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Summary of the COVID-19 Main Street Lending Program

Summary of the COVID-19 Main Street Lending Program

Update as of April 30, 2020: More loan options were announced on Thursday to help businesses struggling with the impact of the Covid-19 pandemic.

The Federal Reserve Board is expanding the scope and eligibility for its $600 billion Main Street Lending Program, which aims to help credit flow to small and midsized businesses.

  • Businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible. Main Street originally applied to companies with up to 10,000 employees and $2.5 billion in revenue.
  • A new loan option has been added where lenders will retain a 15% share on loans that, when added to existing debt, do not exceed six times a borrower’s income. In Main Street’s other two loans, lenders retain a 5% share and there are different features.
  • The minimum loan size for certain loans has been lowered to $500,000 from $1 million.

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April 21, 2020: As part of the overall effort to keep businesses afloat during the COVID-19 pandemic, the Federal Reserve and the Department of the Treasury unveiled details April 9, 2020 about a new lending initiative that will put $600 billion into the hands of small and midsize businesses. 

The Main Street Lending Program, which implements separate provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act, is a loan program aimed at helping businesses with up to 10,000 employees or with revenues less than $2.5 billion.

These loans can be either new loans or expanded loans with terms up to four years and with principal and interest deferred for one year. 

The following chart looks at the highlights of both the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF).

 

Main Street New Loan Facility

Main Street Expanded Loan Facility

Overview

The Main Street Special Purpose Vehicle (SPV) that will purchase from a participating lender a 95% share of each new loan with the lender retaining 5% of the loan.

The Main Street SPV that will purchase from a participating lender 95% in the upsized tranche of eligible loans from eligible lenders. Lenders will retain 5% of the upsized tranche of each loan.

What Businesses Qualify?

Any business (profit or nonprofit) with up to 10,000 employees or up to $2.5 billion in 2019 annual revenue.

Same as MSNLF

Created or organized in the U.S. or under the laws of the U.S.

Significant operations and a majority of its employees based in the U.S.

In good financial standing before the crisis.

 

Has not otherwise received economic relief in the form of loans under the CARES Act.

May not also participate in the New Loan Facility or the Primary Market Corporate Credit Facility

What Lenders Qualify?

U.S. insured depository institutions (banks, savings associations and credit unions), US bank holding companies and US savings and loan holding companies.

Same as MSNLF

How Much can a Business Borrow?

Between $1 million and $25 million, but not to exceed an amount that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 4x the borrower’s 2019 EBITDA.

Between $1 million and $150 million, but not to exceed the lesser of 30% of the borrower’s existing outstanding and committed but undrawn debt or an amount that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6x the borrower’s 2019 EBITDA.

Loan Terms

Originated on or after April 8, 2020

Originated before April 8, 2020

Unsecured

Any collateral securing an eligible loan, whether pledged under the original loan terms or at the time of upsizing, will secure the loan participation on a pro rata basis.

The maximum loan term is four years with amortization of principal and interest deferred for one year.

Same as MSNLF

The interest rate is the adjustable rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points. As of April 8, the SOFR was 0.01% (one basis point).

Same as MSNLF

Loans are not forgivable.

Same as MSNLF

Pre-payment without penalty

Same as MSNLF

Attestations for Borrowers

The loan is needed due to the Covid-19 crisis and reasonable efforts will be made to maintain payroll and retain employees.

Same as MSNLF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently unclear

 

 

 

 

Loan proceeds will be used to retain at least 90% of their workforce at full compensation and benefits through September 30, 2020.

At least 90% of the workforce that existed as of February 1,2020 will be restored with full compensation and benefits no later than four months after the end of the public health emergency of Covid-19.

Proceeds will not be used to repay other loan balances and other debt except mandatory principal payments, until the eligible loan is repaid in full.

The business is not in bankruptcy proceedings.

Will remain neutral in any union organizing efforts for the term of the loan.

Will not retract existing collective bargaining agreements for the term of the loan and for two years after repayment.

Meets the EBITDA leverage condition summarized above.

It will comply with executive compensation limitations in the CARES Act including: No employees earning over $425,000 in 2019 will receive an increase in compensation for any 12-month period or a severance payment more than two times 2019 compensation; employees with 2019 compensation over $3 million are limited to total annual compensation of $3 million plus 50% of the amount their compensation exceeded $3 million.

It will not pay dividends or make other capital distributions on its common stock or repurchase an equity security listed on a national securities exchange while the loan is outstanding.

It will not outsource or offshore jobs for the term of the loan plus two years after completing repayment

Attestations for Lenders

Proceeds will not be used to repay or refinance pre-existing loans or lines of credit to the borrower.

Same as MSNLF

Attestation for Borrower and Lender

The lender must attest that it will not cancel or reduce any existing lines of credit to the borrower and the borrower must attest that it will not seek to cancel or reduce any outstanding lines of credit with any existing lender

Same as MSNLF

Fees

The lender will pay the SPV a facility fee of 100 basis points of the principal purchased by the SPV. The lender may require the borrower to pay this fee.

Same as MSNLF

The borrower will pay the lender an origination fee of 100 basis points of the principal amount of the loan.

The SPV will pay the lender 25 basis points of the principal purchased by the SPV for loan servicing.

Termination

September 30, 2020 unless the Federal Reserve and the Treasury Department extend the facility.

Same as MSNLF

For additional information contact us at info@herbein.com. Article contributed by David Peritz.

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