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Updates to the Main Street Lending Program

The Federal Reserve Bank of Boston (FRB Boston) will be implementing the Main Street Lending Program (Main Street or the Program) via a special purpose vehicle (SPV) to purchase participations in eligible loans.

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The Federal Reserve Bank of Boston (FRB Boston) will be implementing the Main Street Lending Program (Main Street or the Program) via a special purpose vehicle (SPV) to purchase participations in eligible loans.

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

The Federal Reserve Bank of Boston (FRB Boston) will be implementing the Main Street Lending Program (Main Street or the Program) via a special purpose vehicle (SPV) to purchase participations in eligible loans. On May 27, 2020, FRB Boston issued a significantly expanded FAQ document and more than a dozen Program forms and agreements for lenders and borrowers. The following is a brief summary of the additional guidance. Please consult our original article for a high-level primer regarding the three facilities that make up the Program, eligibility and the application process.

Noteworthy FAQs

The newly issued FAQs are substantially expanded from the initial version issued on April 30, 2020. We encourage interested parties to review the new FAQs with their legal and financial advisors prior to the application process. Below we note certain noteworthy new disclosures.

B4/C3 – Can an Eligible Lender make an MSNLF (new loan) or an MSPLF (priority loan) to a new customer?

Yes. Eligible Lenders should follow their normal policies and procedures for originating a loan to a new customer.

C6 – What does it mean for an MSPLF loan to be senior to in terms of priority and security to the Eligible Borrower’s other loans other than mortgage debt?

This requirement is designed to prevent MSPLF loans from being subordinated or otherwise disadvantaged in relation to other loans of the borrower. Therefore, at the time of origination the MSPLF loan must be secured if the borrower has other secured loans, other than mortgage debt. The MSPLF loan may be unsecured if, at the time of origination, the borrower does not have any other secured loans (other than mortgage debt).

E9/E8 – Can a U.S. company that is a subsidiary of foreign company qualify as an Eligible Borrower and what does “significant operations” in the United States mean?

Yes, a U.S. subsidiary of a foreign company may qualify. This company must be organized or created in the U.S. under the laws of the U.S. and may only use the funds for the benefit of the U.S. company and its subsidiaries. A company has significant operations in the U.S. if, when consolidated with its subsidiaries (but not its Parent or sister affiliates), greater than 50% of its assets, net income, operating revenue or operating expenses are generated in the U.S.

G10 – Can a borrower receive a loan if its maximum loan size under a facilities term sheet is below the minimum loan size for the same facility?

No.

H9 – How must a borrower demonstrate that it is unable to secure adequate credit from other banking institutions?

Being unable to secure adequate credit from other banking institutions does not mean that no credit from other sources is available. A borrower may certify that it is unable to secure credit because the amount, price or terms of such credit are inadequate for the borrower’s needs. Borrowers are not required to demonstrate that applications for credit have been denied.

I4 – Will the Program supply loan documents or should lenders use their own?

Each lender should use their own loan documentation. Such documents should be substantially similar to the documents the lender uses in the ordinary course with substantially similar borrowers.

J5 – What role will the Main Street SPV play in the event a borrower enters distress?

Prior to entering distress, the Main Street SPV will rely on the lender to service each loan in accordance with the standard of care laid out in agreements. Once a borrower misses a payment or a borrower or lender enters bankruptcy will have the option to elevate its participation. However, FRB Boston does not expect to exercise this right as a matter of course. Rather, FRB Boston will expect the lender to follow standard work-out processes.

L4 – Are lenders required to prefund loans before the SPV has committed to purchase its participation in the loan?

No, the lender may either fund the loan and then seek to sell a participation or extend a loan but make the funding contingent on receiving a commitment from the SPV.

New Forms and Agreements

In addition to the expanded list of FAQs, FRB Boston also provided eleven documents for lenders and three documents for borrowers (one for each Main Street facility). Of particular interest to borrowers will be the required certifications and covenants. These documents require signatures from both the borrower’s principal executive officer and principal financial officer. The documents cover both the mundane (i.e., business formation and size) and specific. Certifications in the latter category include, but are not limited to, use of loan proceeds restrictions and borrower eligibility certifications.

 

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.

 

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