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Federal Reserve Creates Main Street Lending Program

Author: Cynthia R. Boehmer, JD, Lucia Pasenelli

The Federal Reserve established the Main Street Lending Program (MSLP) to provide financial support through lending to small and medium sized businesses that were stable prior to the COVID-19 pandemic. The objective of the MSLP is to provide additional credit so businesses can maintain their operations and payroll until conditions normalize. The program took effect on June 15, 2020.

The program is comprised of three separate but related facilities:

1. Main Street New Loan Facility (MSNLF)

  • Extension of new five-year term loans ranging in size from $250,000 to $35 million
  • The maximum size of a loan can’t exceed 4x the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA)
  • The loans must not be, at the time of origination or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments

2. ​Main Street Priority Loan Facility (MSPLF)

  • Extension of new five-year term loans ranging in size from $250,000 to $50 million
  • The maximum size of a loan made in connection with the MSPLF can’t exceed 6x the Eligible Borrower’s adjusted 2019 EBITDA
  • At the time of origination, and at all times thereafter, the Eligible Loan must be senior to the Borrower’s other loans or debt instruments (other than mortgage debt); Borrowers may, at the time of origination of the loan, refinance existing debt owed by the Borrower to a lender that isn’t the lender of this loan

3. Main Street Extended Loan Facility (MSELF)

  • Lenders can increase, or “upsize,” a Borrower’s existing term loan or revolving credit facility
  • The upsized loan is a five-year term loan ranging in size from $10 million to $300 million; The maximum size of a loan made in connection with the MSELF can’t exceed 6x the Eligible Borrower’s adjusted 2019 EBITDA
  • At the time of upsizing, and at all times thereafter, the upsized loan must be senior to the Eligible Borrower’s other loans or debt instruments (other than mortgage debt)

The three facilities encompass many of the same features with a five-year maturity, adjustable interest rate of London Inter-bank Offered Rate (LIBOR) (one or three-month) plus 3%, deferral of principal for two years and interest for one year (unpaid interest will be capitalized), and ability of the borrower to prepay without penalty.

Who Can Apply?

Eligible Borrowers who can apply for the program must meet the following criteria:

  1. A United States-based business that has significant operations in, and a majority of its employees based in, the U.S., and was established before March 13, 2020
  2. Have 15,000 employees or fewer or have had 2019 revenues of $5 billion or less
  3. Not considered an ineligible business under the Paycheck Protection Program (PPP)
  4. Cannot also participate in the Primary Market Corporate Credit Facility (PMCCF)
  5. Didn’t receive specific support under Subtitle A of Title IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is support given to passenger air carriers, Part-134 certified repair station operators and ticket agents, cargo air carriers, and businesses critical to maintaining national security

Borrowers can only apply for one type of MSLP loan. Nonprofits aren’t eligible to apply at the moment. The Federal Reserve is looking to expand this program to support lending to nonprofits. To apply for a loan, the borrower will have to go through an approved lender.

Lender Information

Any federally-insured depository institution, U.S. branches or agencies of foreign banks, U.S. bank holding companies, U.S. savings and loan holding companies, and U.S. intermediate holding companies of foreign banking organizations are eligible to participate. Nonbank financial institutions aren’t eligible. Each lender will evaluate eligibility criteria and conduct an assessment of each potential borrower’s financial condition. A lender will need to use its own loan documentation. Appendix A, B, and C of the Federal Reserve FAQs contain information that need to be reflected in the loan documentation, model covenants, and required financial information from the Borrower throughout the life of the loan. The lender will be able to sell a 95% participation in the loan back to the Federal Reserve for any of the three facilities.

Paycheck Protection Program vs. Main Street Lending Program

Similar to the PPP, the MSLP was created to assist companies that have been adversely affected by the COVID-19 pandemic. However, the MSLP loan is applicable to businesses of different sizes with different circumstances. The PPP was implemented by the U.S. Small Business Administration (SBA) to support the payroll and operations of small businesses through loans that include a forgiveness feature. MSLP was designed to support small and medium-sized businesses that were unable to access the PPP, or that require additional financial support after receiving a PPP loan. While MSLP loans aren’t forgivable, the proceeds can be used to refinance existing loans owed to other lenders.

 

For information on details of the program and how to apply, click here.