Main Street Lending Program Resource Guide

The Federal Reserve established the Main Street Lending Program (MSLP) to support lending to small and medium-sized businesses and, more recently, nonprofit organizations that were in sound financial condition prior to the COVID-19 pandemic maintain their operations and payroll until economic and health conditions normalize. 

The MSLP is supported by the U.S. Department of the Treasury, which will make a $75 billion equity investment (appropriated pursuant to section 4027 of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) in a special purpose vehicle (the “Main Street SPV”) in connection with the MSLP.  Unlike loans made under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), MSLP loans are full-recourse loans and not forgivable.  However, businesses that received support through the PPP remain eligible to access the MSLP.

The MSLP operates through five credit facilities: (i) the Main Street New Loan Facility (MSNLF), (ii) the Main Street Priority Loan Facility (MSPLF), (iii) the Main Street Expanded Loan Facility (MSELF and, together with the MSNLF and MSPLF, the “for-profit facilities”), (iv) the Nonprofit Organization New Loan Facility (NONLF), and (v) the Nonprofit Organization Expanded Loan Facility (NOELF and, together with the NONLF, the “nonprofit facilities”).

The for-profit facilities are fully operational and ready to purchase participations in eligible loans that are submitted through the Main Street Lender Portal by Eligible Lenders (as defined below).  Each of the for-profit facilities uses the same borrower and lender eligibility criteria and shares similar loan features, including the same maturity date (5 years), interest rate (LIBOR plus 3%), two-year deferral of principal and one-year deferral of interest, and no prepayment penalties. 

The non-profit facilities are not yet operational as the Federal Reserve continues to work on creating the infrastructure necessary to fully operationalize these facilities.  Notwithstanding the foregoing, currently available term sheets for the nonprofit facilities indicate that the borrower and lender eligibility requirements across the nonprofit facilities are identical.  In addition, and much like the for-profit facilities, the nonprofit facilities share similar loan features.

Borrowers meeting the eligibility requirements (an “Eligible Borrower”) may consider either (i) contacting their existing lenders for more information on whether their lender meets the lender eligibility requirements (an “Eligible Lender”) and intends to participate in the MSLP; or (ii) seeking a relationship with an Eligible Lender currently accepting new customers (a map identifying those banks, on a state-by-state basis, accepting new business customers is located here). 

It is worth reiterating that MSLP loans are full-recourse and not forgivable, and Eligible Lenders will retain a 5% interest in each Loan.  To that end, borrowers that meet eligibility requirements will not automatically qualify for a MSLP loan.  Eligible Lenders will go through a credit approval process to assess each potential borrower’s financial condition in making loan issuance determinations.  Eligible Borrowers and Eligible Lenders should carefully review relevant sections in the MSLP’s term sheets for each facility (links provided below) and the MSLP’s Frequently Asked Questions for for-profit organizations and Frequently Asked Questions for nonprofit organizations (together, the “FAQs”), which have been updated frequently by the Federal Reserve.

The Federal Reserve Bank of Boston (FRB Boston) operates the MSLP and is expected to continue to update its MSLP Resource Page as needed.

FOR-PROFIT FACILITIES

DESCRIPTION OF THE FOR-PROFIT FACILITIES

As discussed above, the for-profit facilities use the same Eligible Borrower and Eligible Lender criteria and share many of the same loan features.  However, features such as minimum and maximum loan size differ under each for-profit facility.  Loans issued under each for-profit facility also differ with respect to how they interact with the Eligible Borrower’s existing outstanding debt.  A brief discussion of each for-profit facility is provided below.

• MSNLF: Under the MSNLF, Eligible Lenders are permitted to extend new five-year term loans (a “MSNLF Loan”) ranging in size from $250,000 to $35 million.  The maximum amount of a MSNLF Loan cannot exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation and amortization (“EBITDA”) when added to the Eligible Borrower’s existing indebtedness.  In addition, at the time of origination and during the life of the loan, an MSNLF Loan cannot be “contractually subordinated” in terms of priority to any of the Eligible Borrower’s existing debt, meaning that the MSNLF Loan may not be junior in priority in bankruptcy to the Eligible Borrower’s other unsecured debt.  The MSNLF Loan may however be in the form of a second lien or unsecured loan.  More information on the MSNLF can be found here.
• MSPLF: Under the MSPLF, Eligible Lenders are permitted to extend new five-year term loans (a “MSPLF Loan”) ranging in size from $250,000 to $50 million. The maximum amount of a MSPLF Loan cannot exceed six times the Eligible Borrower’s adjusted 2019 EBITDA when added to the Eligible Borrower’s existing indebtedness. In addition, at the time of origination and during the life of the loan, the loan must be senior to or pari passu in terms of priority and security with the Eligible Borrower’s existing debt, other than certain mortgage debt and limited recourse equipment financing. Unlike with the MSNLF and MSELF, Eligible Borrowers may use proceeds from an MSPLF Loan to refinance existing debt from a lender that is not the Eligible Lender issuing the MSPLF Loan to the Eligible Borrower.  However, consistent with the MSNLF and MSELF, the Eligible Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender.  More information on the MSPLF can be found here.
• MSELF: Under the MSELF, Eligible Lenders are permitted to increase (or “upsize”) an Eligible Borrower’s existing term loan or revolving credit facility, provided that such loan or facility was originated on or before April 24, 2020 and has a remaining maturity of at least 18 months.  The upsized loan tranche is a five-year term loan (a “MSELF Loan”) ranging in size from $10 million to $300 million.  The maximum amount of a MSELF Loan cannot exceed six times the Eligible Borrower’s adjusted 2019 EBITDA when added to the Eligible Borrower’s existing indebtedness.  At the time of the upsizing and at all times the upsized loan tranche is outstanding, the upsized loan tranche must be senior to or pari passu in terms of priority and security with the Eligible Borrower’s existing debt, other than certain mortgage debt and limited recourse equipment financing.  More information on the MSPLF can be found here.

