Federal Reserve Expands Scope of Lending Options and Size of Eligible Businesses Under Main Street Lending Program | Hinshaw & Culbertson LLP


On June 8, 2020, the Federal Reserve Board (Board) announced an extension to the scope and eligibility of its Main Street Lending Program. The Council also posted an updated FAQ for the program on June 9, 2020.

Under the three facilities – the New Main Street Lending Facility (New Facility), the Main Street Priority Lending Facility (Priority Facility), and the Main Street Extended Lending Facility (Extended Facility) – the Federal Reserve Bank of Boston (Reserve Bank) to commit to lending to a single joint special purpose vehicle (SPV) which will purchase equity interests in eligible loans issued by eligible lenders.

The Council has expanded the loan options available to businesses and increased the maximum size of businesses eligible for support under the scheme. Changes include:

  • lowering the minimum loan size for certain loans from $500,000 to $250,000;
  • increase the maximum loan amount for all facilities;
  • increase the duration of each loan option to five years, compared to four years previously;
  • extending the repayment period of all loans by delaying principal repayments by two years instead of one; and
  • increase the Reserve Bank’s participation to 95% for all loans.

The following table compares each of the options and their differences.

Facility loans are full recourse, non-reimbursable loans. As described in Section 4003(d)(3) of the CARES Act, the principal amount of a loan made through any of these three facilities cannot be reduced by loan forgiveness.

A company can only participate in one of the three facilities. If a company participates in one of the three facilities, it cannot participate in the Commission’s Primary Market Corporate Credit Facility.

However, an eligible borrower may receive more than one loan under a single facility, provided that the sum of loans under the new facility does not exceed $35 million, or four times 2019 Adjusted EBITDA; the sum of Senior Facility loans received by a single borrower does not exceed $50 million, or six times 2019 Adjusted EBITDA; and the sum of the increased tranches of the Extended Facility received by a single borrower does not exceed $300 million, or six times 2019 Adjusted EBITDA.

The facilities are not yet operational. However, eligible lenders are encouraged to begin funding facility loans to borrowers prior to the opening of the facilities. Participations will be purchased under such loans so long as the required documentation is complete and properly executed, and demonstrates a loan that complies with the requirements of the relevant Facility. In addition, eligible lenders may also lend under the facility provided they receive a binding commitment that a loan participation will be purchased.

On May 8, 2020, Hinshaw posted an in-depth discussion of the terms of the three new facilities. The discussion below sets out the eligible lending criteria of each facility based on the council’s expansion of the main street lending scheme. Except as noted below, no other changes have been made to the Program Terms since our Customer Alert of May 8, 2020.

Under the New Facility, the SPV will purchase 95% equity interests in Eligible Loans issued by Eligible Lenders after April 24, 2020. Eligible Lenders will retain 5% of each Eligible Loan.

Changes were made on June 8, 2020 to the eligible lending criteria for new facility loans. The new criteria are presented below.

Eligible loans

A qualifying loan is a secured or unsecured term loan made by a qualifying lender to a qualifying borrower that was issued after April 24, 2020, provided that the loan has all of the following characteristics:

  1. Five-year maturity;
  2. deferred principal payments for two years and interest payments for one year (unpaid interest will be capitalized);
  3. adjustable LIBOR rate (one or three months) + 300 basis points;
  4. principal amortization of 15% at the end of the third year, 15% at the end of the fourth year and 70% at maturity at the end of the fifth year;
  5. minimum loan size of $250,000;
  6. the maximum loan size which is the lesser of (i) $35 million, or (ii) an amount which, when added to the eligible borrower’s existing and unused available debt outstanding, does not not exceed four times the eligible borrower’s 2019 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA);
  7. is not, at the time of the granting or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the other loans or debt securities of the Eligible Borrower; and
  8. prepayment authorized without penalty.

Under the Main Street Extended Loan Facility (Extended Facility), the SPV will purchase 95% equity interests in the increased tranche of eligible loans from eligible lenders. Eligible Lenders will retain 5% of the increased portion of each Eligible Loan.

Changes were made on June 8, 2020 to the loan eligibility criteria for loans under the Extended Facility. The new criteria are presented below.

