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Federal Reserve Announces Expansion to Main Street Program

Federal Reserve Announces Expansion to Main Street Program Background Decorative Image

On April 30, 2020, the Federal Reserve (the “Fed”) announced an expansion of the scope of its previously announced Main Street New Loan Facility and Main Street Expanded Loan Facility and provided additional guidance in the form of Frequently Asked Questions (FAQs). The announcement also includes a new Main Street Priority Loan Facility to provide senior or pari passu (in terms of both payment and security) term loans to eligible borrowers with greater leverage.

While eligibility for these programs has been expanded to include businesses with fewer than 15,000 employees (from fewer than 10,000 employees) and businesses with 2019 revenues of less than $5 billion (from less than $2.5 billion), the guidance clarifies that an applicant’s affiliates – as determined by the Small Business Administration (SBA) affiliation rules as modified by the Paycheck Protection Program (PPP) – will count when determining the applicant’s eligibility based on number of employees or amount of revenues. In addition, the guidance clarifies that certain businesses identified in the SBA rules and PPP guidance are ineligible for participation as borrowers in these programs.

Key Highlights

  • Clarification of rank of loans made under the Main Street New Loan Facility (not permitted to be contractually subordinated in right of payment)
  • EBITDA calculations to be made by a lender based on the calculation it used to extend credit to the applicant or a similarly situated borrower prior to April 24, 2020
  • Interest rates based on LIBOR
  • Expansion of definition of “undrawn available amount of credit” to include non-bank indebtedness
  • Expansion of the Main Street Expanded Loan Facility to include the ability to add a term loan tranche to existing term loans or revolving credit facilities
  • Ability for syndicated loans to participate in the Main Street Expanded Loan Facility if the lender of the upsized tranche retains an interest in the original loan
  • Ability to refinance existing debt at the time of origination of a loan under the Main Street Priority Loan Facility
  • Clarification that eligible businesses that have received PPP loans are permitted to borrow under these facilities
  • Clarification that the reduction of availability under existing lines of credit in accordance with their terms due to changes in borrowing bases or reserves in asset-based or similar structures are permitted

The following is a summary of the key terms of each facility:

Main Street Lending Program Loan Options New Loans Priority Loans Expanded Loans
Term 4 years 4 years 4 years
Minimum Loan Size $500,000 $500,000 $10,000,000
Maximum Loan Size Lesser of $25M or 4x 2019 adjusted EBITDA Lesser of $25M or 6x 2019 adjusted EBITDA Lesser of $200M, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA
Risk Retention 5% 15% 5%
Payment (year one deferred for all) Years 2-4: 33.33% each year Years 2-4: 15%, 15%, 70% Years 2-4: 15%, 15%, 70%
Rate LIBOR + 3% LIBOR + 3% LIBOR + 3%

 

Term Sheets & Additional Guidance

Term Sheets and additional guidance related to each of the programs can be found at the below links:

Main Street New Loan Facility

Main Street Priority Loan Facility

Main Street Expanded Loan Facility

Main Street Lending Program Frequently Asked Questions

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.