On April 9, 2020, the Federal Reserve announced a number of loan programs designed to provide up to $2.3 trillion in loans to support businesses and local governments through the coronavirus pandemic. One of these new programs, the Main Street Lending Program, focuses primarily on businesses that do not qualify for a loan under the Paycheck Protection Program; however, unlike the Paycheck Protection Program, loans pursuant to the Main Street Lending Program are not forgivable.

These loans are structured through a special purpose vehicle (SPV) established by the Federal Reserve and the Department of Treasury that will purchase 95% of the loans. The remainder will be retained by the lender.

The Federal Reserve will work with lenders to offer four-year loans to eligible borrowers under the Main Street Lending Program. Eligible borrowers are businesses and nonprofit organizations with up to 10,000 employees or 2019 annual revenues of up to $2.5 billion. Each eligible borrower must be a business that 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.

The loans will have the following features:

  • 4 year maturity;
  • Unsecured;
  • Amortization of principal and interest deferred for one year;
  • Adjustable rate of Secure Overnight Financing Rate (currently .01%), plus 2.5%-4.0%;
  • Minimum loan size of $1 million;
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the eligible borrower’s 2019 EBITDA; and
  • Prepayment permitted without penalty.

The Federal Reserve has stated that eligible borrowers must commit to make reasonable efforts to maintain payroll and retain workers and will be required to follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. We understand that those restrictions include the following, but anticipate additional guidance to clarify the payroll and employee retention requirements:

  • During the term of the loan and for one (1) year thereafter, certain executives who had a total compensation (which includes salary, bonuses, awards of stock, and other financial benefits) in excess of $425,000 in 2019 cannot receive compensation over what they received in calendar year 2019. There are additional caps on employees making in excess of $3,000,000 and on severance payments.
  • During the term of the loan, borrowers may not pay dividends or other capital distributions on common stock. Public companies are also restricted on the repurchase of equity securities on a national securities exchange.

There are also restrictions on refinancing existing loans or lines of credits as well as making payments, other than mandatory principal payments, on other debt.

Lenders are required to remit a facility fee of 1% of the principal amount purchased by the SPV, which may be passed through to borrower, and there is an origination fee payable by the borrower to the lender in the amount of 1% of the principal amount of the loan.

The Federal Reserve issued fact sheets outlining the terms summarized above, as well as the terms of expanded program issued on a recourse basis. The fact sheets can be found on the Federal Reserve’s website (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm)

We will continue to monitor these programs and will provide additional information as it becomes available.

The Banking and Finance attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group, LLC to discuss specific questions and recommendations regarding your business and the Main Street Lending Program.