Federal Reserve Releases Terms of Main Street Facilities for Nonprofit OrganizationsAugust 4, 2020
On July 17, 2020, the Federal Reserve released term sheets for the two Main Street Lending Program facilities designed to support lending to small and mid-sized nonprofit organizations, which term sheets were revised on July 28 to extend the expiration of these facilities through December 31, 2020. On July 31, 2020, the Federal Reserve released a revised set of Frequently Asked Questions that provide additional details about these Main Street facilities (available here), as well as revised form documentation for the Main Street Lending Program that incorporates the terms thereof (available here).
The Federal Reserve previously announced the creation of two additional Main Street facilities to support lending to small and mid-sized nonprofit organizations, including educational institutions, hospitals and social services organizations, that were in sound financial condition prior to the COVID-19 pandemic: the Nonprofit Organization New Loan Facility (the “NONLF”) and the Nonprofit Organization Expanded Loan Facility (the “NOELF”). Following a public comment period, the Federal Reserve announced the terms of these facilities, a summary of which is included in Exhibit A hereto.
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 five facilities: the Main Street New Loan Facility (the “MSNLF”), the Main Street Priority Loan Facility (the “MSPLF”), the Main Street Expanded Loan Facility (the “MSELF”), the NONLF and the NOELF. 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”).
Under the MSNLF and the MSPLF, eligible lenders may originate new term loans to eligible for-profit borrowers, while eligible lenders may upsize term loans or revolving credit facilities entered into on or before April 24, 2020 under the MSELF. The MSNLF, MSPLF and MSELF are fully operational. More information about the Main Street Lending Program facilities for for-profit businesses is available here.
Under the NONLF, eligible lenders may originate new term loans to eligible nonprofit borrowers, while eligible lenders may upsize term loans or revolving credit facilities entered into on or before June 15, 2020 under the NOELF. The latest term sheet for the NONLF is available here, and the latest term sheet for the NOELF is available here. These terms are subject to change.
In order to obtain an NONLF or NOELF loan, an interested organization must submit an application directly to an eligible lender. Eligible lenders that have already registered to participate in the Main Street facilities for for-profit borrowers do not need to re-register to participate in the NONLF or NOELF. 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. Not all eligible organizations will be approved for Main Street loans, or will receive the maximum permitted amount.
The Federal Reserve is in the process of creating the infrastructure to operationalize the NONLF and the NOELF, and is not yet accepting submissions of NONLF or NOELF loan participations for purchase. The Federal Reserve will post updates to the Main Street Lending Program, including the official launch date of the NONLF and NOELF, on its website, while additional resources relating to these facilities, including updates on their operational status, will be made available on the Federal Reserve Bank of Boston’s website.
A discussion of additional details about the NONLF and NOELF 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 NONLF and NOELF, 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.
- Multiple Applications: An eligible borrower may submit applications for an NONLF or an NOELF loan to more than one eligible lender, provided such borrower notifies each lender of its other pending or accepted applications. If an eligible borrower’s application is declined by an eligible lender, such borrower may apply to the Main Street Lending Program through a different eligible lender.
- Co-Borrowing: The Federal Reserve expects to accommodate co-borrower arrangements, as reflected in the revised documentation for the Main Street Lending Program released on July 31, 2020. The Federal Reserve expects to make available in the coming weeks instructions for completing the forms and agreements, and making the required certifications, for co-borrower loans and for submitting co-borrower loans.
- 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.
- Borrowing by Affiliates: The Federal Reserve has clarified that an affiliated group of entities 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. Additionally, if an eligible organization’s affiliate has participated in the Municipal Liquidity Facility or the Primary Market Corporate Credit Facility, such eligible organization may not participate in the Main Street Lending Program.
- Government-Owned Hospitals: Generally, government-owned entities are ineligible for the Main Street Lending Program. However, a hospital that is otherwise eligible to borrow under the NONLF or NOELF is not rendered ineligible if it is owned by a state or local government, provided such hospital receives less than 50% of its funding from state or local government sources (exclusive of Medicaid).
- Significant U.S. Operations: Only organizations with significant operations in the United States are eligible for the Main Street Lending Program. To determine whether an organization has significant operations in the United States, such organization’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 NONLF or NOELF, a borrower must be created or organized in the United States or under the laws of the United States. A subsidiary of a foreign entity 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 an NONLF or NOELF loan in furtherance of its tax-exempt purpose as conducted by such borrower, its consolidated U.S. subsidiaries and its 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.