INTEREST AND PAYMENTS

The interest rate for the loans in each for-profit facility is equal to LIBOR (one- or three-month) plus 3%.

No payment of principal is required during the first two years of the loan, and no payment of interest is required during the first year of the loan. The principal payment schedule is as follows: (i) 15% of the principal will be due at the end of years three and four, and (ii) a balloon payment of 70% of principal will be due at the end of year five.

BORROWER ELIGIBILITY

An Eligible Borrower under the for-profit facilities must be legally formed, for-profit entities organized as, among other entity types, a partnership, a limited liability company, a corporation, a trust, a joint venture with no more than 49% participation by foreign business entities, or a tribal business.  In addition, other forms of organization may be considered for inclusion as an Eligible Borrower on a case-by-case basis at the Federal Reserve’s discretion.

To be considered an Eligible Borrower, the entity must satisfy certain eligibility criteria as follows:

• The business must have been established prior to March 13, 2020.  The business must have been formed prior to this date under the laws of the United States.
• The business must not be an “Ineligible Business” under SBA regulations.  Ineligible Businesses are those businesses listed in 13 C.F.R. 120.110(b)(i), (m)-(s), as modified and clarified by SBA regulations. ^[1]
• The Business must meet at least one of two conditions: (a) the business has 15,000 employees or fewer, or (b) the business has 2019 annual revenues of $5 billion or less.  Businesses are not required to meet both tests and, in calculating either metric, the employees and revenues of the business must be aggregated with the employees and revenues of its affiliated entities (the “Affiliation Test”).

Important note regarding the Affiliation Test:  As with the PPP, the Affiliation Test borrows from SBA regulations.  The methods of determining affiliation under the SBA test (found at 13 CFR 121.301(f)) include affiliation based on ownership, management and economic dependence, among others.  The result has been to exclude many but not all private equity portfolio companies from participation in the MSLP, as the employees and revenue of the potential borrower must be aggregated with the employees and revenues of each other company that qualifies as an affiliate within the private equity fund’s portfolio.

• The business must be a U.S. business.  To be an Eligible Borrower, the borrower must be a business that was created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States.
• A business may only participate in one for-profit facility. An Eligible Borrower may participate in only one of the three for-profit facilities and cannot participate in the Primary Market Corporate Credit Facility (“PMCCF”).
• No prior relief under the Coronavirus Economic Stabilization Act of 2020. A business is ineligible if it has received support under Subtitle A of Title IV of the CARES Act, which consists of support to passenger air carriers, Part-145 certified repair station operators and ticket agents, cargo air carries, and businesses critical to maintaining national security.
• A business is required to make all certificates and covenants described in the applicable term sheets. Each of the MSNLF, MSPLF and MSELF term sheets describe certain borrower certifications and covenants that an Eligible Borrower must make.

A business that has received PPP support, or that has affiliates that have received PPP support, is permitted to borrow under the MSLP. Potential borrowers should be aware that the Federal Reserve will disclose the names of borrowers, amounts borrowed, and interest rates charges, and overall costs, revenues, and other fees.

CERTIFICATIONS AND COVENANTS

Although the certifications and covenants required for Eligible Lenders and Eligible Borrowers vary somewhat across the for-profit facilities, most of the certifications and covenants are identical. Certifications and covenants include:

