Fed, Treasury Launch $600 Billion Main Street Business Lending Program
Loans of $25 million to $150 million now available for mid-sized businesses
Pursuant to section 13(3) of the Federal Reserve Act, on April 9, 2020, U.S. Treasury Secretary Steven T. Mnuchin approved the establishment of a Main Street Business Lending Program and a Municipal Liquidity Facility to support the flow of credit to American workers, businesses, states, counties, and cities impacted by the COVID-19 pandemic.
Main Street Business Lending Program
The Treasury will take $75 billion in funds established by the CARES Act and make an equity investment in a special purpose vehicle established to implement the Main Street Business Lending Program. This investment will generate up to $600 billion in new financing for businesses. Eligible businesses are those with up to 10,000 employees or $2.5 billion in 2019 annual revenues. This will provide much needed relief to those businesses that were sized out of the Paycheck Protection Program (PPP) loans.
The Main Street Business Lending Program establishes two distinct loan types.
- The Main Street New Loan Facility, and
- The Main Street Expanded Loan Facility.
Who Are Eligible Lenders?
Eligible lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
Who Are Eligible Borrowers?
- Businesses and nonprofits with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.
- Businesses must be created or organized in the United States or under the laws of the United States with significant operations in and a majority of employees based in the country.
- The recipient cannot be a debtor in a bankruptcy proceeding.
- Recipients must have incurred or will incur “covered losses” as a result of COVID-19, including reduced demand, unbudgeted medical expenses, and unavailability of credit.
- Based on market conditions, the recipient cannot reasonably obtain credit elsewhere.
What Loans Are Eligible?
- Unsecured term loan made by an eligible lender.
- For the Main Street New Loan Facility, eligible loans are those originated on or after April 8, 2020.
- For the Main Street Expanded Loan Facility, eligible loans are those that originated before April 8, 2020, and has been subsequently upsized.
All of the loans must have the following features:
- 4-year maturity
- Interest rates on direct loans must reflect risk and market conditions but should not be higher than 2%
- Amortization of principal and interest deferred for one year
- Adjustable Secured Overnight Financing Rate of +250-400 basis points
- Prepayment permitted without penalty
- Minimum loan size of $1 million
Lenders are authorized to charge borrowers certain fees at set amounts.
For Main Street New Loan Facility loans, maximum loan amount is the lesser of:
- $25 million, or
- An amount that, when added to the borrower’s existing outstanding and committed by undrawn debt, does not exceed four times the borrower’s 2019 earnings (before interest, taxes, depreciation, and amortization)
For Main Street Expanded Loan Facility loans, maximum loan amount is the 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 debt, does not exceed six times the borrower’s 2019 earnings (before interest, taxes, depreciation and amortization)
In addition to any certifications required by applicable statutes and regulations, the following attestations will be required with respect to each eligible loan:
- The Eligible Lender must attest that the proceeds of the Eligible Loan will not be used to repay or refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower.
- The Eligible Borrower must commit to refrain from using the proceeds of the Eligible Loan to repay other loan balances. The Eligible Borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full.
- The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower. The Eligible Borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender.
- The Eligible 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 Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.
- The Eligible Borrower must attest that it meets the EBITDA leverage condition stated in section 5(ii) of the paragraph above specifying required features of Eligible Loans.
- The Eligible 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.
- Eligible Lenders and Eligible Borrowers will each be required to certify that the entity is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
Loan Origination Fees
An Eligible Borrower will pay an Eligible Lender an origination fee of 100 basis points of the principal amount of the Eligible Loan.
What is the Process?
The process has not been announced yet. We will update this article as soon as we have additional information.
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