Eligible loans

An Eligible Loan is a secured or unsecured term loan or revolving credit facility made by an Eligible Lender to an Eligible Borrower that was issued on or before April 24, 2020 and has a remaining maturity of at least 18 months , taking into account any adjustments made up to the maturity of the loan after April 24, 2020, including at the time of overcollateralization, provided that the overcollateralized portion of the loan is a term loan that has all of the following:

  1. Five-year maturity;
  2. principal repayments deferred for two years and interest deferred for one year (unpaid interest will be capitalized);
  3. adjustable LIBOR rate (one or three months) + 300 basis points;
  4. principal amortization of 15% at the end of the third year, 15% at the end of the fourth year and a lump sum payment of 70% at maturity at the end of the fifth year;
  5. minimum loan amount of $10 million;
  6. the maximum loan size which is the lesser of (i) $300 million, or (ii) an amount which, when added to the eligible borrower’s existing and unused available debt outstanding, n does not exceed six times the Qualifying Borrower’s 2019 Adjusted EBITDA (as defined above);
  7. at the time of the resizing and at any time the resized tranche is in circulation, the resized tranche takes priority or past bet with, in priority and as security, the other loans or debt instruments of the Eligible Borrower, other than mortgage debts; and
  8. prepayment allowed without

Under the Main Street Priority Loan Facility (Priority Facility), the SPV will purchase 95% of the equity interests in eligible loans from eligible lenders. Eligible lenders will retain 5% of each eligible loan.

Changes were made on June 8, 2020 to the eligible lending criteria for Senior Facility loans. The new criteria are presented below.

Eligible loans

A qualifying loan is a secured or unsecured term loan made by a qualifying lender to a qualifying borrower that was issued after April 24, 2020, provided that the loan has all of the following characteristics:

  1. Five-year maturity;
  2. two-year deferred principal repayments and one-year deferred interest payments (unpaid interest will be capitalized);
  3. adjustable LIBOR rate (one or three months) + 300 basis points;
  4. principal amortization of 15% at the end of the third year, 15% at the end of the fourth year and a lump sum payment of 70% at maturity at the end of the fifth year;
  5. minimum loan size of $250,000;
  6. the maximum loan size which is the lesser of (i) $50 million, or (ii) an amount which, when added to the Eligible Borrower’s existing and unutilized Available Debt outstanding, does not not exceed six times the Eligible Borrower’s 2019 Adjusted EBITDA (as defined above);
  7. at the time of the granting and at any time when the eligible loan is in progress, the eligible loan has priority or past bet with, in priority and as security, the other loans or debt instruments of the Eligible Borrower, other than mortgage debts; and
  8. prepayment allowed without

The updated FAQ includes the following tips.

Affiliate Aggregation Rules. The Small Business Administration (SBA) affiliate aggregation rules will be applied to calculate the number of company employees and 2019 revenues to determine eligibility for loans from the facility. An applicant must aggregate all of its employees and revenues with all employees and revenues of “affiliated” businesses to determine whether the applicable employee or revenue caps are satisfied. “Affiliate” for this purpose is broadly defined in SBA regulations (see 13 CFR 121.301(f)).

If a borrower is the only company in an affiliated group to have received financing through a facility, the debt and EBITDA of the borrower, and not of the whole group, are used to determine the maximum facility loan amount. If the borrower’s subsidiaries are consolidated in the borrower’s financial statements, consolidated debt and EBITDA should be used. If an affiliate of the borrower has already borrowed or requested to borrow through a facility, the debt and EBITDA of the entire affiliate group will determine the maximum loan amount.

Holding company and operating subsidiaries. If the borrower is a holding company, the Facility loan must be jointly and severally guaranteed by one or more operating subsidiaries. These subsidiaries must be eligible to borrow according to the criteria of the Facility. The borrower will be required to provide adequate financial information regarding these operating subsidiaries. In such circumstances, the EBITDA of these subsidiaries should be used to calculate the borrower’s maximum loan amount.

PPP Loans and Economic Disaster Loans. A company cannot participate in a Main Street program if it has received “specific support” under Subtitle A of Title IV of the CARES Act. Funds provided under the CARES Act to specific industries, such as airlines or entities participating in the Primary Market Business Credit Facility, both constitute “specific support” that prohibits participation in a Main Street. PPP loan recipients can participate in one of three facilities. Borrowers who have received economic disaster loans are deemed not to have received “specific support” as defined in the CARES Act and, therefore, may participate in one of three facilities.

Non-profit. Non-profit organizations are not currently eligible to participate in Main Street programs. The Council is “working to establish one or more suitable loan options for” nonprofit organizations in the near future.

Outstanding Portion of PPP Loans. The unpaid portion of a PPP loan is considered an unpaid debt when calculating the maximum amount of a loan.

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