• An Eligible Borrower must commit to refrain from paying off the principal balance of, or paying any interest on, any debt until the MSLP loan is repaid in full, unless the debt or interest payment is mandatory and due (and other than refinancing permitted by the MSPLF). Certain ordinary course payments refinancing transactions are excluded from this restriction. An Eligible Borrower also must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender.
• An Eligible Borrower should make "commercially reasonable efforts" to retain employees during the life of the loan. Specifically, an Eligible Borrower should undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor. Eligible Borrowers that have already laid-off or furloughed workers as a result of the COVID-19 disruptions remain eligible to apply.
• An Eligible Borrower must certify that it has a reasonable basis to believe that, as of the loan’s origination date and for the life of the loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
• An Eligible Borrower must certify that it is “unable to secure adequate credit accommodations from other banking institutions.” “Adequate credit accommodations” does not mean the Eligible Borrower has no access to other credit sources.  Instead, the Eligible Borrower may certify that it is unable to secure “adequate credit accommodations” because the amount, price, or terms of credit available from other sources are inadequate for the Eligible Borrower’s needs during the current unusual and exigent circumstances.  Eligible Borrowers are not required to demonstrate that applications for credit have been denied by other lenders or otherwise document that the amount, price, or terms of credit available elsewhere are inadequate.
• An Eligible Borrower must commit that it will follow certain compensation, stock repurchase, and capital distribution restrictions.  However, an S corporation or other tax pass-through entity that is a borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations related to the entity’s earnings. This exception was added to the program in response to feedback on the initial term sheet.
• To satisfy “conflict of interest” requirements, an Eligible Borrower must certify that it is not an entity in which the President, Vice President, the head of an Executive Department of the U.S. government, or a Member of Congress (or a family member of any of them) directly or indirectly holds a controlling interest.

FORMS AND AGREEMENTS

Each participating Eligible Lender is permitted to use its own loan documentation to issue a MSLP loan.  The documentation, however, should be substantially similar to the loan documentation that the Eligible Lender typically uses in the ordinary course of lending to similarly situated borrowers, adjusted only as appropriate to reflect the requirements of the MSLP. 

FRB Boston provides sample forms and agreements, which include model covenants and terms that should be reflected in any MSLP loan documentation, as well as certain disclosures Eligible Borrowers must provide periodically to the Eligible Lender. Specifically:

• Appendix A to the FAQs contains a checklist of the terms that must be reflected in the loan documentation to enable the Main Street SPV to purchase a participation in the loan.
• Appendix B to the FAQs includes certain model covenants that Eligible Lenders can elect to reference when drafting their loan documentation in order to satisfy the “Appendix A” requirements. 
• Appendix C to the FAQs includes a list of the financial information that Eligible Lenders must require Eligible Borrowers to provide on an ongoing basis until the loans mature.

Origination Fees

Under the MSNLF and the MSPLF, Eligible Borrowers will pay Eligible Lenders a fee of up to 1% of the principal amount of the loan at the time of origination. Under the MSELF, Eligible Borrowers will pay Eligible Lenders a fee of up to 0.75% of the principal amount of the upsized tranche at the time of upsizing. Eligible Lenders may also require borrowers to pay the transaction fees (1% or 0.75% depending on the facility) that Eligible Lenders are required to pay to the Federal Reserve.

NONPROFIT FACILITIES

The Federal Reserve intends for the nonprofit facilities to provide support to small and medium-sized nonprofit organizations by helping nonprofit organizations that were in sound financial condition prior to the onset of COVID-19 maintain their operations and payroll until economic and health conditions normalize.

Current term sheets show that the criteria for participation are consistent across the nonprofit facilities, and the NONLF and the NOELF share with one another many of the same loan features, including the same maturity, interest rate, deferral of principal for two years, deferral of interest for one year, and no borrower prepayment penalties.

Other features of the loans extended in connection with each facility differ, including with respect to the loan size and its relationship to existing debt.

• NONLF: Eligible Lenders may extend new five-year term loans to Eligible Borrowers ranging in size from $250,000 to $35 million. The maximum size of a loan made in connection with the NONLF cannot exceed the Eligible Borrower’s average 2019 quarterly revenue. 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. The unique features of loans originated in connection with the NONLF (NONLF Loans) are provided in the NONLF term sheet.
• NOELF: Eligible Lenders may increase (or “upsize”) an Eligible Borrower’s existing term loan or revolving credit facility. The upsized tranche 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 NOELF cannot exceed the Eligible Borrower’s average 2019 quarterly revenue. At the time of upsizing and at all times thereafter, the upsized tranche must be senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt. The features associated with tranches of loans that are upsized in connection with the NOELF (NOELF Upsized Tranches) are outlined in the NOELF term sheet.

As mentioned above, the nonprofit facilities are not currently operational as the Federal Reserve continues building out the infrastructure to operationalize these facilities.  However, along with the nonprofit facility term sheets (linked above), the Federal Reserve has provided commentary on the nonprofit facilities in the Nonprofit Facilities’ FAQs.

A more fulsome discussion of the nonprofit facilities will be provided here once the facilities become operational.  Please stay tuned for future updates.

For additional information, please contact Kevin Tran, Elle McCulty, Richard Hills or your primary Waller contact at (615) 244-6380.

^[1] See 85 CFR 20811, 85 CFR 21747 and 85 CFR 23450; see also 85 CFR 36717 and 85 CFR 38301.