Main Street Lending Program

The Federal Reserve on April 30th released additional guidance and Main Street Lending Program updates. The program has changed since the last blog posted on April 21st. Here are the new details:

“To implement the Program, the Federal Reserve Bank of Boston will set up a special purpose vehicle (SPV) to purchase participations in loans originated by eligible lenders. Lenders will retain a percentage of the loans. As detailed further in the term sheets, U.S. businesses may be eligible for loans if they meet either of the following conditions: (1) the business has 15,000 employees or fewer, or (2) the business had 2019 revenues of $5 billion or less. Loans issued under the Program would have a four-year maturity, and principal and interest payments on the loans will be deferred for one year. Eligible lenders may originate new loans (under MSNLF and MSPLF) or increase the size of (or “upsize”) existing loans (under MSELF) made to eligible businesses.”

Notice that the maximum employees jumped from 10,000 to 15,000, and the 2019 revenues allowed doubled from $2.5 billion to $5 billion. There are also three programs instead of two, with the Main Street Priority Loan Facility (MSPLF) being the new addition. The Main Street New Loan Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF) are retained but some of the program details have changed.

The MSNLF and MSPLF have a minimum loan size of $500,000 (previously, the minimum loan size for the MSNLF was $1,000,000). The maximum loan size for these two programs is the lesser of $25 million, or four times EBITDA (earnings before interest, taxes, depreciation and amortization) for the MSNLF and six times EBITDA for the MSPLF. The minimum loan size for the MSELF is $10 million, and the maximum amount either is $200 million or involves other calculations.

The interest rate calculation for all three programs has changed to the adjustable rate of LIBOR (1 or 3 month) plus 300 basis points. For the MSNLF, the principal amortization is one-third at the end of the second year, one-third at the end of the third year, and one-third at maturity at the end of the fourth year. For the MSPLF and MSELF, the principal amortization is 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity at the end of the fourth year.

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.

There are various certifications and covenants that must be adhered to in order to participate in these programs, and there are also loan origination fees that will be incurred on the borrower.

At the time of posting this blog, the Federal Reserve is still working on the infrastructure needed to put these programs into operation, and there is currently no estimated time that this will be ready to go. The program is set to end September 30th, 2020.

The Federal Reserve is leaving it up to the lenders to decide what loan documents will be needed for the Main Street Lending program. It is possible that it will be similar to the documentation required for the Paycheck Protection Program.

Note that these loans cannot be used to repay or refinance pre-existing loans. Prepayments are permitted without penalty.

Contact us for additional information on the Main Street Lending Program or to discuss your specific situation.