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Main Street Lending Program Waiting for Green Light from Congress – What We Know Now

April 17, 2020

What is the Main Street Lending Program?

In response to the COVID-19 pandemic, the Federal Reserve established the Main Street Lending Program (“MSLP”) to enhance support for small and mid-size businesses that were in good financial standing before the pandemic. There are two subcategories to the MSLP: the Main Street New Loan Facility (“MSNLF”), which applies to newly issued loans for a company, and the Main Street Expanded Loan Facility (“MSELF”), which applies to refinancing of existing loans of a company.

The main focus of MSLP is to retain employees (at least 90% of a business’s employees as of February 1, 2020). It is also intended to alleviate slow cash flow stress on profitable businesses.

Which businesses are eligible to apply? A business is an eligible borrower under the MSLP if it is organized in the U.S. or under U.S. laws; it has significant operations in the U.S.; a majority of its employees are based in the U.S.; and it employs 10,000 employees or less, or its 2019 annual revenues do not exceed $2.5 billion.

How much is a loan under MSLP?

  • The minimum loan size is $1 million. The maximum loan size depends on whether the borrower is seeking a MSNLF (new loan) or MSELF (refinance of a loan).  
  • The maximum allowable MSNLF loan is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed, but undrawn debt, does not exceed 4x the borrower’s 2019 earnings before interest, tax, depreciation and amortization (EBITDA); 
  • The maximum allowable MSELF loan is the lesser of $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 6x the borrower’s 2019 EBITDA.

What is the loan term? The loan term is four years with interest and principal payments deferred for one year.

What is the interest rate on MSLP loans? Interest rate is an adjustable rate of SOFR plus 250-400 basis points.

Is there a fee associated with MSLP loans? Yes, but only for new loans (MSNLF). The borrower must pay the lender an original fee of 100 basis points on the principal of the loan.

Is collateral required? No, for new loans (MSNLF). It is up to the lender’s discretion for refinancing of existing loans (MSELF).

Is there a prepayment penalty? No.

Can a business apply for the MSLP after applying for and receiving a PPP loan? Yes, a business can receive funds from both MSLP and the PPP. But, unlike the PPP loan, no amount of the MSLP loan will be forgiven.  

What about the Primary Market Corporate Credit Facility (“PMCCF”)? No, a business cannot apply for MSLP and the PMCCF funds. It must pick one or the other. Also, a business cannot participate in both MSNLF and MSELF. It must pick one or the other.

How can a company use the MSLP funds? The funds received must be used to retain at least 90% of the borrower’s employees (based on numbers as of February 1, 2020). The borrower must use the funds to employee this 90% number of employees at full compensation and benefits through September 30, 2020. The released guidance does not elaborate on what this means. It simply states that the borrower will use reasonable efforts to restore not less than 90% of its workforce based on February 1, 2020 numbers and all compensation and benefits not later than four months after the emergency.

Are there any compliance issues or use limitations associated with MSLP loans? Yes, a business must make certain certifications/attestations when applying for a loan under MSLP.

There are compensation, stock repurchase, and dividend restrictions for businesses that receive MSLP loans. For example, a business cannot pay dividends or make other capital distributions with respect to common stock until one year after the loan is repaid. There are also several use limitations. For example, the business must commit to refrain from using MSLP funds to repay other loan balances. Also, a lender cannot reduce or cancel existing lines of credit and a borrower cannot seek to do so upon receipt of MSLP funds.

A business should discuss these restrictions with its attorney and lender before applying for the loan to make sure they can actually comply with the many restrictions associated with MSLP loans.

The Federal Reserve’s current term sheet for the MSNLF and MSELF  are found on its website. These terms are subject to change as final guidance is issued. The Federal Reserve received comments from industry leaders through April 15, 2020. Additional guidance is expected in the next few days.

For questions or more information, contact your primary BMD Attorney. 

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