On April 9, 2020, the U.S. Federal Reserve launched a $600 billion lending program aimed at helping to relieve the liquidity crisis facing many small and medium-sized businesses in the aftermath of the COVID-19 pandemic.
The program offers three different loan programs for the borrower to choose from; the Main Street Lending New Loan Program (“New Loan”), Main Street Lending Priority Loan Program (“Priority Loan”), and the Main Street Lending Expanded Loan Program (“Expanded Loan”). A borrower can only participate in one program. The program allows businesses to take part in both this program and the Small Business Administration’s Paycheck Protection Program (“PPP”). However, unlike the PPP loans, the Main Street loans do not have a grant conversion feature and thus are not eligible to be forgiven. Finally, the program is only for commercial businesses. Not-for-profit organizations are not eligible borrowers under the program.
The Federal Reserve has further expanded the program, dropping the minimum loan size for the New and Priority Loan programs to $250,000 from $500,000. The New and Priority Loans are now capped at borrowings of $35 million and $50 million respectively, up from $25 million for both programs in prior revisions. The Expanded Loan’s minimum remains at $10,000,000; however, the maximum borrowing on the loan increases to $300 million from $200 million in prior revisions.
In addition, the Federal Reserve also increased the term of each loan to five years up from four years in the prior revision and allowed borrowers to defer principal payments for two years instead of the original one year. It should be noted that borrowers are required to make interest-only payments during the second year and interest will accrue and compound during the first year of the term of the loan. Finally, the principal payment schedule for each loan is now uniform at 15% of principal required to be paid in year three, 15% in year four and the balance of 70% paid in year five; prepayment is permitted.
|Program||Main Street Lending
New Loan Program
|Main Street Lending Priority Loan Program||Main Street Lending Expanded Loan Program|
|Minimum amount of the loan||$250,000||$250,000||$10,000,000|
|Maximum amount of the loan||The lesser of $35M or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted 2019 EBITDA||The lesser of $50M or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA||The lesser of $300M, 35% of existing outstanding and undrawn available debt, or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA|
|Interest Rate*||LIBOR (one month or three month) (6/10/2020 0.30%) + 300 basis points|
|Loan Term||Five years with two years of principal payment deferred, interest-only payments required to be paid during the second year of the term, interest will accrue and compound throughout the term of the loan.|
|Payment principal terms||Years Three to Five- 15%, 15%, 70%|
|Program limits||Can participate with the PPP program but can’t have more than one Federal Reserve program loan outstanding and cannot have received specific support under the CARES Act (ie. Airlines, etc)|
|Collateral required||Can be secured or unsecured||Can be secured or unsecured||Can be secured or unsecured. If the original loan that is being expanded upon is collateralized, the underlying collateral will be allocated on a pro-rata basis with the Main Street Lending Tranche|
|Term of program||The special purpose vehicle will stop buying loans on September 30, 2020|
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.