Article

Understanding the Main Street Lending Program

The program includes three facilities: (1) New Loan Facility (MSNLF), (2) Priority Loan Facility (MSPLF), and (3) Expanded Loan Facility (MSELF). The chart below summarizes the different loan options

Contact Us
< Back to Insights
Insights  <  Understanding the Main Street Lending Program

The program includes three facilities: (1) New Loan Facility (MSNLF), (2) Priority Loan Facility (MSPLF), and (3) Expanded Loan Facility (MSELF). The chart below summarizes the different loan options

FOR UPDATES TO THIS PROGRAM PLEASE SEE OUR JUNE 9TH ARTICLE

The Federal Reserve’s Main Street Lending Program is designed to provide support to small and medium-sized businesses and their employees across the United States during the current period of financial strain by supporting the provision of credit to such businesses. The availability of additional credit is intended to help companies that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize. The Federal Reserve is currently working to create the infrastructure to operationalize the program, and the program is expected to start by the first of June.

The program will be initially funded by an equity investment from the Department of Treasury using $75 billion appropriated to the Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The combined size of the Main Street Lending Program will be $600 billion.

Main Street Lending Program Facilities

The program includes three facilities: (1) New Loan Facility (MSNLF), (2) Priority Loan Facility (MSPLF), and (3) Expanded Loan Facility (MSELF). The chart below summarizes the different loan options:

MSLP Options

MSNLF

New Loans

MSPLF

Priority Loans

MSELF

Expanded Loans

Term 4 years 4 years 4 years
Minimum Loan Size $500,000 $500,000 $10,000,000
Maximum Loan Size The lesser of $25M or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted 2019 EBITDA The lesser of $25M or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA The lesser of $200M, 35% of existing outstanding and undrawn available debt, or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA
Risk Retention by Eligible Lenders 5% 15% 5%
Payment (year one deferred for all) Years 2-4: 33.33% each year Years 2-4: 15%, 15%, 70% Years 2-4: 15%, 15%, 70%
Rate LIBOR + 3% LIBOR + 3% LIBOR + 3%

 

Like the Payroll Protection Program (PPP) and the Primary Market Corporate Credit Facility (PMCCF), the Main Street Lending Program was created to assist companies that have been adversely affected by the COVID-19 pandemic. Each of these programs, however, was developed to provide liquidity to companies of different sizes:

  • The PPP was established by the CARES Act and implemented by the Small Business Administration (SBA) to support the payroll and operations of small businesses through the issuance of government-guaranteed loans that include a forgiveness feature for borrowers that satisfy certain requirements.
  • The Federal Reserve’s Program was designed to support small and medium-sized businesses that were unable to access the PPP or that require additional financial support after receiving a PPP loan. Main Street loans are not forgivable.
  • The Federal Reserve established the PMCCF to support large companies through the purchase of eligible corporate bonds from, and lending through syndicated loans to, large companies. PMCCF loans are not forgivable.

Eligibility

To be eligible to borrow under the MSLP, a business must satisfy certain eligibility criteria:

  • The business must have been established prior to March 13, 2020.
  • The business must not be an Ineligible Business for SBA business loans.
  • The business must meet at least one of the following two conditions: (a) the business has 15,000 employees or fewer, or (b) the business has 2019 annual revenues of $5 billion or less. Affiliation rules apply.
  • The business must be a U.S. business.
  • The business may only participate in one of the Main Street facilities (MSNLF, MSPLF, or MSELF) and must not also participate in the PMCCF.
  • The business must not have received specific support pursuant to Subtitle A of Title IV of the CARES Act. A business is not eligible if it has received support pursuant to section 4003(b)(1)-(3) of the CARES Act.
  • The business must be able to make all the certifications and covenants required under the MSLP.

Application Process

To obtain a loan under the Program, an eligible borrower must submit an application and any other documentation required by an eligible lender. Generally, an eligible lender is a U.S. federally insured depository institution. A business that receives a PPP loan can be an eligible borrower under the MSLP if it meets the eligible borrower criteria.

Adjusted 2019 EBITDA

For MSNLF and MSPLF, the methodology used by the Eligible Lender to calculate adjusted 2019 EBITDA for an Eligible Borrower must be a methodology it previously used for adjusting EBITDA when extending credit to the Eligible Borrower or to similarly situated borrowers on or before April 24, 2020.

For MSELF Eligible Loans, the methodology used by the Eligible Lender to calculate adjusted 2019 EBITDA for the Eligible Borrower must be the methodology it previously used for adjusting EBITDA when originating or amending the underlying loan on or before April 24, 2020.

Commercially Reasonable Efforts to Maintain Payroll and Retain Employees

Eligible Borrowers should make commercially reasonable efforts to retain employees during the term of the MSNLF Loan, MSPLF Loan, or MSELF Upsized Tranche. Specifically, an Eligible Borrower should undertake good-faith efforts to maintain payroll and retain employees, considering its capacities, the economic environment, its available resources, and the business need for labor. Borrowers that have already laid-off or furloughed workers as a result of the disruptions from COVID-19 are eligible to apply for Main Street loans.

Additional Considerations

Main Street Lending programs have numerous terms and conditions including (1) certifications and covenants, (2) restrictions on compensation, stock repurchase and capital distributions, (3) restrictions on debt repayment, and (4) commitments from lenders that it will not cancel or reduce any existing committed lines of credit outstanding, expect in the event of default, among other things.

Eligible Lenders will apply their own underwriting standards. Some commentators believe that lenders are incented to make loans outside the Program to approved borrowers and not lend at all to other applicants.

The Main Street Lending Program will be administered by the Federal Reserve Bank of Boston and is intended to be in effect until September 30, 2020. Further detail regarding how the program will be operationalized will be made available in the future.

As a result of participation in the Paycheck Protection Program or Main Street Lending Program, many companies are now doing business with the Federal government for the first time. Borrowers may face unique regulatory compliance challenges as they take advantages of these various programs. Consult with your legal counsel and CPA as you navigate these borrowing opportunities.

 

COVID-19 Business Resources

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

Continue the Conversation with Our Team
Get in touch with us.

Contact Us