A Revised and Updated Main Street Lending Program Has Begun
The Latest on the Program and its Rollout
During a June 10, 2020 press conference, Federal Reserve Chairman Jerome Powell stated that the Federal Reserve is “in the final run-up” to commencing the Main Street Lending Program (MSLP). The Federal Reserve shortly afterwards opened the MSLP for lender registration which began the formal lending process. Lenders were encouraged to begin making MSLP loans immediately.
Program Background and Differences with the PPP
The MSLP was announced on April 9, 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Unlike the Paycheck Protection Program (PPP) loan program, the MSLP was opened to public comment and the Federal Reserve extensively sought feedback prior to program rollout to refine its terms, targets, and to ensure its goals are met. The program is designed to provide relief and liquidity for a broad scope of businesses. These loans are more traditional than the PPP, and contain no forgiveness provisions.
Changes since Program Introduction and Key Terms
Over the past few months, the MSLP has been expanded to allow more small and medium-sized businesses to be able to receive support, including changing terms to lower the minimum loan amount, raise the maximum loan limit, adjust the principal repayment schedule to begin after two years, and extend the term to five years. The intent of these changes is to provide borrowers with greater flexibility in repaying the loans.
The program is now comprised of three separate loan options.
- Under the Main Street New Loan Facility (MSNLF), the Federal Reserve may purchase unsecured term loans that are between $250,000 and the lower of $35 million or an amount that, when added to outstanding and undrawn available debt, doesn’t exceed four times a company’s 2019 EBITDA.
- Under the Main Street Priority Loan Facility (MSPLF), the Federal Reserve may purchase unsecured term loans that are between $250,000 and the lower of $50 million or an amount that, when added to outstanding and undrawn available debt, doesn’t exceed six times a company’s 2019 EBITDA.
- Finally, under the Main Street Expanded Loan Facility (MSELF), the Federal Reserve may purchase term loans between $10 million and the lesser of $300 million or an amount that, when added to outstanding and undrawn available debt, doesn’t exceed six times a company’s 2019 EBITDA.
At the June 10 press conference, Chairman Powell also noted the MSLP has been a “challenging project that’s come to a better place” and commented that the Federal Reserve continues to have the ability to adapt the MSLP further if needed.
The chart below as provided by the Federal Reserve has additional details of the terms of each loan option:
Main Street Lending Program Loan Options
(previously 4 years)
|Minimum Loan Size||$250,000
|Maximum Loan Size||The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA
|The lesser of $50M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted EBITDA
|The lesser of $300M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted EBITDA
Principal deferred for two years, years 3-5: 15%, 15%, 70%
(previously principal deferred for one year and 33.33% repayment due in years 2-4)
Principal deferred for two years, years 3-5: 15%, 15%, 70%
(previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively)
|Interest Payments||Deferred for one year|
|Rate||LIBOR + 3%|
The Federal Reserve has also requested comments and feedback on extending MSLP eligibility to nonprofit organizations. Specifically, eligible 501(c)(3) and 501(c)(19) entities would be required to have between 50 and 15,000 employees; meet financial thresholds based on operating performance, liquidity, and ability to repay debt; have been operational for at least five years; and hold endowments of no more than $3 billion.
Steps Businesses Should Take Now
Businesses interested in taking advantage of the Main Street Lending Program should consider taking the following steps now:
1. Understand the restrictions and attestations that accompany participation in the MSLP
Participation does come with some strings attached, including:
- During the loan term and for 12 months afterwards, a borrower cannot repurchase any stock traded on a national exchange absent a contractual obligation, or make any dividends or distributions on its own common stock.
- Borrower will refrain from using loan funds to repay other loan balances and will not seek to reduce or cancel its loans or lines of credit with any lender. Other debt of equal or lower priority cannot be repaid during the term of the program loan, except for mandatory principal payments.
- Certain restrictions exist on executive compensation.
Participation also requires attestations including:
- Proceeds will not be used to repay other loan balances
- The borrower will refrain from repaying other debt of equal or lower priority with the exception of mandatory principal payments
- The borrower will not seek to cancel or reduce existing lines of credit
- The borrower requires financing due to the exigent circumstances presented by COVID-19
- The borrower will “make reasonable efforts to maintain its payroll and retain its employees” during the loan term
2. Begin gathering paperwork and the supporting documents needed for the loan application, and understand the program’s eligibility requirements
The Federal Reserve has developed a specific website on the program and its terms. The following link for potential borrowers discusses eligibility: https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm
Since there are certain metrics required in the application process that need to be supported such as EBITDA ratios, gathering documents such as recent audited financial statements will be important. Participating banks will also have their own requirements and underwriting standards to follow.
3. Contact your lender
If interested in the program and you have not already done so, contact your lender now to discuss your company’s financial position, potential borrowing requirements, existing debt structure and which Main Street Lending program might best satisfy your business’s specific needs.
If you would like to discuss these matters further, contact your BNN advisor at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.