Note: The following description is valid through April 16, 2020. We will update this description as events warrant.
In a Nutshell – On April 9, 2020, the Federal Reserve established the MSLP to offer loans to companies with up to 10,000 employees or with revenues up to $2.5 billion in 2019. Under the MSLP, the Federal Reserve is creating two lending facilities: one for New Loans, the Main Street New Loan Facility (MNSLF); and one for Existing Loans, the Main Street Expanded Loan Facility (MSELF). Using funds appropriated under the CARES Act, the U.S. Treasury will make a $75 billion equity investment enabling up to $600 billion in MSLP financing for Eligible Borrowers from Eligible Lenders.
Authority – Title IV of the CARES Act, Sec. 4003(c)(3)(A)(ii), H.R. 748, Pub. L. 116-136, Mar. 27, 2020; Section 13(3) of the Federal Reserve Act.
Rules – Term Sheets for the MNLSF and MSELF programs were published on Apr. 9, 2020, and are on the Federal Reserve’s website, here. The Federal Reserve is seeking comments until Apr. 16, 2020 and the terms and conditions may change.
Who Are Eligible Borrowers – In addition to employing up to 10,000 employees or receiving up to $2.5 billion in 2019 annual revenues, an Eligible Borrower must be created or organized in the U.S. or under U.S. laws with significant operations in and a majority of its employees based in the U.S. Also, along with any certifications required under applicable law, an applicant for a loan must attest that it:
- Will refrain from using loan proceeds to repay other loan balances, and other debt of equal or lower priority, with the exception of mandatory principal payments, unless it has first repaid the loan in full;
- Will not seek to cancel or reduce any of its outstanding lines of credit with the lender making the loan or any other lender;
- Requires financing due to exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the MSNLF loan, or during the term of the upsized tranche in the case of an MSELF loan;
- Meets the interest, taxes, depreciation, and amortization (EBITDA) leverage condition stated below specifying required features for eligible loans;
- Will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under 4003(c)(3)(A)(ii) of the CARES Act; and
- Is eligible to participate in the MSNLF or MSELF, as applicable, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
Who Are Eligible Lenders – Eligible Lenders include U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
How Funds Can Be Used – The Term Sheets do not appear to specify how the funds can be used, although there are restrictions, as provided above, and additional details may be provided.
Loan Terms –
- Terms, Rate, No Prepayment Penalty, and Forgiveness – MSNLF loans are to be unsecured term loans made by an Eligible Lender to an Eligible Borrower on or after Apr. 8, 2020, and an MSELF is a term loan made by an Eligible Lender to an Eligible Borrower before Apr. 8, 2020. Both types of loans mature in 4 years; there are no prepayment penalties; the interest rate is the adjustable rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points; amortization of principal and interest is deferred for one year; and loans are not eligible for forgiveness.
- Minimum and Maximum Loan Amounts – Minimum of $1 million. Maximum for MSNLF loans is lesser of $25 million or an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before EBITDA. Maximum for MSELF loans is lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 earnings before EBITDA.
- Other Provisions – EligibleBorrowers that participate in the MSNLF may not also participate in the MSELF, and vice versa, or the Federal Reserve’s Primary Market Corporate Credit Facility. Eligible Borrowers that have obtained a U.S. Small Business Administration Paycheck Protection Program (PPP) loan may also obtain a MSNLF or MSELF loan.
- Additional Information – Eligible Lenders will retain 5% participations in eligible MSNLF loans and a Special Purpose Vehicle (SPV) of the Federal Reserve will purchase 95% participations. Eligible Lenders must pay the SPV a facility fee of 100 basis points of the principal amount of the loan participation, which the lender may require the borrower to pay. For MSELF loans, the SPV will purchase 95% participations in the upsized tranche of Eligible Loans from Eligible Lenders. An Eligible Borrower will pay an Eligible Lender a fee of 100 basis points of the principal amount of the upsized tranche of the Eligible Loan at the time of upsizing. For MSELF loans, the SPV will pay the Eligible Lender 25 basis points of the principal amount of its participation in the upsized tranche of the Eligible Loan per annum for loan servicing.
Program Availability – The Federal Reserve has not yet announced when MSNLF and MSELF loans will be available, although a functioning program is expected shortly. The SPV will cease purchasing participations in these loans on Sept. 30, 2020, unless the facility is extended, although the SPV will continue to be funded until its underlying assets mature or are sold.
Where Can We Apply – Applications will be available from Eligible Lenders.