The US Federal Reserve at long last launched its Main Street Lending Program on Monday after making numerous changes to the original legislation signed by the President back in early April. This program was originally intended to help keep credit flowing to small to medium-sized businesses. The program intended the Fed to purchase 95% of each loan from the participating bank. To be eligible the borrower must have been in business prior to March 13, 2020, have 15,000 or fewer employees and 2019 annual revenue less than $5 billion that were solvent before the crisis. It must not be a type of business ineligible to receive Paycheck Protection Plan (PPP) funds, except with regards to the number of employees. It also cannot have received “support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).” That is the section that provides $500 billion of loans to large businesses.
Businesses that receive PPP loans may also be eligible for the Main Street Lending Program. Those seeking Main Street loans must commit to making reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.
These loans will have an interest rate of LIBOR (1 or 3 months) +3%, and interest payments will be deferred for one year. The principle is deferred for the first two years, amortized 15% at the end of the third and fourth years, and the balance before it fully matures at the end of the fifth year.
The Program will operate 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). Each of the loan programs has different loan limits and terms.
Main Street New Loan Facility
Under the Main Street New Loan Program, the Feds will purchase unsecured term loans originated on or after April 24, 2020. The value of the loans purchased is a minimum of $250,000. The maximum loan size is the lesser of $35 million in value or an amount that, when added to current outstanding and undrawn debt, does not exceed 4 times its 2019 EBITDA. An eligible loan cannot, at the time of origination or at any time during the term of the eligible loan, be contractually subordinated in terms of priority to any of the eligible borrower’s other loans or debt instruments.
Main Street Priority Loan Facility
Under the Main Street Priority Loan Program, the Feds will purchase unsecured term loans originated on or after April 24, 2020. The value of the loans purchased is a minimum of $250,000. The maximum loan size is the lesser of $50 million in value or an amount that, when added to current outstanding and undrawn debt, does not exceed 6 times its 2019 EBITDA. At the time of origination and at all times the eligible loan is outstanding, the eligible loan 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.
Main Street Expanded Loan Facility
Under the Main Street Expanded Loan Program, the Feds will purchase unsecured or secured term loans or revolving credit facility originated on or after April 24, 2020, with a maturity of at least 18 months. The value of the loans purchased is a minimum of $10 million. The maximum loan size is the lesser of $300 million in value or an amount that, when added to current outstanding and undrawn debt, does not exceed 6 times its 2019 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.
All loans can be prepaid without penalty. Eligible lenders are expected to assess each potential borrower’s financial condition at the time of the borrower’s application. There is an up to 100 basis point origination fee at the time of closing.
The Feds have now opened the bank registration process and have encouraged eligible lenders to start taking applications immediately.
