On April 30, 2020, the Federal Reserve Board substantially updated the terms of its Main Street Lending (MSL) program to allow larger and smaller companies to participate
On April 30, 2020, the Federal Reserve Board substantially updated the terms of its Main Street Lending (MSL) program to allow larger and smaller companies to participate, including for:
- loan size changes (now loans can be $500,000 instead of $1 million, and can be secured);
- borrower size changes (now borrowers can have up to 15,000 employees (up from 10,000), and up to $5 billion in annual revenues (up from $2.5 billion)) and
- the addition of a third program (called the “priority” program), with the new program calling for a cap of 4x adjusted EBITDA and the priority program calling for a cap of 6x adjusted EBITDA.
The Board posted significantly updated term sheets and lengthy FAQs on April 30, 2020. Open items remain (for example, whether companies participating in the program are subject to certain CARES Act restrictions on outsourcing/offshoring and involvement in collective bargaining) and there are significant exclusions from the program (see Exhibit A to the attached Client Advisory, for a list). No launch date has been announced, but interested companies should be discussing with their lenders (and/or other banks). Alternative lenders are not eligible to participate (unlike with the PPP program) at this point.
The Main Street Lending Program was authorized under Federal Reserve Act Section 13(3) and The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), to enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering four-year loans to companies employing up to 15,000 workers or with revenues of less than $5 billion. The U.S. Department of the Treasury and Federal Reserve Board announced that the Treasury Department will make a $75 billion equity investment in a special-purpose vehicle (the Main Street SPV) to be established by the Federal Reserve Board out of the $454 billion allocated by the CARES Act for support of Federal Reserve Board credit facilities. This is one of several initiatives aimed at promoting maximum employment and stabilizing the U.S. economy during the COVID-19 pandemic. The Federal Reserve Bank of Boston will commit to lend to the Main Street SPV on a recourse basis, providing leverage that is expected to result in up to $600 billion in new or expanded bank loans to eligible borrowers, using funds appropriated to the Exchange Stabilization Fund under CARES Act section 4027. The Main Street SPV will support three separate lending facilities:
- the Main Street New Loan Facility (MSNLF), which will cover eligible secured or unsecured term loans between $500,000 and $25 million (capped at 4x adjusted EBITDA) originated on or after April 24, 2020; and
- the Main Street Priority Loan Facility (MSPLF), which will cover eligible secured or unsecured term loans between $500,000 and $25 million (capped at 6x adjusted EBITDA) originated on or after April 24, 2020; and
- the Main Street Expanded Loan Facility (MSELF) which will provide availability for loan tranches between $10 million and $200 million (capped at 6x adjusted EBITDA) upsized on or after April 24, 2020 at par value, as to eligible term loans originated prior to April 24, 2020 (with the Main Street SPV and eligible lender sharing risk in the upsized tranche on a pari passu basis).
The Main Street SPV will purchase up to a 95% participation in the MSNLF or MSELF loans (and an 85% participation in the MSPLF loans) in efforts to encourage lending under such facilities by eligible financial institutions, leaving banks with a 5%-15%share. The Main Street facilities are separate from the CARES Act U.S. Small Business Administration (SBA) Payroll Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). Each of the Main Street facilities has different eligibility standards, and the facilities are described in the attached client advisory.
Please Click Here "Main Street Loan Facility Program Under the CARES Act in Wake of COVID-19's Economic Consequences" (April 14, 2020, updated May 5, 2020) to view a client advisory that may be useful to you in making Main Street Loan Facility application decisions at this time. We will continue to monitor these matters closely. If you have any questions about small business relief from COVID-19, please contact Jeanne Solomon, Esq. - firstname.lastname@example.org ((347) 844-3824) or David Cykiert, Esq - email@example.com.