Brian A. Haskel, Alan E. Sherman, Jason L. Sobel, Lori M. Waldron
June 19, 2020
This alert updates prior publications and communications from
our firm regarding the Main Street Lending Program based on updated guidance released
as of June 8, 2020 and June 11, 2020. The
full texts of such guidance are incorporated herein and qualify information contained
in this Alert in its entirety. There may
be additional guidance in the future from the Federal Reserve and other
government agencies that may change or enhance this guidance.
Federal Reserve previously announced that it will establish a $600 billion Main Street
Lending Program (Main
Street Program) to support lending to small and medium-sized businesses. The
program is only intended to help companies that were in sound financial
condition prior to the onset of the COVID-19 pandemic.
the Main Street Program has not yet been made operational, the Federal Reserve
is currently working to create the infrastructure necessary to do so. Once operational, potential borrowers will be
able to apply for loans by contacting an eligible lender. The Main Street Program will remain open
until September 30, 2020, unless extended by the Federal Reserve and the
A business may borrow funds under both the Paycheck Protection
Program (PPP), which was created under the CARES Act, and the Main Street
Program, provided that the borrower meets the eligibility requirements for both
programs. However, unlike the PPP, which
only requires that borrowers meet the eligibility requirements of such program,
meeting the eligibility requirements of the Main Street Program does not
automatically qualify an applicant for a loan; the ultimate decision to make a
loan to an applicant under the Main Street Program, and the actual amount of
that loan, will be made by the applicable lender following an evaluation of the
applicant’s financial condition and credit worthiness based on the lender’s own
the Main Street Program, which will consist of three different loan facilities,
eligible businesses will be able to borrow funds based on multiples of 4x or 6x
of their 2019 EBITDA, as described below.
Loans will be capped at the lesser of the following amounts, based on the
particular loan facility:
Street New Loan Facility (MSNLF): (i) $35 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
Main Street Priority Loan Facility (MSPLF): (i) $50
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 2019 EBITDA.
Street Expanded Loan Facility (MSELF): (i) $300 million,
or (ii) an amount that, when added to the borrower’s existing debt, does not
times the borrower’s 2019 EBITDA.
8, 2020, the Federal Reserve released additional guidance with respect to the
Main Street Program in the form of Frequently Asked Questions (FAQs). 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 feasibility of adjusting the borrower eligibility criteria and loan
eligibility criteria for such borrowers is being considered.
Also released on June 8, 2020 were revised
term sheets for each of the three loan facilities, which can be viewed at the
following links: MSNLF,
Loans made under any of the three the Main Street Program
facilities will include the following terms:
- The loans will have a 5-year term.
- The loans will be made at a rate equal to the
LIBOR plus 3.00%.
- The minimum loan size will be $250,000 for
MSNLF and MSPLF, and $10,000,000 for MSELF.
- Payment of interest will be deferred for one
year; and payment of principal will be deferred for two years, with principal amortization
of 15% at the end of the third and fourth years, and 70% at the end of the
- There will be no prepayment penalty.
- The loans may be secured or unsecured.
- The loans will be full-recourse and will not
- The MSPLF and MSELF loans must at all times be
senior to or pari passu with the borrower’s
other loans or debt instruments in terms of priority and security, other than
mortgage debt, and the MSNLF loans must not be contractually subordinated in
terms of priority with the borrower’s other loans or debt instruments.
An eligible borrower for a Main Street Program loan is a business is
that, among other things:
- was established prior to March 13, 2020;
- is not an ineligible business (for a list of
businesses generally considered ineligible, click here);
- together with its affiliates* 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 (and its affiliates* do not) also
participate in the other Main Street Lending Program Facilities;
- has not received specific support pursuant to
the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the
CARES Act); and
- is able to make all of the certifications and
covenants required under the program.
To determine eligibility, a
borrower’s employees and 2019 annual revenues are calculated by aggregating the
employees and 2019 annual revenues of the borrower together with those of the borrower’s
affiliated entities in accordance with the affiliation test set forth in 13 CFR 121.301(f). To determine
how many employees a borrower has, it should follow the framework set out in 13 CFR 121.106, which stipulates that all full-time,
part-time, seasonal, or otherwise employed persons are considered employees of
the borrower, excluding volunteers and independent contractors. The SBA affiliation exceptions in 13 CFR 121.103(b) also apply to the Main Street Program, including
the exception for business concerns owned in whole or substantial part by
investment companies licensed under the Small Business Investment Act of 1958,
Certifications And Covenants
On June 11, 2020, the Federal Reserve released
an updated Borrower
Certifications and Covenants document for each loan facility, each of which
contains the certifications and covenants required to be made by borrowers
along with related instructions and guidance. The updated document for each
loan facility can viewed at the following links: MSNLF, MSPLF, MSELF. A borrower under any of the three loan
facilities must, among other things, attest to the following:
- The borrower will make
reasonable efforts to maintain its payroll and retain its employees while
the loan is outstanding.
- The borrower will refrain from using the loan
proceeds to repay other loan balances or other debt (except for interest or
principal payments that are mandatory and due), provided that MSPLF loans allow
a borrower to refinance existing debt to lenders that are not eligible lenders
under the Main Street Program.
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(b) of the CARES Act.
- (i) The borrower has provided financial records and a calculation
of the 2019 EBITDA of the borrower and its affiliated entities, reflecting only
those adjustments permitted pursuant to the methodology that the borrower
agreed upon with the lender, and (ii) such financial records fairly present, in
all material respects, the financial condition of such entities for the period
covered thereby in accordance with U.S. GAAP (if applicable), consistently
applied, and that such adjusted EBITDA calculations are true and correct in all
- The borrower is unable to secure adequate
credit accommodations from other banking institutions. The Federal Reserve has indicated in its
published guidance that this does not necessarily mean that no credit from
other sources is available to the borrower. Rather, the borrower may certify that it is
unable to secure “adequate credit accommodations” because the amount, price
and/or terms of credit available from other sources are inadequate for the
borrower’s needs during the current unusual and exigent circumstances. Borrowers are not required to demonstrate that
applications for credit have been denied by other lenders or otherwise document
that the amount, price, or terms of credit available elsewhere are inadequate.
- The borrower is not insolvent, and that it has
a reasonable basis to believe that it will have the ability to meet its financial
obligations for 90 days after the date of the receipt of the loan under the
Main Street Program and does not expect to file for bankruptcy during that
The borrower 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.
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.