On April 9, 2020, the Federal Reserve Board of Governors announced the Main Street Expanded Loan Facility, which, when combined with the Main Street New Loan Facility, will enable banks to lend up to $600 billion in loans to small and medium-sized businesses.

On the heels of the SBA Paycheck Protection Program, this program is geared to a wider range of businesses and covers larger businesses and larger loans.

This new program has specific guidelines and limitations, which are outlined below.

Who is an eligible lender?

• US Insured depository institutions
• US Bank Holding Companies
• US Savings and Loan Holding Companies

 

Who is an eligible borrower?

• Business with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues
• Business that is created or organized in the US or under the laws of the US
• Significant operations in and a majority of its employees based in the US
• Borrowers may not participate in both the New loan facility and the Expanded loan facility

 

How is this different from the Main Street New Loan Facility?

• It is similar. However, this program is for term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated before April 8, 2020, provided that the upsized tranche of the loan meets all of the criteria below.
• Total maximum loan size is up to $150 million based on the criteria below.

 

How much can be borrowed?

• Minimum loan size is $1 million
• Maximum loan size lesser of
  • $150 million
  • 30% of borrowers existing outstanding and committed but undrawn bank debt.
  • an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed 6 times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”);

 

Can I use funds to repay existing debt?

• No

 

What attestations are required for these loans?

• The Lender must attest that the proceeds of the loan will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower.
• The borrower must commit to refrain from using the proceeds of the loan to repay other loan balances.
• The borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the Main Street loan in full.
• The lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the borrower. The borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the lender or any other lender
• The borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
• The borrower must attest that it meets the EBITDA leverage condition stated above specifying the maximum size of the loan.
• The borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.

 

What are the terms on these loans?

• The loans will have a maturity of 4 years
• Amortization of principal and interest deferred for 1 year
• Interest rate is adjustable – SOFR + 250-400 bp
• No prepayment penalty
• This loan is collateralized.
  • Collateral can be from the original loan, or
  • Collateral can be added at the time of upsizing

 

Are there fees for this loan?

• Borrower will pay Lender a fee of 100 basis points of the principal amount of the upsized tranche of the Loan at the time of upsizing.

 

Can this loan be forgiven?

• No.

 

How long does this program last?

• The facility will cease purchasing participations in Eligible Loans on September 30, 2020, unless the Board and the Treasury Department extend the Facility.

 

How is all this working to get money from the Government to the Businesses?

Here’s the technical background.

• Two programs – Main Street New Loan Facility (MSNLF), and the Main Street Expanded Loan Facility (MSELF)
• The Department of the Treasury makes a $75 billion equity investment in a single common special purpose vehicle (SPV)
• The Federal Reserve Bank lends funds to the SPV
• Eligible lenders make eligible loans as noted above.
• The SPV purchases 95% participations in eligible loans from eligible lenders
• Lenders retain 5% of the loans, and service the loans
• Combined size of the MSNLF and MSELF will be up to $600 billion

Similar to the SBA PPP, the program has to be built out for all of the above.

 

How do I apply?
Details for obtaining, completing and/or submitting applications for loans under the Main Street Program have not been released. Eligible entities should contact their existing lenders pending the release of any further guidance.

 

Links to Program information

• Federal Reserve Press Release
• Main Street Expanded Loan Term Sheet

 

We’re Here to Help

MCM CPAs & Advisors can help advise you through these important programs. For more information, contact covidbank@mcmcpa.com and a member of MCM CPAs & Advisors COVID-19 Solutions Group will be in touch.