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Main Street Lending Program

July 13, 2020

In order to support small to medium-sized businesses who are experiencing economic hardship due to COVID-19, the Federal Reserve established the Main Street Lending Program. This program was designed to support businesses that were unable to access the Paycheck Protection Program (“PPP”) or that require additional financial support after receiving a PPP loan. However, unlike the PPP loans, Main Street loans are full-recourse and are not forgivable.

The program will operate through three facilities: The Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF) and the Main Street Expanded Loan Facility (MSELF).

The Federal Reserve established a special purpose vehicle (SPV) to purchase 95% participations in loans originated by eligible lenders. The lenders will retain 5% of each loan. The funds for this investment were appropriated under the CARES Act.

The SPV will purchase loan participations until September 30, 2020, unless extended by the Treasury’s Board. The Federal Reserve Bank will continue to operate the SPV until all assets mature or are sold. The SPV will purchase up to $600 billion of participations in eligible loans in the aggregate across the three facilities.

All three facilities follow the same eligibly criteria which includes that the business must be based in the U.S. and must meet at least one of the following two conditions: (a) 15,000 employees or fewer, or (b) $5 billion or less in 2019 revenue. Borrowers can only participate in one of the three facilities. However, borrowers may receive more than one loan under a single Main Street facility, provided that the sum of the loans does not exceed that facility’s’ maximum guidelines.

Term sheets have been established for each of the three loan facilities. Common features among all the facilities include:

  • All Loans mature in 5 years with a two-year deferral of principal and a one-year deferral of interest
  • Interest for all loans is based on the adjustable 1 or 3-month LIBOR rate plus 3%
  • Principal (which includes capitalized interest) will be amortized with 15% due at the end of the third year, 15% due at the end of the fourth year, and a balloon payment of 70% due at maturity at the end of the fifth year
  • There are no prepayment penalties for any of the loan facilities
  • Terms may not include any provisions that would cause the Main Street Loan to be contractually subordinated to other debt in or outside of bankruptcy

The highlights of each facility include the following:

Main Street New Loan Facility

  • Eligible borrowers can apply for new term loans ranging from $250,000 up to $35 Million
  • The maximum size of the loan cannot exceed four times their 2019 adjusted EBITDA when added to existing outstanding but undrawn debt
  • To be considered eligible loans under this facility, the loan origination date must be after April 24,2020

Main Street Priority Loan Facility

  • Eligible borrowers can apply for new term loans ranging from $250,000 up to $50 Million
  • The maximum size of these loan cannot exceed six times 2019 adjusted EBITDA
  • To be considered eligible loans under this facility, loan origination date must also be after April 24, 2020 

Main Street Expanded Loan Facility

  • Eligible borrowers can apply for an increase to an existing term loan or a revolving credit facility, with the upsized tranche ranging in size from $10M to $300M
  • The maximum size of these loan cannot exceed six times 2019 adjusted EBITDA
  • To be considered eligible loans under this facility, the existing loan must have been originated before April 24,2020 and must have a remaining maturity of at least 18 months

Under all of the facilities, among other certifications, borrowers must certify that they will use the proceeds to make reasonable efforts to maintain payroll and to retain employees during the loan term.

The full-term sheets and FAQ can be found here.

 

This article was originally published in May 2020 and updated in July 2020.




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