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Federal Reserve Further Revises and Expands Main Street Lending Program for Small and Mid-sized Businesses

On June 8, 2020, the Federal Reserve further revised the Main Street Lending Program to facilitate lending to more small and mid-sized businesses. The Federal Reserve also released a revised set of Frequently Asked Questions that provide additional details about the Main Street Lending Program (available here).

The Federal Reserve previously announced the creation of a Main Street Lending Program to facilitate lending to small and mid-sized businesses that were in sound financial condition prior to the COVID-19 pandemic. On April 30, 2020, the Federal Reserve announced revisions to this program, including an expansion of the program’s scope and eligibility. On May 27, 2020, the Federal Reserve released form documentation relating to the Main Street Lending Program, including the form loan participation agreement, borrower and lender certifications and covenants, and the other forms and agreements required to implement the program (available here). The Federal Reserve has updated these forms and agreements to align with the latest revisions to the Main Street Lending Program.

Under the Main Street Lending Program, which was established under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of Boston will lend money on a recourse basis to a special purpose vehicle (the “SPV”). This SPV will then purchase up to $600 billion in loans from three facilities: 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”). Under the MSNLF and the MSPLF, eligible lenders may originate new term loans to eligible borrowers, while eligible lenders may upsize term loans or revolving credit facilities entered into on or before April 24, 2020 under the MSELF. The Treasury Department will invest $75 billion in the SPV from funds appropriated under Title IV of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The latest term sheet for the MSNLF is available here, the latest term sheet for the MSPLF is available here, and the latest term sheet for the MSELF is available here. These terms are subject to change.

A summary of each facility, which supplements our prior alert to reflect the revised terms of the Main Street Lending Program, is included in Exhibit A below. On June 8, 2020, the Federal Reserve made the following revisions to the facilities:

MSNLF MSPLF MSELF
Term Increased from four years to five years
Minimum Loan Amount Decreased from $500,000 to $250,000 No change
Maximum Loan Amount Lesser of (i) $35 million (previously $25 million) or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 4x adjusted 2019 EBITDA Lesser of (i) $50 million (previously $25 million) or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 6x adjusted 2019 EBITDA Lesser of (i) $300 million (previously $200 million) or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 6x adjusted 2019 EBITDA
Principal Deferment Two-year deferment of principal payments (previously one year)
Repayment 15% at end of third and fourth years and 70% at maturity
Participation No change SPV — 95% (previously 85%); Lender — 5% (previously 15%) No change

The Main Street Lending Program has not yet launched, but the Federal Reserve expects to open lender registration soon, and to begin buying loans shortly thereafter. The Federal Reserve encourages lenders to begin making Main Street loans immediately after they have registered for the program. Notably, during the first 14 days of each Main Street facility’s operation, the SPV will purchase participations in Main Street loans that conform to the prior terms of the program (announced April 30, 2020), provided such loans were funded before June 10, 2020. Alternatively, a loan originated or upsized in conformity with the program’s prior terms may be amended or refinanced in accordance with the term sheets released on June 8, 2020.

Eligible lenders are expected to assess each potential borrower’s financial condition at the time such potential borrower submits an application, and to apply their own underwriting standards in evaluating such potential borrower’s financial condition and creditworthiness. Importantly, the requirements outlined by the Federal Reserve are minimum requirements, and lenders may impose additional criteria.

The Federal Reserve will continue to post updates to this program, including its official launch date, on its website. Once the Main Street Lending Program is operational, an interested business must submit an application directly to an eligible lender. The Federal Reserve recommends that interested businesses contact eligible lenders to determine whether such lenders plan to participate in the program and to request additional information on the application process. Not all eligible businesses will be approved for Main Street loans, or will receive the maximum permitted amount.

A discussion of certain clarifications and additional details about the Main Street Lending Program is included below.

