On April 15, 2020, we provided an industry alert giving a summary of the initial structure of the Main Street Lending Program (MSLP). Since that date, the Board of Governors of the Federal Reserve System (the “Board”) has posted Term Sheets and Frequently Asked Questions dated April 30, providing additional clarity on the three facilities comprising the MSLP. This piece provides an overview of the MSLP in light of the additional guidance. MSLP is distinguished from the Payroll Protection Plan Program established under the CARES Act providing government-guaranteed loans to eligible small businesses, which loans are subject to forgiveness, and the Primary Market Corporate Credit Facility (PMCCF) established by the Board to support credit to investment grade companies.

MSLP Program highlights include:

Eligible Lenders are U.S. federally insured depository institutions, U.S. branches or agencies of foreign banks, holding companies of U.S. banks and savings and loan associations, U.S. intermediary holding companies of foreign banks and U.S. subsidiaries of any of the foregoing. Nonbank financial institutions are not treated as Eligible Lenders at this time.

Eligible Borrowers are U.S. for-profit businesses established prior to March 13, 2020, which are not Ineligible Businesses under the CARES Act and SBA interim final rules, meeting one of the two following conditions after application of CARES Act affiliation rules: (a) 15,000 or fewer employees, or (b) 2019 annual revenues of $5 billion or less. Non-profit entities are not Eligible Borrowers at this time.

Eligible Borrowers may also receive a PPP Loan, but may not participate in more than one of the three MSLP facilities or the PMCCF.

MSLP Facilities. The Main Street New Loan Facility (“New Loan Facility”), the Main Street Priority Loan Facility (“Priority Loan Facility”) and the Main Street Expanded Loan Facility (“Expanded Loan Facility”) are the three facilities established under the MSLP. All three facilities use the same criteria for Eligible Lenders and Eligible Borrowers and share many of the same program features.

Common Features of Eligible Loans:

• Four-year term loan originated after April 24, 2020
• principal and interest deferred for one year with unpaid interest being capitalized
• interest rate LIBOR (1 or 3 months), plus 300 bps [changed from SOFR plus 250-400 bps in original guidance]
• prepayment without premium or penalty
• eligible for an internal risk rating equivalent to “pass”

Distinguishing Features:

Restrictions

• The compensation, stock repurchase and dividend restrictions under the CARES Act apply to all three facilities established under MSLP with the exception that Eligible Borrowers, which are the pass-through entities, may make distributions to satisfy their owners’ tax obligations.
• Eligible Borrowers must commit not to repay principal or interest on any non-MSLP debt until the MSLP debt is repaid in full, unless the payment is currently due and required to be paid.
• Eligible Lenders and Eligible Borrowers must agree not to reduce committed lines of credit until the MSLP Loan is repaid in full, except in the event of default.
• These restrictions do not prohibit any of the following:
• the termination of uncommitted lines of credit
• the expiration of credit facilities in accordance with their terms
• the reduction of availability under existing lines of credit in accordance with their terms, such as borrowing base limitations and the imposition of reserves
• the incurrence and repayment of purchase money debt
• the refinancing of maturing debt

The Board reserves the right to make changes to the published Term Sheets. Readers should consult the Board’s website for updated Term Sheets, Frequently Asked Questions, application forms and information on the official launch date of the MSLP.

¹ EBITDA is to be determined in accordance with the measurement applied by the Eligible Lender to the Eligible Borrower for existing credit facilities (if applicable) or similarly situated borrowers.
² May be used to refinance existing indebtedness to a lender that is not an Eligible Lender.

This alert was written by Cynthia Allner, a lawyer in the Banking & Finance practice group at Miles & Stockbridge.

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