The Main Street Lending Program Take 3

In April the Federal Reserve announced initial details of the Main Street Lending Program. After receiving public feedback, the program was expanded in early May. Then in early June, they announced yet another expansion in order to make the funding available to a larger number of businesses. The program is now open for lender registration. As of June 11, the program entails the following:

Overview

The Main Street Lending Program, which makes $600 billion available to eligible borrowers, will enhance support for small- and medium-sized businesses that were in good financial standing before the crisis by offering 5-year secured and unsecured loans to companies. It was designed for businesses that were unable to access the Paycheck Protection Program (PPP) or that require additional financial support after receiving a PPP loan. It is comprised of three loan facilities.

1. Main Street Expanded Loan Facility (MSELF)
2. Main Street New Loan Facility (MSNLF)
3. Main Street Priority Loan Facility (MSPLF)

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

Eligibility

Eligible Borrowers must meet the following criteria:

• 15,000 employees or less or $5 billion or less in 2019 annual revenues
• Established prior to March 13, 2020
• 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
• A business is prevented from participating in the program if it has "otherwise received adequate economic relief in the form of loans or loan guarantees provided under the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act)."
• Eligible Borrowers are prohibited from participating in more than one of the loan facilities and may not also participate in the Primary Market Corporate Credit Facility.
• Any existing loan with the Eligible Lender as of December 31, 2019 must have had an internal risk rating equivalent to a "pass" in the Federal Financial Institutions Examination Council's supervisory rating system.
• The business must be able to make all of the certifications and covenants required under the program (see MSNLF, MSPLF, and MSELF for more information).

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

Details of the Loan Facilities

1. MSELF (Expanded Loan) features:

Applicable loan is a secured or unsecured term loan or revolving line of credit made by an Eligible Lender to an Eligible Borrower that was originated on or before April 24, 2020 and has a remaining maturity of at least 18 months, provided the upsized tranche of the loan is a term loan with the following features:

• • 5-year term
  • Minimum loan size: $10,000,000
  • Maximum loan size equal to the lesser of:
    1. $300 million; or
    2. an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA) 
  • Risk retention: 5%
  • Principal deferred for two years; interest deferred for one year
  • Principal due years 3-5: 15%, 15%, 70%
  • Adjustable interest rate of LIBOR + 3%
  • Fees: Eligible Lenders pay a transaction fee of 75 basis points of the principal and may choose to pass the fee to the borrower. Additionally, the borrower will pay the lender a fee of up to 75 basis points. 

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2. MSNLF (New Loan) features:

Applicable for a secured or unsecured term loan made by an Eligible Lender to an Eligible Borrower that was originated after April 24, 2020 provided the loan meets the following:

• • 5-year maturity
  • Minimum loan size: $250,000
  • Maximum loan size that is the lesser of:
    1. $35 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 adjusted EBITDA
  • Risk retention: 5%
  • Principal deferred for two years; interest deferred for one year
  • Principal due years 3-5: 15%, 15%, 70%
  • Adjustable rate of LIBOR + 3%
  • Fees: Eligible Lenders pay a transaction fee of 100 basis points of the principal at the time of origination and may pass this along to the borrower. Additionally, the borrower will pay the lender a fee up to 100 basis points.

3. MSPLF (Priority Loan) Features:

Applicable for a secured or unsecured term loan made by an Eligible Lender to an Eligible Borrower that was originated after April 24, 2020 provided the loan meets the following:

• • 5-year maturity
  • Minimum loan size: $250,000
  • Maximum loan size that is the lesser of:
    1. $50 million; or
    2. an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s adjusted EBITDA
  • Risk retention: 5%
  • Principal deferred for two years; interest deferred for one year
  • Principal due years 3-5: 15%, 15%, 70%
  • Adjustable rate of LIBOR + 3%
  • Fees: Eligible Lenders pay a transaction fee of 100 basis points of the principal at the time of origination and may pass this along to the borrower. Additionally, the borrower will pay the lender a fee up to 100 basis points.

Loan Proceeds

The proceeds from a Main Street Program Lending Facility may be used to refinance existing loans owed to other lenders, however there is a restriction in that following origination, but before the loan is paid in full, the borrower cannot pay other debt or interest payments unless it is mandatory and due.

To apply for a Main Street Program Loan, the Eligible Borrower must go through an Eligible Lender. For more information, review the Main Street Lending Program FAQs released June 8 or contact your MarksNelson advisor to discuss your unique situation.