Brian A. Haskel, Alan E. Sherman, Jason L. Sobel, Lori M. Waldron
May 05, 2020
This alert updates prior publications and
communications from our firm regarding the Main Street Lending Program
based on updated guidance released as of April 30, 2020. It is likely that there will be additional
guidance in the future from the Federal Reserve and other government
agencies that may change or enhance this guidance.
The Federal Reserve has announced that it is establishing a
$600 billion Main Street Lending Program (Main Street Program) to support
lending to small and medium-sized businesses that were in sound financial
condition before the onset of the COVID-19 pandemic.
The Main Street Program consists of three different types of loan facilities
and will remain open until September 30, 2020, unless extended by the Federal
Reserve and the Treasury Department. Additional guidance with respect to the
Main Street Program was released by the Federal Reserve on April 30, 2020 in
the form of Frequently
Asked Questions (FAQs).
Under the Main Street Program, eligible borrowers will be
able to borrow based on multiples of 4x or 6x of their 2019 EBITDA, as
described below. Among other things, an
eligible borrower must have been in sound financial condition prior to the
onset of the COVID-19 pandemic. The amount that a business will be permitted
to borrow under the Main Street Program will range from a minimum of $500,000 to a maximum of an amount
equal the lesser of the following amounts, based on the particular loan
Street New Loan Facility (MSNLF)
: (i) $25 million,
or (ii) an amount that, when added to the borrower’s existing outstanding and
committed but undrawn debt, does not exceed four
times the borrower’s 2019 EBITDA.
Main Street Priority Loan Facility (MSPLF)
: (i) $25
million, or (ii) an amount that, when added to the borrower’s existing
outstanding and committed but undrawn debt, does not exceed six times the borrower’s
Street Expanded Loan Facility (MSELF)
: (i) $200 million,
(ii) 35% of the borrower’s existing outstanding and committed but undrawn bank
in priority with the Expanded Loan Facility loan and
equivalent in secured status, or
(iii) an amount that, when added to the borrower’s existing debt, does not
exceed six times the borrower’s
The Main Street Program is
not yet operational and the Federal Reserve will be providing further information
in the future. To review the current term sheets published by the Federal
Reserve for the MSNLF, MSPLF and MSELF, click here.
In the FAQs, the Federal Reserve noted
that non-profit organizations and asset-based borrowers are generally not
evaluated on the basis of EBITDA and that the Federal Reserve will be considering
the feasibility of adjusting the borrower eligibility criteria and loan
eligibility criteria for such borrowers.
Loans under any of the three the Main Street Program
facilities will be made under the following terms:
- The loans will have a 4-year term.
- The loans will be made at a rate equal to the
LIBOR plus 3.00%.
- Amortization of principal and interest will be
deferred for one year, with principal amortization at the end of the second,
third and fourth years.
- There will be no prepayment penalty.
- The loans may be secured or unsecured.
- The loans will be full-recourse and will not be
- The MSPLF and MSELF loans must at all times be
senior to or pari passu to the borrower’s
other loans or debt instruments, other than mortgage debt, and the MSNF loans must
not be contractually subordinated.
An eligible borrower for a Main
Street Program loan is a business is that:
- was established prior to March 13, 2020;
- is not an ineligible business (for a list of businesses generally considered ineligible,
- meets at least one of the following two
conditions: (i) has 15,000 employees or fewer, or (ii) had 2019 annual revenues
of $5 billion or less;
- is created or organized in the United States or
under the laws of the United States with significant operations in and a
majority of its employees based in the United States;
- does not also participate in the other Main
Street Lending Program Facilities; and
- has not received specific support pursuant to
the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of
the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)).
Certifications and Covenants
In addition to other
certifications required by applicable statutes and regulations, the following
certifications and covenants will be required from the borrower:
- The borrower will make reasonable efforts to maintain its
payroll and retain its employees during the term of the loan.
- The borrower will refrain from using the loan
proceeds to repay other loan balances or other debt (except
mandatory principal payments), provided that MSPLF loans allow a borrower to
refinance existing debt to lenders that are not eligible lenders under the Main
borrower will not seek to
cancel or reduce any of its committed lines of credit with the lender
of its Main Street Program loan or
any other lender.
- The borrower has no conflicts of interest as described under
Section 4019 of the CARES Act.
must also attest that it will abide by the following restrictions until the
date that is one year after the date on which the loan is no longer outstanding
(unless waived by the Secretary of the Treasury):
- The borrower may not repurchase any equity security of the
borrower or any parent company of the borrower that is listed on a national
securities exchange, except to the extent required under a contractual
obligation that is in effect as of March 27, 2020.
- The borrower may not pay dividends or make other capital
distributions with respect to its common stock (except that tax pass-through
entities may make tax distributions reasonably required to cover its owners’
- The borrower must abide by certain compensation limitations on
officers and employees whose total compensation exceeded $425,000 in calendar
year 2019, as set forth in Section 4004 of the CARES Act; total compensation
includes salary, bonuses, awards of stock and other financial benefits provided
by a borrower to an officer or employee of such borrower.
business may borrow funds under both the Paycheck Protection Program under the
CARES Act and the Main Street Program if it meets the eligibility requirements
for both programs. Unlike the mid-sized
business program described in Title IV of the CARES Act, a business is not
required to employ a minimum number of employees to participate in the Main Street
Lenders under the MSNLF and the MSPLF will be paid by borrowers
an origination fee up to 100 basis points of the principal amount of the
loan. Such lenders may also require
borrowers to pay an additional facility fee equal to 100 basis points of the
principal amount of the loan.
Lenders under the MSELF will be paid by borrowers an
origination fee equal to 75 basis points of the upsized principal amount of the
loan. Such lenders may also require borrowers to pay an additional facility fee
equal to 75 basis points of the upsized principal amount of the loan.
This Client Alert has been prepared by Sills Cummis & Gross P.C. for informational purposes only and does not constitute advertising or solicitation and should not be used or taken as legal advice. Those seeking legal advice should contact a member of the Firm or legal counsel licensed in their state. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. Confidential information should not be sent to Sills Cummis & Gross without first communicating directly with a member of the Firm about establishing an attorney-client relationship.