  • Loan Documentation: The Federal Reserve will not be providing form loan documents. Instead, eligible lenders are expected to use loan documents reflecting the terms of the Main Street Lending Program, including those set out in the loan document checklist contained in Appendix A of the Frequently Asked Questions. Main Street loan documents should be substantially similar to those used by eligible lenders in the ordinary course with similarly situated borrowers, with appropriate adjustments to reflect the requirements of the program. Appendix B of the Frequently Asked Questions includes model covenants that eligible lenders may reference when drafting their loan documents.
  • Certifying to a Lack of Adequate Credit Accommodations: In order to participate in the Main Street Lending Program, a borrower must certify that it is unable to secure adequate credit accommodations from other banking institutions. This requirement will be satisfied if such borrower certifies that it is unable to secure adequate credit accommodations because the amount, price or terms of available credit from other sources are inadequate for its needs during these unusual and exigent circumstances. Borrowers will not be required to demonstrate that applications for credit have been denied by other lenders.
  • Private Equity Funds and Portfolio Companies: As expected, private equity funds are not eligible to borrow under the Main Street Lending Program. Portfolio companies of private equity funds may be eligible to obtain Main Street loans, provided they meet the eligibility requirements of the program, including those that necessitate application of the affiliation test.
  • Borrowing by Affiliates: The Federal Reserve has clarified that an affiliated group of businesses may only participate in one Main Street facility, with such group’s participation capped at the maximum loan size that such entire group is eligible to receive on a consolidated basis. Consequently, an eligible borrower’s maximum loan size is limited by its own leverage, the leverage of its affiliated group on a consolidated basis, and the size of any loan extended to its affiliates. Additionally, if an eligible business’s affiliate has participated in the Primary Market Corporate Credit Facility, such eligible business may not participate in the Main Street Lending Program.
  • Significant U.S. Operations: Only businesses with significant operations in the United States are eligible for the Main Street Lending Program. To determine whether a business has significant operations in the United States, such business’s operations must be evaluated on a consolidated basis with its subsidiaries. The Federal Reserve provides an illustrative and non-exhaustive list of examples in the Frequently Asked Questions, noting that an eligible borrower has significant operations in the United States if, when consolidated with its subsidiaries, greater than 50% of such borrower’s (i) assets are located in the United States, (ii) annual net income is generated in the United States, (iii) annual net operating revenues are generated in the United States, or (iv) annual consolidated operating expenses (excluding interest expense and any other expenses associated with debt service) are generated in the United States.
  • U.S. Subsidiaries of Foreign Companies: To participate in the Main Street Lending Program, a borrower must be created or organized in the United States or under the laws of the United States. A subsidiary of a foreign company that is created or organized in the United States or under the laws of the United States may be eligible for a Main Street loan, provided such borrower has significant operations and a majority of its employees based in the United States on a consolidated basis. Nonetheless, such a borrower may only use the proceeds of a Main Street loan for its own benefit and the benefit of its consolidated U.S. subsidiaries and other U.S. affiliates.
  • Ongoing Reporting Obligations: Eligible lenders must require each Main Street borrower to provide the financial information set forth on Appendix C of the Frequently Asked Questions on an ongoing basis until such borrower’s Main Street loan matures. Eligible lenders will specify the required reporting standards and forms for each eligible borrower under the Main Street Lending Program.

We are here to help answer specific questions and offer advice on your options. Please contact any member of our Corporate & Business Group to discuss.

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Exhibit A

Summary of the Main Street Lending Program Facilities (As of June 8, 2020)

MSNLF MSPLF MSELF
Term Sheet Here Here Here
Participation SPV – 95%; Lender – 5%
Eligible Loans Term loan originated after April 24, 2020 with features described below Term loan or revolving credit facility originated on or before April 24, 2020 with remaining maturity of at least 18 months,[1] provided the upsized tranche is a term loan with features described below
Eligible Lenders
  • U.S. federally insured depository institutions (including banks, savings associations or credit unions)
  • U.S. branches or agencies of foreign banks
  • U.S. bank holding companies
  • U.S. savings and loan holding companies
  • U.S. intermediate holding companies of foreign banking organizations
  • U.S. subsidiaries of any of the foregoing
Eligible Borrowers For profit businesses that:

  • were established prior to March 13, 2020
  • are created or organized in the United States or under the laws of the United States
  • have significant operations and a majority of their employees based in the United States
  • were in good financial standing before the COVID-19 pandemic
  • have either (i) 15,000 or fewer employees[2] or (ii) 2019 annual revenues[3] of $5 billion or less; notably, the affiliation test set forth by the Small Business Administration in 13 CFR 121.301(f) must be applied when determining whether businesses satisfy this criteria
  • are not one of the businesses deemed ineligible to participate, including banks, finance companies and life insurance companies[4]
  • have not received specific support pursuant to Subtitle A of Title IV of the CARES Act (available to air carriers and certain related businesses, as well as businesses critical to maintaining national security)
  • meet the loan classification requirement described below

