRBB, eligible lenders can access registration certifications and covenants, instructions, and guidance to register as a participating lender with the Main Street SPV. It is worth noting that each time an eligible lender sells a loan participation to the Main Street SPV, the eligible lender will be required to enter into a Loan Participation Agreement, a Servicing Agreement, an Assignment-in-Blank, and a Co-Lender Agreement (except in the case of multi-lender facilities). The eligible lender also must make certain certifications and covenants specific to each MSLP facility, which can be found in the Specific Lender Certifications and Covenants documentation.

No form of credit agreement is provided with the documentation; thus, eligible lenders should use their own form of credit agreement. However, the appendices to the FAQs include a checklist of items that must be included in the loan documentation for eligible loans as well as models for certain borrower covenants required for the MSLP. We have provided a summary of the required loan terms and conditions in the table below.

Borrower Documents

Eligible borrowers also are required to make certain certifications and covenants specific to each MSLP facility, which are set forth in the Specific Borrower Certifications and Covenants documentation. The eligible lender must submit these certifications and covenants of the borrower at the time a loan participation in the eligible borrower’s loan is sold to the Main Street SPV.

Main Street Lending Program — Loan Terms and Conditions

Loan Options

New Loans — MSNLF

Priority Loans — MSPLF

Expanded Loans — MSELF

Form of Credit

Term loan originated after April 24, 2020

Term loan originated after April 24, 2020

Upsized tranche (itself a term loan) of a term loan or revolving credit facility made by an eligible lender that was originated on or before April 24, 2020, and that has a remaining maturity of at least 18 months.

If the original credit was part of a multi-lender facility, FRBB guidance contemplates that any eligible lender participating in such credit may provide all or a prorated portion of the upsized tranche if such lender owns an interest in the credit at the time of upsizing.

Term

4 years

Rate

Adjustable-rate LIBOR (1-month or 3-month) + 3%

Minimum Loan Size

$500,000

$500,000

$10,000,000

Maximum Loan Size

The lesser of (i) $25M or (ii) the amount that, when added to outstanding and undrawn available debt,* does not exceed 4x adjusted 2019 EBITDA

The lesser of (i) $25M or (ii) the amount that, when added to outstanding and undrawn available debt,* does not exceed 6x adjusted 2019 EBITDA

The least of (i) $200M, (ii) 35% of existing outstanding and undrawn available debt* that is pari passu in priority with the original loan and the upsized tranche and equivalent in secured status, or (iii) the amount that, when added to outstanding and undrawn available debt, does not exceed 6x adjusted 2019 EBITDA

Calculation of Adjusted 2019 EBITDA

The methodology an eligible lender requires an eligible borrower to use in calculating adjusted 2019 EBITDA must be the same methodology that the eligible lender previously used for adjusting EBITDA when extending credit to the eligible borrower (or to similarly situated borrowers) on or before April 24, 2020.

The methodology an eligible lender requires an eligible borrower to use in calculating adjusted 2019 EBITDA must be the same methodology that the eligible lender previously used for adjusting EBITDA when originating or amending the eligible loan on or before April 24, 2020.

Deferral/
Amortization

No principal or interest payments for 12 months (interest capitalized)

Years 2–4: 33.33% of the principal each year

Years 2–3: 15% of the principal each year

Year 4: remaining 70% of principal due

Years 2–3: 15% of the principal each year

Year 4: remaining 70% of principal due

Lender Risk Retention

Eligible lender retains 5% of loan principal.

Eligible lender retains 15% of loan principal.

Eligible lender retains 5% of principal of upsized tranche.

Must be retained until loan matures or the Main Street SPV sells all of its participation, whichever comes first.

Eligible lender must retain (i) its 5% of the upsized tranche until the upsized tranche matures or the SPV sells all of its 95% participation, whichever comes first; and (ii) its interest in the underlying loan until the underlying loan matures, the upsized tranche matures, or the SPV sells all of its 95% participation, whichever comes first.

Prepayment

Eligible borrower may prepay loans without penalty at any time.

No Forgiveness

MSLP loans are full-recourse loans that are not forgivable. The principal amount cannot be reduced through loan forgiveness.

Collateral

Secured or unsecured

Secured or unsecured; however, if the eligible borrower has any other secured loans or debt instruments at the time of origination, the loan must be secured.

Secured or unsecured; however, any collateral securing the eligible loan must secure the upsized tranche on a pro rata basis.

Note: an eligible lender can require the eligible borrower to pledge additional collateral to secure an upsized tranche as a condition of approval.

Priority 

At the time of origination or at any time during the loan term, the loan cannot be contractually subordinated in a manner that subordinates the loan in or outside of bankruptcy to the eligible borrower’s other debt instruments. There is no prohibition on an eligible borrower’s taking on new secured or unsecured debt after receiving an MSNLF loan, provided the new debt would not have higher contractual payment priority in bankruptcy than the MSNLF loan.

