Financial Support for Small and Medium Businesses - The Main Street Lending Program
To support small and medium size businesses and nonprofit organizations negatively affected by the COVID-19 pandemic, the Federal Reserve ("Fed"), with financial support from the Treasury, established the Main Street Lending Program ("Main Street"). Main Street is designed to assist businesses in sound financial condition, prior to the pandemic, that were unable to access Paycheck Protection Program ("PPP") funds, or that require additional funds to support operations and payroll after receiving a PPP loan, and might have difficulty obtaining loans in the pandemic-driven credit crunch. Main Street loans are non-forgivable. To obtain a loan, prospective Borrowers meeting certain eligibility requirements ("Borrower") must apply through a Lender participating in Main Street ("Lender"). The Fed will purchase a 95% interest in a Main Street loan, while Lenders retain 5%. This e-alert overviews loans available to for-profit businesses 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"). Lenders can make Main Street loans to new customers, and the Fed plans to purchase loans through Main Street until December 31, 2020.
Loan Terms Common Across Facilities
Terms common to MSNLF, MSPLF, and MSELF include:
- Maturity: 5 years
- Interest Rate: Libor +3%
- Principal Deferral: 2 years
- Principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year.
- Interest Deferral: 1 year (unpaid interest will be capitalized).
- Transaction Fee: 1% of principal amount due from Lender to Fed (which Lender may require Borrower to pay).
- Origination Fee: up to 1% of principal amount due from Borrower to Lender.
- Prepayment: Borrower can prepay without penalty.
- No Forgiveness: Loans are not forgivable (in contrast to PPP loans).
Facility-Specific Loan Terms
- MSNLF
- Type: New term loan.
- Range: $250,000 to $50 million.
- Max size: Not greater than, when added to the Borrower's existing outstanding and undrawn available debt, 4x Borrower's adjusted 2019 EBITDA.
- Seniority: At all times, not contractually subordinated to Borrower's other loans or debt instruments.
- MSPLF
- Type: New term loan.
- Range: $250,000 to $50 million.
- Max size: Not greater than, when added to the Borrower's existing outstanding and undrawn available debt, 6x Borrower's adjusted 2019 EBITDA.
- Seniority: At all times, senior to or pari passu with, Borrowers other loans or debt instruments, other than mortgage debt.
- Refinancing: Loan can be used to refinance existing debt owed by Borrower to non-Main Street Lender.
- MSELF
- Type: Increase of existing term loan or revolving credit facility.
- Range: $10 million to $300 million.
- Max size: Not greater than, when added to the Borrower's existing outstanding and undrawn available debt, 6x Borrower's adjusted 2019 EBITDA.
- Seniority: At all times, senior to or pari passu with, Borrowers' other loans or debt instruments, other than mortgage debt.
Threshold Borrower Requirements
MSNLF, MSPLF, and MSELF Borrowers must meet certain threshold requirements including:
- Be a Business[1] established prior to March 13, 2020;
- Not be an Ineligible Business[2];
- (i) Have 15,000 employees or fewer or (ii) have 2019 annual revenues of $5 billion or less;
- 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;
- Not also participate in, as applicable, the MSNLF, the MSPLF, or the MSELF, or the Primary Market Corporate Credit Facility[3]; and
- Not receive specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).
Mandatory Borrower Certifications and Covenants
Additionally, MSNLF, MSPLF, and MSELF Borrowers: i) will be subject to Lender's financial review; ii) should make commercially reasonable efforts to retain employees while the Main Street loan is outstanding; and iii) must complete certain Covenants and Conditions, including:
- Not repay the principal balance of, or paying any interest on, any debt until the Main Street loan is repaid (unless the debt or interest payment is mandatory and due).
- Not seek to cancel or reduce any committed lines of credit with the Main Street Lender or any other Lender.
- Have a reasonable basis to believe, as of the Main Street loan origination date and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time.
- 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[4]
- Certify that it meets all eligibility requirements to participate in the loan facility.
Additional Information
- Updated Fed Main Street guidance is available here.
Pedersen & Houpt attorneys have worked directly with Lenders participating in the Main Street Lending Program, and are available to help determine if the program might be a fit for your business.
If you have any questions related to the above information, please contact your attorney at Pedersen & Houpt or the attorneys below. We will answer your questions and walk you through the Main Street Lending Program.
| Brian P. Collins | David A. Martin Attorney at Law 161 North Clark Street, Suite 2700 Chicago, Illinois 60601 312-261-2286 |
[1] "Business" means 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.
[2] 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, all as may be further modified at the discretion of the Fed.
[3] More information about the Primary Market Corporate Credit Facility is available here.
[4] Except that an S corporation or other tax pass-through borrower entity may make distributions to the extent reasonably required to cover its owner's tax obligations in respect of the entity’s earnings.