Non-profit organizations are not eligible to participate in the Main Street Lending Program

Eligible borrowers can participate in only one Main Street Lending facility or the Primary Market Corporate Credit Facility

Eligible borrowers that receive Paycheck Protection Program or Economic Injury Disaster loans are permitted to borrow under the Main Street Lending Program

Loan Classification Any outstanding loans with lender as of December 31, 2019 must have had internal risk rating (based on such lender’s risk rating system) equivalent to “pass” in the Federal Financial Institutions Examination Council’s (“FFIEC”) supervisory rating system as of that date Underlying loan being upsized must have had internal risk rating (based on such lender’s risk rating system) equivalent to “pass” in FFIEC’s supervisory rating system as of December 31, 2019; if underlying loan was originated or purchased after December 31, 2019, eligible lender should use internal risk rating given to loan at origination or purchase to determine whether loan satisfies “pass” criterion
Minimum Loan Amount $250,000 $10,000,000
Maximum Loan Amount Lesser of (i) $35 million or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 4x adjusted 2019 EBITDA Lesser of (i) $50 million or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 6x adjusted 2019 EBITDA Lesser of (i) $300 million or (ii) amount that, when added to borrower’s existing outstanding and undrawn available debt, does not exceed 6x adjusted 2019 EBITDA
Adjusted EBITDA Methodology Lender must use methodology it used when extending credit to borrower or to similarly situated borrowers on or before April 24, 2020 Lender must use methodology it used when originating or amending underlying loan being upsized on or before April 24, 2020
Maturity 5 years
Interest Rate Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
Deferment Two-year deferment of principal payments and one-year deferment of interest payments (unpaid interest will be capitalized in accordance with the eligible lender’s customary practices for capitalizing interest)
Repayment 15% at end of third and fourth years and 70% at maturity
Prepayment Yes, without penalty
Forgiveness No
Priority & Security May be secured or unsecured

Loan cannot be contractually subordinated in terms of priority to borrower’s other loans or debt instruments at origination or at any time during loan’s term[5]

May be secured or unsecured

Loan must be senior to or pari passu with borrower’s other loans and debt instruments (other than mortgage debt) in terms of priority and security at origination and while loan is outstanding

May be secured or unsecured; must be secured if underlying loan being upsized is secured[6]

Upsized tranche must be senior to or pari passu with borrower’s other loans and debt instruments (other than mortgage debt) in terms of priority and security at upsizing and while upsized tranche is outstanding

Fees Borrower must pay origination fee of up to 100 basis points


Lender must pay transaction fee of 100 basis points, and may require borrower to pay this fee


SPV will pay lender 25 basis points of its participation per annum for loan servicing

Borrower must pay origination fee of up to 75 basis points of upsized tranche

Lender must pay transaction fee of 75 basis points of upsized tranche, and may require borrower to pay this fee

SPV will pay lender 25 basis points of its participation in upsized tranche per annum for loan servicing

Employee Retention Requirements Borrowers should make commercially reasonable efforts to maintain payroll and retain employees while loan or upsized tranche is outstanding; more specifically, each borrower “should undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor”

Businesses that have laid off or furloughed employees due to COVID-19 may still apply for a Main Street loan

Borrower Certifications & Covenants Borrower cannot (i) repay principal balance of, or pay any interest on, any debt until loan or upsized tranche is repaid in full (unless debt or interest payment is mandatory and due), or (ii) seek to cancel or reduce any committed lines of credit with any lender;[7] however, borrower of MSPLF loan may, at time of origination, refinance existing debt owed by such borrower to another lender

Borrower must certify that it has a reasonable basis to believe, as of date of origination or upsizing, and after giving effect to loan or upsized tranche, that it has ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during such period

Until twelve months after such loan or upsized tranche is repaid, borrower cannot:

