Federal Reserve Updates Terms of Main Street Lending Program

Title:
Federal Reserve Updates Terms of Main Street Lending Program
Publication:
Riker Danzig Corporate Client ALERT re Federal Reserve Updates Terms of Main Street Lending Program
Attorneys:
Practices:

UPDATE: The Federal Reserve has announced an extension of its lending facilities – including the Main Street Lending Program – from September 30, 2020 to December 31, 2020.  

The Main Street Lending Program (the “Program”) is aimed at businesses facing difficulties as a result of the COVID-19 outbreak that are too large to qualify for, or need additional support beyond that provided under, the Small Business Administration’s Paycheck Protection Program (PPP) or Economic Injury Disaster Loan Program (see our prior Alert on the Program). The Main Street New Loan Facility (MSNLF) and Main Street Priority Loan Facility (MSPLF) are intended to help facilitate new loans to businesses, while the Main Street Expanded Loan Facility (MSELF) is intended to help facilitate the extension of already existing loans. Under each facility, private lenders are responsible for originating loans that meet the Program’s requirements, but may then sell a 95% participation in such loans to a special purpose vehicle established by the Federal Reserve Bank of Boston, thereby shifting most of the risk off of their books.   

The key revised terms for loans under the Program are as follows:

Borrower eligibility:

Each facility under the Program is now available to U.S.-based businesses that:

Minimum loan amounts:

Maximum loan amounts:

Note that, for these purposes, any portion of a PPP loan that is unforgiven at the time a loan under the Program is obtained counts as outstanding debt, thereby reducing the amount that can be borrowed under the Program. 

Interest:  The interest rate for loans under all three facilities will be an adjustable rate of LIBOR (1 or 3 month) plus 300 basis points.  Interest payments under all three facilities are deferred for one year.

Term and Maturity:  Loans under all three facilities will have a five-year maturity.  In addition, loans will have principal amortization of 15% at the end of the third year, 15% at the end of the fourth year and a balloon payment of 70% at maturity at the end of the fifth year.

Prepayment:  Loans may be prepaid without penalty.

Other Debt:  Under the MSNLF, the loan may not be contractually subordinated in terms of priority to any of the borrower’s other loans or debt instruments.  Under the MSPLF and the MSELF, the loan (or upsized tranche, in the case of MSELF) must be senior to or pari passu with, in terms of priority and security, the borrower’s other loans or debt instruments, other than mortgage debt.  Under the MSPLF, a borrower may, at the time of origination of its loan, refinance existing debt (other than debt owed to the lender from which it is receiving the MSPLF loan).  Any such refinanced debt is not treated as outstanding for purposes of determining the maximum loan amount.

Restrictions:

Borrowers must abide by the following stock repurchase, capital distribution and compensation restrictions for the term of the loan (or upsized tranche, in the case of MSELF) and twelve months thereafter:

If you have any questions about whether or how these facilities may apply to your business, please contact Jason NavarinoRich LomuscioHannah Greendyk or any member of Riker Danzig’s Corporate Department.

Please visit Riker Danzig’s COVID-19 Resource Center to stay up to date on all related legal issues.