Client Alert: Main Street Lending Program
COVID-19 Legal Updates Juan Zuniga · July 13, 2020
Updated July 10, 2020
The Main Street Lending Program (“MSLP”), created by the CARES Act and incorporated into Section 13(3) of the Federal Reserve Act, will provide a total of $600 billion in financing for small and medium-sized businesses affected by the coronavirus pandemic. Using funds allocated by the CARES Act, the Federal Reserve will offer non-forgivable loan relief to businesses that are too big to qualify for the Paycheck Protection Program (“PPP”) but too small to access capital markets.
On June 8th, the Federal Reserve Board expanded this program to provide more support for businesses by changing some requirements found in the chart below.
Key elements of MSLP include:
- Any businesses with fewer than 15,000 employees or with annual revenues of less than $5 billion are eligible to apply to MSLP. Businesses that received PPP loans can also be eligible to receive MSLP loans;
- MSLP loans include fees and require collateral;
- Eligible borrowers should make reasonable efforts to maintain payroll and retain workers during the term of the loan. Borrowers that have already laid-off or furloughed workers due to COVID disruptions are eligible to apply;
- Borrowers can defer repayment of MSLP loans for two years from loan origination date;
- MSLP program will be in effect until September 30, 2020, unless the Program is extended by the Treasury Department;
- MSLP offers borrowers three different loan options (see chart below created by Federal Reserve)
- Main Street New Loan Facility (“MSNLF”)
- Main Street Priority Loan Facility (“MSPLF”)
- Main Street Expanded Loan Facility (“MSELF”)
- Borrowers may only receive one of the three loan types but can receive more than one loan in that category;
- Lenders will assess a borrower’s eligibility for an MSLP loan based on meeting the terms of the program and also on each lender’s underwriting standards;
- Borrowers with zero or a negative EBITDA are not automatically disqualified from participating, as an adjusted EBITDA figure may be used to allow such potential borrowers to participate in the program.
- Calculations of adjusted 2019 EBITDA for MSNLF and MSPLF are based on lenders’ specific practices with similarly situated borrowers on or before April 24, 2020.
- Similarly, for MSELF Eligible Loans, the methodology to calculate the adjusted 2019 EBITDA is based on lender specific practices with similarly situated borrowers who originated or amended the underlying loan on or before April 24, 2020.
- MSLP loans must be paid back and will not be forgiven or converted to grants.
|Main Street Lending Program Loan Options||New Loans||Priority Loans||Expanded Loans|
(previously 4 years)
|Minimum Loan Size||$250,000
|Maximum Loan Size||The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA
|The lesser of $50M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA
|The lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA
|Principal Repayment||Principal deferred for two years, years 3-5: 15%, 15%, 70%
(previously principal deferred for one year and 33.33% repayment due in years 2-4)
|Principal deferred for two years, years 3-5: 15%, 15%, 70%
(previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively)
|Interest Payments||Deferred for one year|
|Rate||LIBOR + 3%|
A list of required documents and applications for participation in the program can be found here. For more specific information regarding the terms of the loans click the published Federal Reserve term sheets below:
- MSNLF (Main Street New Loan Facility)
- MSPLF (Main Street Priority Loan Facility)
- MSELF (Main Street Expanded Loan Facility)
Also, the Federal Reserve and the U.S. Treasury Department have designed two additional facilities to support lending to nonprofit organizations. Because the comment period has recently closed, details regarding these additional facilities are likely to change. To access preliminary information on the requirements for these facilities, click the links below:
- NONLF (Nonprofit Organization New Loan Facility)
- NOELF (Nonprofit Organization Expanded Loan Facility)
Approximately three weeks ago, the Federal Reserve’s Main Street Lending Program opened for lender registration. Mr. Rosengren, President of the Federal Reserve Bank of Boston, gave a speech indicating that more than 200 financial institutions had initiated registration to be lenders under the Main Street Program.
Last Wednesday, July 8th, the Federal Reserve Bank of Boston published a state-by-state listing of lenders participating in the program who are currently accepting applications from new business customers. You can access the entire U.S state-specific lender listing here. Although not on the list, Wells Fargo has updated its webpage to reflect its participation as a Main Street lender. The Federal Reserve has also encouraged borrowers to inquire about MSLP with their existing financial institutions.
The listings will be updated regularly as additional lenders complete the registration process for the Main Street program. Borrowers are encouraged to continue to check the Federal Reserve’s Board Website for updates or sign up to receive alerts by clicking here and scrolling down past the resources section. Lastly, those interested in watching the Federal Reserve’s recorded webinars on this program can click the following links: lender and borrower.
Juan E. Zúñiga is an international transactions attorney who has worked on cross-border deals throughout the United States, Latin America and in over 60 other countries. His practice is focused on buying and selling real estate, resort and hospitality transactions, mergers & acquisitions, overseas distribution agreements, international joint ventures, foreign trade and commerce, workouts of distressed assets, lending and investment issues. He has been particularly sought out for his handling of cross-border transactions, especially in Latin America. In this work, he represents American clients in their investments in overseas properties and in establishing subsidiary operations internationally. Additionally, he represents foreign clients in their investments in the United States. Read more about Juan here.
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