Note: The following description is valid through August 7, 2020. We will update this description as events warrant.
In a Nutshell – On April 9, 2020, the Federal Reserve Board announced the MSLP which became fully operational on July 2020 and has now disbursed its first loans. The MSLP offers loans to small and medium-sized businesses and nonprofits with up to 15,000 employees or with revenues of up to $5 billion in 2019 that were in sound financial condition before the onset of the COVID-19 pandemic and now require financing due to exigent circumstances presented by it. The Federal Reserve Bank of Boston, which has lead responsibility for the program, has published several documents including, instructions, loan participation agreements, lender certifications and covenants for the program. On July 31, 2020, the Federal Reserve also published a revised set of FAQs for the MSLP. The FAQs indicate the program may be revised further in the future. The most recent version of the FAQs many be found here.
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.
Five Lending Facilities–Under the MSLP, the Federal Reserve originally created three separate lending facilities for businesses: two for New Loans, the Main Street New Loan Facility (MNSLF) and the Main Street Priority Loan Facility (MSPLF); and one for Existing Loans, the Main Street Expanded Loan Facility (MSELF). All three incorporate the same criteria for lender eligibility (see below) and their loans share many of the same features including the same maturity (5 years), interest rate – based on LIBOR plus 300 basis points; deferral of principal for two years, deferral of interest for one year, and the ability of a borrower to prepay without penalty. There are differences, however, in the loan amounts available from each facility.
Notably, on July 17, 2020, the Federal Reserve modified the Main Street Lending Program to provide greater access to credit for nonprofit organizations such as educational institutions, hospitals, and social service organizations. As detailed in term sheets, the Board established the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF).
The following terms are subject to amendment. The complete and most updated term sheets for the five lending facilities may be found here.
MSNLF: Available loans will be new unsecured five-year term loans made by Eligible Lenders to Eligible Borrowers ranging in size from $250,000 to $35 million. The maximum size of a loan cannot, however, when added to an Eligible Borrower’s existing outstanding and undrawn available debt, exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). At the time of origination or, at any time during its term, a MSNLF loan also must not be, contractually subordinated in priority to any of the Eligible Borrower’s other loans or debt instruments. Eligible Lenders will retain 5% participations in eligible MSNLF loans. A SPV of the Federal Reserve will purchase 95% participations in the loans.
MSPLF: Available loans will be new secured or unsecured five-year term loans made by Eligible Lenders to Eligible Borrowers ranging in size from $250,000 to $50 million. The maximum size of a loan cannot, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, exceed six times the Eligible Borrower’s adjusted 2019 EBITDA. At the time of origination and at all times thereafter, a MSPLF loan 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. Eligible Borrowers may, at the time of origination of a loan, refinance existing debt owed by the Eligible Borrower to a lender that is not the Eligible Lender. For MSPLF loans, Eligible Lenders will retain 5% of each MSPLF loan and the SPV will purchase a 95% participation.
MSELF: Available loans made by Eligible Lenders will increase (or “upsize”) Eligible Borrowers’ existing term loans or revolving credit facilities. Upsized tranches will be five-year term loans ranging in size from $10 million to $300 million. The maximum size of a loan made in connection with the MSELF cannot, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, exceed six times the Eligible Borrower’s adjusted 2019 EBITDA. 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. 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 loan per annum for loan servicing. For MSELF loans, Eligible Lenders will retain 5% of the upsized tranche of each loan and the SPV will purchase a 95% participation in the upsized tranche of each loan.
NONLF and NOELF: The Main Street nonprofit loan terms generally mirror those for Main Street for-profit business loans, including the interest rate, principal and interest payment deferral, five-year term, and minimum and maximum loan sizes. Nonprofits will be eligible for two loan options, and the NONL term sheet and NOELF term sheet provides additional details.
Additional Information on Fees –For both MSNLF and MSPLF loans, 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 an MSELF loan, an Eligible Borrower will pay an Eligible Lender a fee of 75 basis points of the principal amount of the upsized tranche of the MSELF loan at the time of upsizing.
Eligible Lenders Under the MSLP – Must be U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies. A list of Eligible Lenders may be found here.
Who Are Eligible Borrowers – In addition to offering loans to small and medium-sized businesses with up to 15,000 employees or with revenues of up to $5 billion in 2019 an Eligible Borrower must:
- Have been established prior to March 13, 2020, under the laws of the United States, one of the several states, the District of Columbia, any of the territories and possessions of United States, or an Indian Tribal government and have significant operations in and a majority of its employees based in the United States;
- Not be an Ineligible Business as listed under 13 CFR § 120.110(b)-(j), (m)-(s), as modified and clarified by SBA regulations for purposes of the U.S. Small Business Administration Paycheck Protection Program (PPP). Certain “financial businesses” including certain lenders are ineligible for MSLP loans. Note that the Federal Reserve says it may further modify the application of the ineligibility restrictions to the MSLP.
Also, along with any certifications required under applicable law, an Eligible Borrower 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.
Note: There may also be additional certifications required depending on other applicable law
- The July 31, 2020 FAQs state that Eligible Lenders should view the above eligibility criteria as the minimum requirements for the MSLP. Eligible Lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of the potential borrower’s application.
- The MSNLF, MSPLF, and MSELF term sheets state that each Eligible Borrower should make “commercially reasonable efforts” to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding.
Eligible Borrowers that have obtained a PPP loan may also obtain a MSNLF, MSPLF, or MSELF loan. Eligible Borrowers that participate in any of the MSLP facilities may not also participate in the Federal Reserve’s Primary Market Corporate Credit Facility.
Program Availability –. The SPV will cease purchasing participations in Eligible Loans on December 31, 2020, unless the Board and the Department of the Treasury extend the Facility. The SPVs will continue to be funded until its underlying assets mature or are sold.
Where Can Borrowers Apply? – To obtain a loan under the Program, an Eligible Borrower must submit an application and any other documentation required by an Eligible Lender to such lender. Eligible Borrowers should contact an Eligible Lender for more information on whether the Eligible Lender plans to participate in the Program and to request more information on the application process.
 13 C.F.R. § 120.110 provides, in relevant part, that “financial businesses primarily engaged in the business of lending,” such as banks, and finance companies, are ineligible for SBA programs. The SBA’s Statement of Policy Standard Operating Procedure (SOP) provides exceptions as follows:
- A mortgage servicing company that disburses loans and sells them within 14 calendar days of loan closing is eligible.
- Mortgage companies are eligible when they are primarily engaged in the business of servicing loans.
The SBA’s SOP also says that “[m]ortgage companies that make loans and hold them in their portfolio are not eligible.” See SOP 50 10 5(K) entitled “Lender and Development Company Loan Programs” in Subpart B – Section 7(A) Business Loan Programs, Chapter 2: Eligibility for 7(A) Guaranty Loan Program, at p. 104.