The Federal Reserve recently extended its Main Street Loan Program (the “Program”) to three separate loan facilities: the New Main Street Loan Facility, the Main Street Senior Loan Facility and the Main Street Expanded Loan Facility (each , an “MSLP Facility” and collectively, the “MSLP Facilities”). The MSLP facilities aim to provide up to $ 600 billion in additional liquidity to qualifying mid-sized businesses. Unless extended, the Program will expire on September 30, 2020.

The following is a high-level summary of some requirements for the program and each MSLP installation, as described in Frequently Asked Questions (“Faq) Issued by the Federal Reserve and the Treasury Department as part of the program. The FAQ applies to any eligible secured or unsecured term loan taken out after April 24, 2020.

  1. Eligible borrower. To be eligible for an MSLP facility, a business must meet the following criteria:
    • The company must exist before March 13, 2020.
    • The business must not be part of an “ineligible business” as described in the Small Business Association’s regulations regarding PPP loans.
    • The business must have 15,000 or fewer employees, or have 2019 annual revenues of $ 5 billion or less.
    • The company must be an American company.
    • The business can only participate in one MSLP facility, but can receive more than one loan under the same facility as long as the amount of all loans under that facility does not exceed the maximum loan amount.
    • The company must not have benefited from specific support under the CARES law.
    • The company must be able to do all the required certifications.
  2. Amount of the loan. In accordance with the termsheets issued for each MSLP facility, the minimum and maximum loan amount varies according to the MSLP facility as follows:
    • New Main Street Loan Facility:
      • Minimum loan amount: $ 250,000
      • Maximum loan amount: The lesser of (i) $ 35 million, or (ii) an amount which, when added to the existing outstanding amount and the unused available debt of an eligible borrower, does not exceed 4 times the EBITDA adjusted for this eligible borrower for fiscal 2019.
    • Main Street Priority Loan Facility:
      • Minimum loan amount: $ 250,000
      • Maximum loan amount: The lesser of (i) $ 50 million, or (ii) an amount which, when added to the existing outstanding and unused available debt of an eligible borrower, does not exceed 6 times the Adjusted EBITDA of this qualifying borrower for fiscal 2019.
    • Loan facility extended to main street:
      • Minimum loan amount: $ 10,000,000
      • Maximum loan amount: The lesser of (i) $ 300 million, or (ii) an amount which, when added to the existing outstanding and unused available debt of an eligible borrower, does not exceed 6 times the Adjusted EBITDA of this qualifying borrower for fiscal 2019.
  1. PPP loan. A business that has received a PPP loan remains eligible to receive a loan under an MSLP facility.
  2. term of the loan. For each MSLP facility, each eligible loan will have a maturity of 5 years. This has been increased by 4 years as originally proposed.
  3. Interest rate. A loan under any MSLP facility will have an interest rate of Libor (1 month or 3 months) plus 300 basis points.
  4. Reimbursement deferral. Principal payments owing on each MSLP facility may be deferred for two years and interest payments may be deferred for one year. Beginning in the third year of the loan term, principal and accrued interest payments will be due and payable as follows: 15% at the end of the third year, 15% at the end of the fourth year and a lump sum payment 70% at maturity. Any loan under an MSLP facility constitutes full recourse for the borrower concerned and cannot be forgiven.
  5. Guarantee / Priority.
    • A loan under any of the MSFL facilities can be secured or unsecured. However, if the underlying loan is secured, then a loan under the Main Street Extended Loan Facility must also be secured.
    • A loan under the New Main Street Loan Facility cannot be contractually subordinated in priority to other loans or debt obligations of the borrower (meaning it may not have priority in the event of bankruptcy) . Under the Main Street Senior Loan Facility and Extended Main Street Loan Facility, the loan must be senior or pari passu with, in terms of priority and security, other loans or debt obligations. of the borrower, other than mortgage debt.
  6. Reserve bank participation. With respect to all MSLP facilities, the Federal Reserve Bank of Boston (as the designated reserve bank), through a single common special purpose vehicle, will purchase 95% equity interests in qualifying loans from of eligible lenders. Eligible lenders will retain 5% of the risk associated with any new loan or increasing the size of existing facilities granted to eligible businesses.
  7. Required certifications. Eligible borrowers are required to make the following certifications and commitments under any MSLP facility:
    • Eligible borrowers should refrain from repaying the principal balance or accrued interest on any existing debt until the program loan is repaid in full, unless such principal or interest payment is mandatory and due. (i.e. no voluntary prepayment). The foregoing does not prevent an Eligible Borrower from refinancing an existing debt owed by that borrower to a non-program lender when establishing an Eligible MSLP Facility.
    • Eligible Borrowers agree not to seek to cancel or reduce in any way a committed line of credit advanced by a Program lender or otherwise.
    • Each eligible borrower must certify that he has reasonable grounds to believe that from the date of creation of the loan and after giving effect to it, this borrower has the capacity to meet his financial obligations for at least 90 days from it, and don’t expect to file for bankruptcy during that time.
    • Each eligible borrower agrees to comply with all compensation, share repurchase and capital distribution restrictions that apply to direct loan programs under the CARES Act, provided that an S corporation or another flow-through entity is permitted to make distributions to the extent reasonably required to meet the tax obligations of its owner for the profits of that entity.
    • Each eligible borrower must certify that they are eligible to participate in the applicable MSLP Facility, including in light of the prohibitions on conflicts of interest contained in the CARES Act.
    • Each Eligible Borrower undertakes and agrees to use commercially reasonable efforts to maintain its payroll levels and retain its employees for the term of the Eligible Loan.

In addition to the above certifications, each eligible borrower is also required to demonstrate that they are unable to obtain adequate credit housing from other banking insights outside of the program. According to the FAQ, an acceptable basis for such certification may be that the amount, price or terms of other credit accommodation available to the borrower are inadequate for the needs of that borrower in the current unusual and urgent circumstances.

As part of the above, the Federal Reserve has issued some form of borrower certifications and commitments for each MSLP facility, each of which is linked here: Main Street New Loan Facility, Main Street Priority Loan facility and main street Extended Ease of loan.

  1. Documentation. The required forms and agreements can be found on the Reserve Bank website. website, which includes a Program Loan Participation Agreement, Borrower and Lender Certification Form, Service Agreements, and related documentation. Although the Federal Reserve does not provide loan document forms to be used under the MSLP facilities, all loan documents must include the terms and conditions detailed in the loan document checklist attached in Annex A from the FAQ.

We continue to monitor the release of additional guidance by the Federal Reserve and / or the Treasury Department, and will provide further alerts as appropriate.

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