On April 30, the Federal Reserve Board announced the expansion of the Main Street Lending Program (the “Program”). The Program, which has not yet launched, is designed to provide credit to businesses struggling with the fallout of the coronavirus pandemic but which are either too large to be eligible for Paycheck Protection Program (“PPP”) loans or still have unmet funding needs even after receiving a PPP loan. Our original post on the Program is available here. Please note that certain eligibility rules and loan terms have changed, as outlined below.
When the Program opens, interested businesses can apply for full-recourse, non-forgivable loans or loan expansions directly from eligible lenders. The Federal Reserve has not announced a Program start date or released a list of eligible lenders. It has, however, stated that it will release the names of borrowers, the amounts they borrow, interest rates, and other Program details.
The Program expansion involved creating a new loan facility—the Main Street Priority Loan Facility (the “MSPLF”)—and expanding eligibility for the Main Street New Loan Facility (the “MSNLF”) and Main Street Expanded Loan Facility (the “MSELF”).
The expanded eligibility opens all Program loans to businesses that either have up to 15,000 employees or $5 billion or less in annual revenue (increased from 10,000 employees and $2.5 billion in revenue). Employees and revenue are both calculated on an aggregate basis with affiliated businesses. The minimum loan size for the MSPLF and MSNLF was reduced from $1 million to $500,000, but a $10 million minimum applies to the MSELF. In response to public comments, the Program will no longer using SOFR to set interest rates. Interest rates for all three loan types will be set to equal LIBOR + 3%, but loan contracts should explain what rate will apply if LIBOR rates are no longer published during the term of the loan.
MSPLF loans can range in size from $500,000 to the lesser of $25 million or the amount that, when added to a borrower’s outstanding and undrawn available debt, does not exceed six times the borrower’s adjusted 2019 earnings before interest, tax, depreciation, and amortization (“EBITDA”). MSPLF loans (like MSNLF and MSELF loans) will have four-year terms, with payments deferred for the first year. For MSPLF loans, 15% of the principal will be due at the end of years 2 and 3, and a balloon payment of 70% of the principal will be due at maturity. Lenders will retain a 15% share of MSPLF loans. Borrowers will pay lenders an origination fee of 100 basis points, and lenders may also pass on the 100 basis point transaction fee charged by the Federal Reserve to borrowers.
The Program requires borrowers to “make commercially reasonable efforts to retain employees” during the term of Program loans. There is no set percentage of employees that must be retained, but borrowers must demonstrate good-faith efforts to comply with this requirement, in light of their need for labor, resources, and the overall economy.
Term sheets for each of the Program’s loan facilities are available here, along with FAQs about the Program, which include details about restrictions on stock repurchases, capital distributions, and repayment of other loans during the term of Program loans. A chart summarizing the terms of each loan facility is also available here.
The Program is not open to nonprofits. However, likely in response to comments received on the initial Program details, the Federal Reserve Board stated that it “recognizes the critical role that nonprofit organizations play throughout the economy and is evaluating a separate approach to meet their unique needs.”
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FOR MORE INFORMATION
For more information about the Main Street Lending Program, please contact your attorney at Gravel & Shea PC or any of the following attorneys at the firm:
Chip Mason (cmason@gravelshea.com), Cassandra LaRae-Perez (claraeperez@gravelshea.com), Oliver Goodenough (ogoodenough@gravelshea.com), Keith Roberts (kroberts@gravelshea.com), Pauline Law (plaw@gravelshea.com), or Catherine Burke (cburke@gravelshea.com).