At the time of origination or at any time during the loan term, the loan must be 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.

Must include a standard lien covenant or negative pledge that is of the type and that contains the exceptions, limitations, carve-outs, baskets, materiality thresholds, and qualifiers that are consistent with those used by the eligible lender in its ordinary course of lending to similarly situated borrowers.

 At the time of upsizing and at all times the upsized tranche is outstanding, the upsized tranche must be senior to or pari passuwith, in terms of priority and security, the eligible borrower’s other loans or debt instruments, other than mortgage debt. 

Must include a standard lien covenant or negative pledge that is of the type and that contains the exceptions, limitations, carve-outs, baskets, materiality thresholds, and qualifiers that are consistent with those used by the eligible lender in its ordinary course of lending to similarly situated borrowers. (For upsized tranches where the underlying loan is part of a multi-lender facility, any lien covenant or negative pledge that was negotiated in good faith prior to April 24, 2020, as part of the underlying loan is sufficient.) 

Restrictions on Payment of Other Debt

The eligible borrower cannot repay the principal balance of, or pay any interest on, any debt until the MSLP loan is repaid in full, unless the debt or interest payment is mandatory and due.**

The eligible borrower cannot repay the principal balance of, or pay any interest on, any debt until the MSLP loan is repaid in full, unless the debt or interest payment is mandatory and due.** 

However, the eligible borrower may, at the time of MSPLF loan origination, refinance existing debt owed by the eligible borrower to a lender that is not the eligible lender.

The eligible borrower cannot repay the principal balance of, or pay any interest on, any debt until the upsized tranche is repaid in full, unless the debt or interest payment is mandatory and due.**

Retention of Committed Lines of Credit

The eligible borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the eligible lender or any other lender.

Origination Fee

Eligible lenders may charge eligible borrowers an origination fee of up to 1% of the principal amount of the loan.

Eligible lenders may charge eligible borrowers an origination fee of up to 1% of the principal amount of the loan.

Eligible lenders may charge eligible borrowers an origination fee of up to 0.75% of the principal amount of the loan.

Facility Fee

Eligible lenders must pay the SPV a transaction fee of 1% of the principal amount of the loan. This fee may be passed on to borrowers.

Eligible lenders must pay the SPV a transaction fee of 1% of the principal amount of the loan. This fee may be passed on to borrowers.

Eligible lenders must pay the SPV a transaction fee of 0.75% of the principal amount of the upsized tranche of the loan at the time of the upsizing. This fee may be passed on to borrowers.

Servicing Fees

The SPV will pay an eligible lender 0.25% of the principal amount of the SPV’s participation per annum for loan servicing.

Borrower Certifications and Covenants Material Breach Mandatory Prepayment

Must include a mandatory prepayment clause if the borrower breaches its Borrower Certifications and Covenants.

Must include a mandatory prepayment clause if the borrower breaches its Borrower Certifications and Covenants.

Must include a Borrower Certifications and Covenants material breach mandatory prepayment provision to the extent feasible in light of existing voting arrangements.

Cross-
Acceleration Provision

Must include a cross-acceleration provision tied to borrower default with respect to other indebtedness.

Must include a cross-acceleration provision tied to borrower default with respect to other indebtedness.

Must include a cross-acceleration provision.

For MSELF upsized tranches where the underlying loan is part of a multi-lender facility, any cross-default or cross-acceleration provision that was negotiated in good faith prior to April 24, 2020, as part of the underlying loan shall be deemed sufficient.

Collateral

If secured, collateral should be described in accordance with the bank’s ordinary practices in its loan documentation.

If secured, collateral should be described in accordance with the bank’s ordinary practices in its loan documentation.

If secured, collateral should be described in accordance with the bank’s ordinary practices in its loan documentation.

Financial Reporting

Must include a quarterly financial reporting covenant requiring the financial information set out in Appendix C of the MSLP FAQs found here.

Must include a quarterly financial reporting covenant requiring the financial information set out in Appendix C of the MSLP FAQs found here.

Must include a quarterly financial reporting covenant requiring the financial information set out in Appendix C of the MSLP FAQs found here.

Term Sheets

Link

Link

Link

© 2020 Jones Walker LLPNational Law Review, Volume X, Number 150
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Daniel H. Burd, Jones Walker, Banking Industry Lawyer, Financial Regulation Attorney
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Daniel Burd is a partner in the firm's Banking & Financial Services Practice Group and practices from the firm's Washington, D.C. office. Mr. Burd's practice focuses on regulatory matters for financial institutions. He previously served as a staff attorney for the Federal Reserve Board ("FRB") Legal Division in Washington, D.C. 

Mr. Burd received his A.B. degree from Stanford University, his M.A. from the University of California, Los Angeles, and his J.D. degree from The University of Chicago Law School. He is a member of the District of...

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