The Federal Reserve established the Main Street Lending Program on April 9 and made modifications to some details and key terms on April 30, 2020. The purpose of the Main Street Program is to support lending to medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The Program operates through three facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). The program is authorized to facilitate lending of up to $600 billion through direct loan programs for middle size firms as an emergency measure to support economic growth.
It is anticipated that borrowers will apply directly to their bank or lender and that the lender will assess if you are qualified for these loans, similar to how the Paycheck Protection Program loans were administered, but with a lot more requirements. If you are considering a Main Street Loan, you should reach out to your bank or lender to let them know you are interested, request that they contact you when the application process opens up, and ask them to advise what documentation they anticipate you will need. The loan amounts available are based on IBITDA as detailed below essentially on a sliding scale. We will keep you updated as information becomes available.
Highlights of the Main Street Lending Programs are as follows:
Main Street New Loan Facility (MSNFL) – April 30, 2020:
- Expanded guidance regarding what defines an “Eligible Lender”
- Eligible borrower was established prior to March 13, 2020
- Created or organized in the U.S. or under U.S. laws and significant operations in and majority of employees based in the U.S.
- These are 4-year loans to small to mid-sized businesses in good financial standing
- Adjustable rate of LIBOR (1 or 3 month) + 300 basis point
- Principal and interest deferred for one year (unpaid interest will be capitalized)
- Principal amortization of 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
- Is not, at the time of origination or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments
- Minimum loan is $500,000
- Maximum is lesser of $25 Million or an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- Prepayment permitted without penalty
- Have up to 15,000 employees OR revenue less than $5 billion
- Eligible banks may originate new loans or use Main street loans to increase size of existing loans.
- Banks retain 5% share and sell remaining 95 percent to the Main Street facility which with purchase up to $600 B of these loans
- Businesses are to commit to reasonable efforts to maintain payroll and retain workers
- There are compensation, stock repurchase and dividend restrictions to these loans under the CARES Act
- Can take out a Main Street loan even if you have taken a PPP loan, but has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act)
There are additional required borrower certifications and loan terms which can be found at: Click Here
Main Street Priority Loan Facility (MSPLF) – April 30, 2020:
Terms are generally the same as per MNSFL with some important differences, including:
- Principal amortization of 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;
- Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- The SPV will purchase 85% participations in Eligible Loans from Eligible Lenders. Eligible Lenders will retain 15% of each Eligible Loan.
There are other differences; the April 30, 2020 term sheets for MSELF can be found at: Click Here.
Main Street Expanded Loan Facility (MSELF) – April 30, 2020:
Terms are generally the same as per MNSFL with some important differences, including:
- Principal amortization of 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;
- Minimum loan size of $10 million;
- Maximum loan size that is the lesser of (i) $200 million, (ii) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that is pari passu in priority with the Eligible Loan and equivalent in secured status (i.e., secured or unsecured), or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- At the time of upsizing and at all times the upsized tranche is outstanding, the upsized tranche is senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt.
There are other differences; the April 30, 2020 term sheets for MSELF can be found at: Click here
If you have any questions regarding Main Street Lending Program loans, Paycheck Protection Program, or the CARES Act, please contact the Prager Metis Crisis Management team at crisismanagement@pragermetis.com.
