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Main Street Lending Program
Federal Reserve Rolls Out New Loan Support Facility

OVERVIEW
 
On April 9, 2020, the Federal Reserve issued a press release that describes the Main Street Lending Program, which is being established to support lending to small and mid-size businesses with up to 10,000 employees, in response to the economic crisis prompted by the spread of the COVID-19 pandemic.  The Coronavirus Economic Stabilization Act of 2020 ("CESA"), which falls under Title IV, Subtitle A of the recently adopted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), authorized the Main Street Lending Program.  The Federal Reserve's press release includes term sheets for the Main Street New Loan Facility and the Main Street Expanded Loan Facility.
 
Both facilities will support loans issued by U.S. banks and savings and loan institutions to "Eligible Borrowers," which is defined as businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each Eligible Borrower must be a business that is created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S.  No restrictions on foreign ownership have yet been announced.  Unlike loans available under the CARES Act's Paycheck Protection Program, these loans cannot be reduced through loan forgiveness.
 
The Main Street New Loan Facility provides for lenders to grant unsecured term loans originated on or after April 8, 2020, with the following features:
  • 4 year maturity; 
  • Amortization of principal and interest deferred for one year; 
  • Adjustable rate of SOFR + 250-400 basis points; 
  • Minimum loan size of $1 million; 
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower's existing outstanding and committed but undrawn debt, does not exceed 4X borrower's 2019 EBITDA; and 
  • Prepayment permitted without penalty.
Certain attestations are required in connection with the issuance of new loans under this program:
  • The borrower will be required to commit to refrain from (a) using the proceeds of the new loan to repay other loan balances, and (b) repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the new loan in full. 
  • The borrower will also be required to attest that (a) it will not seek to cancel or reduce any of its outstanding lines of credit with the lender or any other lender; (b)  it requires financing due to the exigent circumstances presented by the COVID-19 pandemic; (c) using the proceeds of the new loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan; (d) the loan size will not exceed the maximum loan size allowed under the program; (e) that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act; and (f) that it is eligible to participate in the program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
The Main Street Expanded Loan Facility provides for banks to expand unsecured term loans that were originated before April 8, 2020, with most of the same features as outlined above.  The maximum size of the upsized tranche will be the lesser of (i) $150 million, (ii) 30% of the borrower's existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower's existing outstanding and committed but undrawn debt, does not exceed 6X the borrower's 2019 EBITDA.
 
CONSIDERATIONS
 
Although final, detailed regulations have not yet been issued, the press release provides useful guidance to companies awaiting this program.  Until the Main Street Lending Program is launched and further guidance is issued, those companies can now consider the amount they may be eligible for under the program, and whether they can fulfill the eligibility and attestation requirements.
 
The press release issued by the Federal Reserve recognizes that businesses vary in their current financing needs.  Accordingly, the Federal Reserve continues to seek input from lenders, borrowers, and other stakeholders via its feedback form, which will be accepting comments until April 16
 
We continue to monitor these developments.

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