June 9th, 2020

Small and Midsize Business Relief: New “Main Street Lending Program “Is on the Way

Small and Midsize Business Relief: New “Main Street Lending Program “Is on the Way

In our continuing effort to help clients leverage COVID-19-related federal assistance, we are tracking a new relief program due out soon from the Federal Reserve. The “Main Street Lending Program” will facilitate loans to small- and mid-size businesses that were considered to be in sound financial condition before the start of the COVID-19 pandemic. Under the Main Street program, the Federal Reserve Bank of Boston has set up a so-called special purpose vehicle (SPV), funded with a $75 billion equity investment from the Treasury Department, that would be used to purchase up to $600 billion of participations in loans from eligible lenders.[1]  The Main Street SPV is authorized to purchase participations in Main Street loans until September 30, 2020, unless extended by the Board of the Federal Reserve and by the Treasury Department.

The Main Street program was first announced in a press release on March 23, 2020, but the Federal Reserve has been fleshing out the program structure over the past several weeks in a series of releases, guidance and FAQs that have appeared since early April. The most recent update was released Monday, June 8th, in which the Federal Reserve commented that the Main Street Program was expected to be open for lender registration “soon” and that the Federal Reserve would be actively buying loans shortly thereafter. The June 8th update and the preceding releases, guidances and FAQs can be accessed here.   

How does the “Main Street Lending Program” differ from the Payment Protection Program (PPP)? The terms of Main Street program loans will vary significantly from the loans made under the PPP loan program. The most significant differences are (1) unlike PPP loans, Main Street loans are not forgivable, and (2) the Main Street program requires a credit analysis by the lender while no underwriting process was involved in procuring a PPP loan. Part of the reason for these distinctions is that PPP loans were fully guaranteed by the Small Business Administration while Main Street program lenders maintain the risk on a percentage of the credit extended.    

The Main Street program consists of three types of loan facility: the Main Street New Loan Facility (the “MSNLF”), the Main Street Priority Loan Facility (the “MSPLF”) and the Main Street Expanded Loan Facility (the “MSELF”). Following the June 8th update, all three facilities now provide for five-year term loans (prepayable without penalty), and an interest rate of LIBOR plus 3%. To be eligible for any of the Main Street loans, a borrower must be a for-profit business organized in the United States prior to March 13, 2020, with “significant operations in”, and a majority of its employees in, the United States.  In addition, an eligible borrower, together with its “affiliates,” must have either (1) 15,000 or fewer employees, based on the average total number of employees for each pay period over the 12 months prior to commencement of the loan, or (2) $5 billion or less in annual revenue in 2019.  Main Street program borrowers will have to calculate headcount using same “affiliation” principles applicable to PPP loans.

Borrowing limits. The MSNLF and MSPLF will be advanced as newly originated term loans for a minimum of $250,000 each, while the MSELF is an expansion of an eligible borrower’s existing credit facility with a minimum borrowing of $10 million. The maximum size of an MSNLF is the lesser of $35 million or an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed 4 times the borrower’s 2019 adjusted EBITDA, while the MSPLF has a maximum size of the lesser of $50 million or an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed 6 times the borrower’s 2019 adjusted EBITDA. The MSELF maximum amount is the lesser of $200 million or an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed 6 times the borrower’s 2019 adjusted EBITDA. The terms of each type of facility also vary with respect to amortization schedules, security and priority, and limitations on use of proceeds to repay other indebtedness. The June 8th drafts of the term sheets for the MSNLF, MSPLF and MSELF loans are linked, respectively, here, here and here.  

Non-profits. The most recent FAQs (i.e., FAQ E.6) indicate that that the Fed is working to establish loan options for non-profits.  

We will provide more detailed guidance on the Main Street loan program when the final terms and the launch date are announced. 

If you have questions about the new Main Street Lending Program, about applying for PPP loans, or about other CARES Act developments, please contact Jay Rand at 212 705 4825 or jrand@fkks.com, Deborah Wolfe at  212 826 5573 or dwolfe@fkks.com, Tricia Legittino at 310 579 9632 or tlegittino@fkks.com, Wendy Stryker at (212) 705 4838 or wstryker@fkks.com, or any other member of the Frankfurt Kurnit Corporate and Employment Groups.  

[1] According to a recent Small Business Administration report, more than $100 billion in PPP loan program funds remained available as of May 30, 2020.