  • repurchase any of its or its parent’s equity securities that are listed on a national securities exchange, except if required under a contractual obligation in effect as of March 27, 2020
  • pay dividends or make other capital distributions with respect to its common stock, provided that such restrictions do not apply to distributions made by S corporations or other pass-through entities to extent reasonably required to cover owners’ tax obligations in respect of such entities’ earnings
  • for any officer or employee whose total compensation (salary, bonuses, awards of stock and other financial benefits) for 2019 (“2019 total compensation”) exceeded $425,000, (i) pay such officer or employee total compensation during any consecutive 12 months in excess of 2019 total compensation or (ii) provide any severance or other benefits upon termination that exceeds twice the 2019 total compensation received by such officer or employee
  • for any officer or employee whose 2019 total compensation exceeded $3,000,000, pay such officer or employee total compensation during any consecutive 12 months in excess of $3,000,000 plus 50% of the excess over $3,000,000 of 2019 total compensation received by such officer or employee

Borrower must certify that it is eligible to participate in the Main Street Lending Program (including in light of CARES Act conflicts of interest rules), and must make any other certifications required by applicable statutes and regulations; see Borrower Certifications and Covenants (available here)

Lender Certifications & Covenants Lender cannot (i) request that borrower repay any debt that lender extended to such borrower, or pay interest on such outstanding obligations, until loan or upsized tranche is repaid in full (unless debt or interest payment is mandatory and due, or in cases of default and acceleration), or (ii) cancel or reduce any existing committed lines of credit to borrower (except in event of default) [8]

Lender must certify that it has used the adjusted EBITDA methodology described above

Lender must certify that it is eligible to participate in the Main Street Lending Program (including in light of CARES Act conflicts of interest rules), and must make any other certifications required by applicable statutes and regulations; see Lender Certifications and Covenants (available here)

[1] Lenders may extend the maturity date at the time of upsizing to satisfy this requirement.

[2] Businesses must follow the framework set forth by the Small Business Administration in 13 CFR 121.106 to determine employee headcount. Among other things, businesses should include all of their and their affiliates’ full-time, part-time, seasonal and other employed persons (but not volunteers and independent contractors). Businesses should use the average of the total number of persons employed by the borrower and its affiliates for each pay period over the 12 months prior to origination or upsizing.

[3] To determine 2019 annual revenues, a business must aggregate its revenues with the revenues of its affiliates, using either (i) its and its affiliates’ annual revenue per its 2019 U.S. GAAP-based audited financial statements or (ii) its and its affiliates’ annual receipts (as defined in 13 CFR 121.104(a)) for the 2019 fiscal year, as reported to the IRS. If audited financial statements or annual receipts for the 2019 fiscal year are not yet available, a potential borrower or its affiliate may use its most recent audited financial statements or annual receipts.

[4] Ineligible businesses are those businesses listed in 13 CFR 120.110(b)–(j) and (m)–(s), as modified by the Small Business Administration’s regulations implementing the Paycheck Protection Program.

[5] The requirement that an MSNLF loan not be contractually subordinated to any of the borrower’s other loans or debt instruments does not prevent:

  • issuance of a secured MSNLF loan (including in a second lien or other capacity), regardless of whether the borrower has an outstanding secured loan of any lien position or maturity;
  • issuance of an unsecured MSNLF loan, regardless of the term or security status of the borrower’s existing indebtedness; or
  • the borrower from taking on new secured or unsecured debt after receiving an MSNLF loan, as long as such new debt does not have a higher contractual priority than the MSNLF loan.

[6] Any collateral that secures the underlying loan must also secure the upsized tranche on a pro rata and pari passu basis. Lenders may also require borrowers to pledge additional collateral as a condition of upsizing.

[7] These restrictions do not prohibit a borrower, during the term of the loan or upsized tranche, from:

  • repaying a line of credit (including a credit card) in accordance with its normal course of business usage;
  • taking on and paying additional debt obligations required in the normal course of business and on standard terms (including inventory and equipment financing), provided such debt is secured only by newly acquired property (such as inventory or equipment) and is of equal or lower priority than the loan or upsized tranche; or
  • refinancing maturing debt.

Moreover, a lender is not prohibited from accepting repayments on a line of credit in accordance with the borrower’s normal course of business usage.

[8] Despite this requirement, the following are permitted: reduction or termination of uncommitted lines of credit, expiration of existing lines of credit in accordance with their terms, and reduction of availability under existing lines of credit in accordance with their terms due to changes in borrowing bases or reserves in asset-based or similar structures.