Main Street Lending Program
On April 9, 2020, consistent with the CARES Act, the Federal Reserve announced multiple programs supported by the U.S. Treasury which are intended to provide additional liquidity to U.S. businesses in light of the COVID-19 pandemic, including terms for new loans and the expansion of existing loans under the Main Street Lending Program (the “Program”). On April 30, 2020, the Federal Reserve announced an expansion of the scope of, and eligibility under, the Program.
The following is a brief summary of the principal terms of the Program as announced by the Federal Reserve to date.
The Program is designed to support small and medium-sized businesses that were either unable to access the Paycheck Protection Program (“PPP”) or that require additional financing support after receiving PPP loan proceeds. Unlike PPP loans, financing under the Program is not forgivable.
The Program is comprised of the Main Street New Loan Facility (“MSNLF”), Main Street Priority Loan Facility (“MSPLF”) and Main Street Expanded Loan Facility (“MSELF”). Each facility has the same eligible lender and eligible borrower criteria.
- MSNLF – The MSNLF provides for new loans to eligible borrowers of $500,000 to $25 million. The maximum size of a loan under the MSNLF cannot, when added to other outstanding and undrawn available debt, exceed 4 times 2019 EBITDA. The loans may not be contractually subordinated to any other outstanding loans.
- MSPLF – The MSPLF provides for new loans to eligible borrowers of $500,000 to $25 million. The maximum size of a loan under the MSPLF cannot, when added to other outstanding and undrawn available debt, exceed 6 times 2019 EBITDA. The loans must be senior to or pari passu with all other debt of borrower, other than mortgage debt.
- MSELF – The MSELF provides for increases to existing term loan or revolving credit facilities. The upsized tranche is a 4 year term loan from $10 million to $200 million. The maximum size may not exceed (1) 35% of existing outstanding and undrawn available debt that is pari passu in priority with the loan and equivalent in secured status (i.e., secured or unsecured) or (2) when added to existing outstanding and undrawn available debt, 6 times 2019 EBITDA. The upsized tranche must be senior to or pari passu with all other loans, other than mortgage debt.
A special purpose vehicle (the “Program SPV”) has been established pursuant to the Program. The Program SPV will purchase up to $600 billion in participations in eligible loans made under the Program
Generally, to be eligible under the Program, a borrower must satisfy the following:
- it must have been formed prior to March 13, 2020 under U.S. laws
- it must have significant operations in and a majority of employees based in the U.S.
- it must have 15,000 or fewer employees or 2019 annual revenues of $5 billion or less
- it must not have received direct support under section 4003(b)(1)-(3) of the CARES Act (air carriers and other businesses in distressed industries)
- it must be able to make all of the certifications and covenants under the Program
- it may only participate in one of the facilities and it may not participate in the Primary Market Corporate Credit Facility
- it must not be a business ineligible for borrowing under Small Business Administration (“SBA”) guidelines, as modified by the SBA for purposes of the PPP
For purposes of determining of employees and revenues, the SBA affiliation rules generally apply.
An eligible lender is any U.S. federally insured depository institution, U.S. branch or agency of a foreign bank, U.S. bank or savings and loan holding company, U.S. intermediate holding company of a foreign banking organization or U.S. subsidiary of any of the foregoing. The Federal Reserve is considering expansion to allow non-financial institution lenders to originate loans under the Program.
The Program SPV will purchase participations in MSNLF loans, MSPLF loans and MSELF upsized tranches through September 30, 2020.
Interest will accrue on loans and upsized tranches under the Program at a per annum rate equal to 1 or 3 Month LIBOR plus 3.00%.
Payments of principal and interest on loans and upsized tranches under the Program are deferred for one year, with unpaid interest capitalized. Thereafter, payments are required as follows:
- MSNLF – principal amortization of 33.33% at end of years 2, 3 and maturity
- MSPLF – principal amortization of 15% at end of year 2, 15% at end of year 3 and 70% at maturity
- MSELF – principal amortization of 15% at end of year 2, 15% at end of year 3 and 70% at maturity
Prepayments are permitted without premium or penalty on loans and upsized tranches under the Program.
Loans and upsized tranches under the Program have a 4 year maturity.
Loans and upsized tranches under the Program may be secured or unsecured. An MSELF upsized tranche must be secured if the underlying loan secured and the collateral must secure the upsized tranche on a pro rata basis.
Transaction and Servicing Fees
- MSNLF and MSPLF – A 1.00% fee is paid by the lender to the Program SPV at the time of origination, which may be passed through to borrower. In addition, the lender may require the borrower to pay up to a 1.00% origination fee in the lender’s discretion.
- MSELF – A 0.75% fee is paid by the lender to Program SPV at the time of upsizing, which may be passed through to borrower. In addition, the lender may require the borrower to pay up to 0.75% origination fee in the lender’s discretion.
- Existing Debt. Under the MSNLF and MSELF, the borrower may not pay any principal and interest on any other debt until the MSNLF loan or MSELF upsized tranche is repaid in full, unless the payment is mandatory and due. In addition, the borrower may not cancel or reduce any of its committed lines of credit. Under the MSPLF, the same rules apply except that the borrower may, at the time of origination of the MSPLF loan, refinance existing debt owed to a lender that is an ineligible lender under the Program (i.e., a non-bank lender). These covenants do not prohibit a borrower from (1) repaying a line of credit in accordance with normal usage of such line of credit, (2) taking on additional debt in the ordinary course of business on standard terms, provided such debt is secured by newly acquired property and, apart from such security, is of equal or lower priority than the Program loan, or (3) refinancing maturing debt.
- Compensation Restrictions. During the period financing under the Program is outstanding and for 1 year thereafter:
- officers or employees of the borrower earning more than $425,000 in 2019 may not receive a raise or severance benefits totaling more than twice their 2019 compensation
- officers or employees of the borrower earning more than $3 million in 2019 may not earn more than $3 million plus half the amount of their compensation in excess of $3 million
- Dividends, Distributions and Repurchases. During the period financing under the Program is outstanding and for 1 year thereafter, the borrower may not pay dividends, make other capital distributions or redeem or repurchase its capital stock or other equity interests. The foregoing does not prohibit redemptions or repurchases pursuant to contractual obligations in effect as of March 27, 2020 or distributions made by an S Corporation or other pass through entity to the extent required to cover its owners’ tax obligations in respect of the earnings of the entity.
- Maintaining Payroll and Retention of Employees. Borrowers must make commercially reasonable efforts to retain employees during the term of the financing under the Program. Commercially reasonable efforts mean good faith efforts, given capacity, economic environment, available resources and the business need for labor.
This summary is not intended to be exhaustive and further details and clarifications on the Program are still to come.
If you have any questions regarding the Program or your potential eligibility, please contact a Baird Holm LLP attorney.
 As noted above, businesses that have received PPP loans are eligible for loans under the Program.
 Ineligible businesses include financial businesses engaged primarily in lending, most passive real estate investment companies, life insurance companies, and private clubs and businesses, among others. See 13 CFR 120.110(b)-(j), (m)-(s) for the complete list.