The Main Street Lending Program was established in an effort to support lending and provide another alternative for small and medium-sized businesses that are dealing with the effects of COVID-19. 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).
Effective June 8th, 2020, the Main Street Lending Program has changed to make funding accessible to more small and medium-sized businesses AND to allow additional flexibility in repaying the loans.
The main changes you will see include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000;
- Increasing the maximum loan size for all facilities;
- Increasing the term of each loan option to five years, from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank’s participation to 95% for all loans.
Once they have successfully registered for the program, lenders are encouraged to begin making Main Street loans immediately. The Main Street Lending Program intends to purchase 95% of each eligible loan that is submitted to the program, provided that the required documentation is complete and the transactions are consistent with the relevant Main Street facility’s requirements. The Main Street Lending Program will also accept loans that were originated under the previously announced terms, if funded before June 10, 2020. Additional changes are outlined in the table below.
Nonprofit organizations play a critical role throughout the economy, and the Board is working to establish a program soon for these organizations.
The Main Street Lending Program was established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act. Additional frequently asked questions and answers for lenders and borrowers are also available. The form participation agreement and other legal forms will be updated to align with the changes announced today.
May 05, 2020: The Department of the Treasury (Treasury Department) will make a $75 billion equity investment in a Special Purpose Vehicle (Main Street SPV) in connection with the Program. The funds invested by the Treasury Department were appropriated to the Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
*It’s important to note that Main Street Loans are full-recourse loans and as such, they are not forgivable.
Last Thursday, the Federal Reserve widened the net for eligible applicants. Now, businesses with up to 15,000 staff or up to $5 billion in annual revenue are now eligible, compared with the initial plan which was for companies with up to 10,000 employees and $2.5 billion in revenue.
What are the differences between the MSNLF, the MSPLF, and the MSELF?
Main Street includes three facilities, each of which was authorized by the Federal Reserve Board under section 13(3) of the Federal Reserve Act. All three facilities use the same Eligible Lender and Eligible Borrower criteria, and have many of the same features, including the same maturity, interest rate, deferral of principal and interest for one year, and ability of the borrower to prepay without penalty.
Other features of the loans extended in connection with each facility differ. The loan types also differ in how they interact with the Eligible Borrower’s existing outstanding debt, including with respect to the level of pre-crisis indebtedness an Eligible Borrower may have incurred.
- MSNLF: Eligible Lenders extend new loans to Eligible Borrowers ranging in size from $500,000 to $25 million. The maximum size of a loan made in connection with the MSNLF cannot, when added to the Eligible Borrower’s existing outstanding and undrawn 5 available debt, exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). The loans must not be, at the time of origination or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments. The unique features of loans originated in connection with the MSNLF (MSNLF Loans) are provided in the MSNLF term sheet.
- MSPLF: Eligible Lenders extend new loans to Eligible Borrowers ranging in size from $500,000 to $25 million. The maximum size of a loan made in connection with the MSPLF cannot, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, exceed six times the Eligible Borrower’s adjusted 2019 EBITDA. At the time of origination and at all times thereafter, the Eligible 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. Eligible Borrowers may, at the time of origination of the loan, refinance existing debt owed by the Eligible Borrower to a lender that is not the Eligible Lender. The unique features of loans originated in connection with the MSPLF (MSPLF Loans) are provided in the MSPLF term sheet.
- MSELF: Eligible Lenders increase (or “upsize”) an Eligible Borrower’s existing term loan or revolving credit facility. The upsized tranche is a four-year term loan ranging in size from $10 million to $200 million. The maximum size of a loan made in connection with the MSELF cannot exceed (i) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that is pari passu in priority with the Eligible Loan and equivalent in secured status (i.e., secured or unsecured); or (ii) when added to the Eligible Borrower’s existing outstanding and undrawn available debt, six times the Eligible Borrower’s adjusted 2019 EBITDA. At the time of upsizing and at all times thereafter, the upsized tranche 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.
An Eligible Borrower is a Business that:
- was established prior to March 13, 2020;
- is not an Inelgible Businesses;
- meets at least one of the following two conditions: (i) has 15,000 employees or fewer, or (ii) had 2019 annual revenues of $5 billion or less;
- is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States;
- does not also participate in the MSNLF, the MSELF, or the Primary Market Corporate Credit Facility; and
- has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).
How long will the Program be in effect?
The Program was established to respond to uncertainty related to the COVID-19 pandemic and is authorized to purchase participations in MSNLF Loans, MSPLF Loans, and MSELF Upsized Tranches until September 30, 2020. The Main Street SPV will cease purchasing loan participations on September 30, 2020, unless the Program is extended by the Board and the Treasury Department. The Federal Reserve Bank of Boston (FRB Boston) will continue to operate the SPV after such date until the Main Street SPV’s assets mature or are sold.
*Nonprofits are not eligible for the Main Street lending program at the moment, the Fed said. The central bank is seeing if it can come up with a lending program that would have high demand from the charitable sector.
If you have questions as it relates to the Main Street Lending Program or the CARES Act, you can visit our COVID-19 Updates page, our Resources page, or you can contact our experts today. We’re here to help.