Though the Main Street Lending Program is backstopped by the Federal Reserve, the loans thereunder will be made directly by U.S. banks and savings and loan companies.

The Federal Reserve on April 9, 2020, released anxiously awaited guidance regarding the Main Street Lending Program that was authorized under the Coronavirus Economic Stabilization Act (Title IV of the CARES Act). Two releases were provided: the Main Street Expanded Loan Facility, dealing with additional loan tranches under existing credit facilities; and the Main Street New Loan Facility, dealing with origination of new lending facilities. Each facility under the lending program, authorized under section 13(3) of the Federal Reserve Act, is intended to promote lending to small and medium-sized businesses, but has slightly different eligibility requirements. Though the Main Street Lending Program is backstopped by the Federal Reserve, the loans thereunder will be made directly by U.S. banks and savings and loan companies.

Eligible Borrowers

For either the Expanded Loan Facility or the New Loan Facility, the eligible borrower criteria are identical. An “Eligible Borrower” is a business with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues (an either/or test, based on employees or revenues). An eligible borrower must be created or organized in the U.S., have significant operations in the U.S. and have a majority of its employees based in the U.S.

Eligible Borrowers cannot participate in the Primary Market Corporate Credit Facility (under which rated corporate bonds are directly purchased) or the other reciprocal facility in the Main Street Lending Program (no double-dipping in both the Expanded Loan Facility and New Loan Facility). There is no prohibition, however, on joint participation in the Paycheck Protection Program and one or the other facility in the Main Street Lending Program.

Eligible Loans – New Loan Facility

Under the New Loan Facility, “Eligible Loans” are unsecured term loans made to Eligible Borrowers that are originated on or after April 8, 2020. Eligible Loans under the New Loan Facility will:

1. Have a four year maturity;
2. Have a one year amortization deferral of both principal and interest;
3. Bear interest at an adjustable rate based on the Secured Overnight Financing Rate (currently one basis point) plus an additional spread of 250 to 400 basis points (thus, current rates would range from 2.51 percent to 4.01 percent);
4. Be no less than $1 million in principal;
5. Be no more than the lesser of (i) $25 million in principal, or (ii) a principal amount that, when added to a borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation and amortization (EBITDA); and
6. Be prepayable without penalty.

Eligible Loans – Expanded Loan Facility

Under the Expanded Loan Facility, Eligible Loans are term loans made to Eligible Borrowers that wereoriginated before April 8, 2020, and to which an additional (upsized) tranche is made. Eligible Loans under the Extended Loan Facility will:

1. Have a four year maturity;
2. Have a one year amortization deferral of both principal and interest;
3. Bear interest at an adjustable rate based on the Secured Overnight Financing Rate (currently one basis point) plus an additional spread of 250 – 400 basis points (thus, current rates would range from 2.51 percent to 4.01 percent);
4. Be no less than $1 million in principal;
5. Be no more than the lesser of (i) $150 million in principal, (ii) a principal amount equal to 30 percent of the borrower’s existing outstanding and committed but undrawn bank debt or (iii) a principal amount that, when added to existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA;
6. Be prepayable without penalty.

Required Attestations by Lenders

With respect to any loan made under the Main Street Lending Program, lenders must make certain attestations (in addition to any normal certifications required for such loans under applicable law). Lenders making loans under the program must attest that:

1. The proceeds of the loan will not be used to repay or refinance preexisting loans or lines of credit made by the lender to the borrower (including the preexisting loan in the case of the Expanded Loan Facility);
2. They will not cancel or reduce any existing lines of credit outstanding to the borrower (i.e,, no substitution of lending program loans for existing lines); and
3. They are eligible to participate in the Main Street Lending Program (including in light of the conflicts of interest prohibition in Section 4019(b) of the CARES Act, disqualifying certain entities with relationships to the President, the Vice President or certain other high ranking members of government or their families).

Required Attestations by Borrowers

With respect to any loan made under the Main Street Lending Program, borrowers must make certain attestations (in addition to any normal certifications required for such loan under applicable law). Borrowers receiving loans under the program must attest that:

1. They will refrain from repaying other debt of equal or lower priority until the loan is paid in full (with certain exceptions);
2. They will not cancel or reduce any existing lines of credit outstanding with lenders;
3. They require financing under the Main Street Lending Program due to the exigent circumstances presented by the COVID-19 emergency and that, using the proceeds of the loan, they will make reasonable efforts to maintain their payroll and retain their employees during the term of the loan;
4. They meet the EBITDA leverage condition for the loan;
5. They will follow compensation, stock repurchase and capital distribution restrictions that apply under the CARES Act; and
6. They are eligible to participate in the Main Street Lending Program (including in light of the conflicts of interest prohibition in Section 4019(b) of the CARES Act, disqualifying certain entities with relationships to the President, the Vice President or certain other high ranking members of government or their families).

Forgiveness and Fees

Eligible loans under the Main Street Lending Program are by statute not subject to forgiveness. They are low interest, relatively easily obtainable loans that are backstops for business operations during the COVID-19 emergency. Eligible Borrowers will pay lenders an origination fee equal to 1 percent of the principal amount of the loans they receive.

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