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CARES Act: The Federal Reserve Board Main Street Lending Program

April 14, 2020

Authorization

The Department of the Treasury, using funds appropriated to the Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), makes $600 billion available through the Federal Reserve Main Street Lending Program. 

The Main Street Lending Program is comprised of two loan facilities (note: a third loan option was included in the expansion announced in early May):

  1. the “Main Street Expanded Loan Facility” and
  2. the “Main Street New Loan Facility”

The Main Street Lending Program is currently scheduled to run through September 30, 2020 unless funds run out sooner.

Overview

The Main Street Lending Program will enhance support for small- and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies. Principal and interest payments will be deferred for one year. Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.

Eligibility

Eligible Borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each Eligible Borrower must be a business 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. Firms that have taken advantage of the Paycheck Protection Program may take out Main Street loans assuming they meet all requirements of the program. (Note: eligible borrowers have been expanded.)

Eligible Borrowers are prohibited from participating in both the Main Street Expanded Loan Facility and the Main Street New Loan Facility. Furthermore, Eligible Borrowers participating in the Facility may not also participate in the Primary Market Corporate Credit Facility.

Eligible Lenders are U.S.-insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.

Eligible loans under the Main Street Expanded Loan Facility

An existing term loan that was originated before April 8, 2020, provided that the upsized tranche of the term loan has the following features:

    • Four-year maturity
    • Amortization of principal and interest deferred for one year
    • Adjustable interest rate of the Secured Overnight Financing Rate + 250-400 basis points
    • Minimum loan size of $1 million
    • Maximum loan size equal to the lesser of:
      1. $150 million;
      2. 30% of the borrower’s existing outstanding and committed but undrawn bank debt; or
      3. an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA)
    • No early prepayment penalty
    • A fee of 100 basis points of the principal amount of the upsized tranche is due to the Eligible Lender at the time the Eligible Borrower increases its loan.

Eligible loans under the Main Street New Loan Facility

A new unsecured term loan that was originated on or after April 8, 2020, provided that the loan has the following features:

    • 4 year maturity
    • Amortization of principal and interest deferred for one year
    • Adjustable rate of Secured Overnight Financing Rate + 250-400 basis points
    • Minimum loan size of $1 million
    • Maximum loan size that is the lesser of:
      1. $25 million; or
      2. an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 EBITDA
    • Prepayment permitted without penalty
    • The Eligible Lender is charged a facility fee of 100 basis points of the principal amount of the loan. This fee may be passed along to the Eligible Borrower. Additionally, the Eligible Borrower will be charged an origination fee of 100 basis points of the principal amount of the loan.

Required Attestations   

In addition to certifications required by applicable statutes and regulations, the following attestations will be required with respect to each Eligible Loan:

  • The Eligible Lender must attest that the proceeds of the Eligible Loan will not be used to repay or refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower.
  • The Eligible Borrower must commit to refrain from using the proceeds of the Eligible Loan to repay other loan balances.
  • The Eligible Borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full.
  • The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower.
  • The Eligible Borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender.
  • The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus (COVID-19) pandemic, and that, using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.
  • The Eligible Borrower must attest that it meets the EBITDA leverage condition stated above.
  • The Eligible Borrower must attest 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.
  • Eligible Lenders and Eligible Borrowers will each be required to certify that the entity is eligible to participate in the Facility, including the conflicts of interest prohibition in Section 4019(b) of the CARES Act.

In response to public input, the Federal Reserve Board expanded the scope and eligibility of this program in early May. You can view the additions in our expansion update.

For more information, read the press release issued by The Federal Reserve Board on April 9 or contact your MarksNelson advisor to discuss your unique situation.

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