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Eligibility Requirements for The Main Street Lending Program

May 6, 2020

 

Tom Porricelli

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The Main Street Lending Program (“MSLP”) is designed to provide financial support to small and medium-sized businesses by providing credit in order to maintain operations and payroll until conditions normalize. On April 9, 2020, the U.S. Federal Reserve launched a $600 billion lending program aimed at helping relieve the liquidity crisis facing many small and medium-sized businesses in the aftermath of the COVID-19 pandemic. As of April 30, 2020, the U.S. Federal Reserve has adjusted the initial terms of the MSLP due to varying financial needs of businesses and created an additional third loan option (see chart below for updated loan options).

The MSLP offers three different loan options “New”, “Priority, & “Expanded” four-year, unsecured loans to smaller and medium- businesses that meet the criteria set forth by the Federal Reserve (as described below). The program allows businesses to take part in both MSLP and the Small Business Administration’s Paycheck Protection Program (PPP), however, unlike the PPP, the Main Street loans are not eligible to be forgiven, but principle and interest payments are able to defer for one year and unpaid interest will be capitalized and may be secured or unsecured. Each lender is expected to conduct an assessment of each potential borrower’s financial condition at the time of application.

 

Main Street New Loan Facility (“MSNLF”)

Main Street Priority Loan Facility (“MSPLF”)

Main Street Expanded Loan Facility (“MSELF”)

Loan Size & Limitations

  • $500k - $25M (or an amount, when added to the Eligible Borrower’s existing outstanding and undrawn (including MSNLF) available debt, does not exceed 4x the adjusted 2019 EBITDA
  • 500k - $25M (or an amount, when added to the Eligible Borrower’s existing outstanding and undrawn (including MSPLF) available debt, does not exceed 6x the adjusted 2019 EBITDA
  • $10M - $200M (Cannot exceed (i) 35% of the existing outstanding and undrawn available debt that is equal to the MSELF and equivalent in secured status or (ii) Total debt (including MSELF) must not exceed 6 times 2019 EBITDA

Other Limitations

  • Cannot be subordinated to any other debt
  • Must be senior to or equal to other debt (other than mortgage debt)
  • Must be senior to or equal to other debt (other than mortgage debt)

Eligible Borrower and Limitation Requirements

  • A business that was established prior to March 13, 2020 and have no more than 49% participation by foreign business entities **
  • The business is not deemed ineligible by the SBA***
  • Must meet at least one of the following conditions: i) Has 15,000 employees or fewer, or ii) had 2019 annual revenues of $5B or less (affiliation rules do not apply for these two conditions)
  • The business must be created or organized in the USA or under the laws of the USA with significant operations in and a majority of its employees based in the USA
  • Business may ONLY participate in one of the MSLP or the Primary Market Corporate Credit Facility and MUST NOT have received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 / Cares Act (Excluding PPP)

Eligible Borrower and Limitation Requirements (Additional)

 

  • Existing facility was in place on or before 4/24/2020, and
  • Must have remaining maturity of at least 18 months (lender may extend this at time of upsizing to meet this requirement)

Terms

  • 4 year maturity
  • Principal + interest payments deferred for 1 year (unpaid interest is capitalized)
  • Adjustable interest rate – LIBOR (1 or 3 month) + 300 basis points
  • Repayment schedule: 1/3 at end of 2nd year, 1/3 at end of 3rd year, and 1/3 at maturity (end of 4th year)
  • Prepayment permitted without penalty
  • Fees of 100bps will be assessed on both the lender and borrower (lender may pass fee to borrower)

 

  • 4 year maturity
  • Principal + interest payments deferred for 1 year (unpaid interest is capitalized)
  • Adjustable interest rate – LIBOR (1 or 3 month) + 300 basis points
  • Repayment schedule: 15% at end of 2nd year, 15% at end of 3rd year, and 70% at maturity (end of 4th year)
  • Prepayment permitted without penalty
  • Fees of 100bps will be assessed on both the lender and borrower (lender may pass fee to borrower)

 

  • 4 year maturity
  • Principal + interest payments deferred for 1 year (unpaid interest is capitalized)
  • Adjustable interest rate – LIBOR (1 or 3 month) + 300 basis points
  • Repayment schedule: 15% at end of 2nd year, 15% at end of 3rd year, and 70% at maturity (end of 4th year)
  • Prepayment permitted without penalty
  • Fees of 75bps will be assessed on both the lender and borrower (lender may pass fee to borrower)

 

Required Borrower Certifications and Covenants

  • Cannot prepay any other debt (principal or interest) until MSL is paid off entirely
  • Cannot seek to reduce or cancel any existing debt or credit lines
  • Reasonable basis to believe have the ability to remain solvent for at least the next 90 days (no expected bankruptcy filings)
  • Must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act, except that an S corporation or other tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.

 

  • Cannot prepay any other debt (principal or interest) until MSL is paid off entirely (borrower can refinance debt to Eligible Lender)
  • Cannot seek to reduce or cancel any existing debt or credit lines
  • Reasonable basis to believe have the ability to remain solvent for at least the next 90 days (no expected bankruptcy filings)
  • Must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act, except that an S corporation or other tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.

 

  • Cannot prepay any other debt (principal or interest) until MSL is paid off entirely
  • Cannot seek to reduce or cancel any existing debt or credit lines
  • Reasonable basis to believe have the ability to remain solvent for at least the next 90 days (no expected bankruptcy filings)
  • Must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act, except that an S corporation or other tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.

 

Duration of Program

  • The program has been authorized until September 30, 2020 at which time the program will cease unless the program is extended by the Federal Reserve.

Eligible Lenders

  • An Eligible Lender is a U.S. federally insured depository institution (including a bank, savings association, or credit union), a U.S. branch or agency of a foreign bank, a U.S. bank holding company, a U.S. savings and loan holding company, a U.S. intermediate holding company of a foreign banking organization, or a U.S. subsidiary of any of the foregoing.

Other notable references:

The Federal Reserve does make reference that ALL Eligible Borrowers should make commercially reasonable efforts to retain employees during the term of the MSNLF Loan, MSPLF Loan, or MSELF Upsized Tranche. Specifically, an Eligible Borrower should undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor. Borrowers that have already laid-off or furloughed workers as a result of the disruptions from COVID-19 are eligible to apply for Main Street loans.
As of the release date, Non-Profit Organizations are currently excluded. The Federal Reserve acknowledges the unique needs of these organizations and will be evaluating the feasibility of adjusting the borrower eligibility criteria and loan eligibility metrics.

Further clarification guidance:

** For purposes of the Facility, a Business is an entity that is organized for profit as a partnership; a limited liability company; a corporation; an association; a trust; a cooperative; a joint venture with no more than 49 percent participation by foreign business entities; or a tribal business concern as defined in 15 U.S.C. § 657a(b)(2)(C), except that “small business concern” in that paragraph should be replaced with “Business” as defined herein. Other forms of organization may be considered for inclusion as a Business under the Facility at the discretion of the Federal Reserve.

*** For purposes of the Facility, an Ineligible Business is a type of business listed in 13 CFR 120.110(b)-(j) and (m)-(s), as modified by regulations implementing the Paycheck Protection Program established by section 1102 of the CARES Act (“PPP”) on or before April 24, 2020. The application of these restrictions to the Facility may be further modified at the discretion of the Federal Reserve.

References:

https://www.federalreserve.gov/monetarypolicy/files/main-street-lending-faqs.pdf    
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200430a1.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200430a2.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200430a3.pdf