The Main Street Lending Program, under Section 13(3) of the Federal Reserve Act, is designed to provide financial assistance to small and medium sized businesses. Two Main Street Lending Programs were announced on April 9, 2020 that are summarized here. On April 30, 2020, in response to more than 2,200 letters from individuals, businesses and nonprofits, the Federal Reserve announced changes and more program details for the Main Street Lending Programs.  There will be three Main Street loan facilities available: the previously announced Main Street New Loan Facility and Main Street Expanded Loan Facility and a new program called the Main Street Priority Loan Facility (all such facilities being the “Main Street Loan Facilities”). The updated terms and conditions of each Main Street Loan Facility as of April 30, 2020 are set forth below; however, the Federal Reserve may issue additional program rules and guidance. Participants are responsible for keeping up to date on this information in order to comply with the requirements of the Main Street Loan Facilities. 

Eligible Lenders

Eligible Lenders must generally be U.S. federally insured depository institutions, which include banks, savings associations, credit unions and U.S branches of foreign banks, or a similar banking institution. Non-bank lenders are not currently eligible but the Federal Reserve announced on April 30, 2020 that it is considering expanding the list of Eligible Lenders in the future. Eligible Lenders are required to make certain certifications and covenants in connection with each Eligible Loan (see below) that it originates under the Main Street Loan Facilities, including that: 

• It will not request that an Eligible Borrower (see below) repay debt extended by the Eligible Lender to the Eligible Borrower or pay interest on such outstanding obligations until the Eligible Loan or the upsized tranche of the Eligible Loan is repaid in full (exceptions for mandatory payments and payments pursuant to a default and acceleration).
• It will not cancel or reduce any existing committed lines of credit to the Eligible Borrower, unless an event of default has occurred thereunder.
• The methodology used for calculating the Eligible Borrower’s adjusted 2019 EBITDA to determine the maximum loan size of the Eligible Loan is the same methodology previously used for adjusting EBITDA when extending credit to such Eligible Borrower or similarly situated borrowers on or before April 24, 2020.
• It is eligible to participate in the Main Street Loan Facilities, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.   
• It will conduct an assessment of each potential borrower’s financial condition at the time of the potential borrower’s application.

Eligible Borrowers  

An Eligible Borrowers is a business entity organized for profit as a partnership, a LLC, a corporation, an association, a cooperative, a joint venture or a tribal business concern that: 

• Was established prior to March 13, 2020.
• Is not an Ineligible Businesses listed in 13 CFR 120.110(b)-(j) and (m)-(s), as modified by the regulations implementing the Paycheck Protection Program (including the rule prohibiting hedge funds and private equity firms from participating, while noting that their portfolio companies may still qualify).¹
• Either (i) has 15,000 employees or fewer, or (ii) had 2019 annual revenues of $5.0 billion or less. Borrowers will be required to include the revenue and the employees of their affiliates as required in 13 CFR 121.106 (same rules as the Paycheck Protection Program). 
• Is created or organized in the United States or under the laws of the United States with significant operations, and a majority of its employees based, in the United States. 
• Has the ability to make Required Borrower Certifications and Covenants (see below).
• Has not received specific support pursuant to Subtitle A of Title IV of the CARES Act (this restriction does not preclude participation in the Paycheck Protection Program). 
• If it has an outstanding loan with the Eligible Lender as of December 31, 2019, such loan has an internal risk-rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date. 

Nonprofit organizations are not currently Eligible Borrowers; however, the Federal Reserve is currently evaluating adjusting the Main Street Loan Facilities’ requirements to meet the unique needs of such organizations, including that many are on the front line providing critical services and research, and that EBITDA is not generally used to measure the credit risk of non-profits.  Additionally, the Federal Reserve may consider other forms of organization for eligibility in the program in the future.

Eligible Borrowers are required to make certain certifications and covenants in connection with each Eligible Loan (see below) that it originates under the Main Street Loan Facilities, including that: 

• It will refrain from repaying the principal balance of, or paying any interest on, any other debt (other than mandatory principal or interest payments) until the Eligible Loan is repaid in full (under the Main Street Priority Loan Facility, an Eligible Borrower may, at the time of origination of the Eligible Loan, refinance existing debt that it owes to a lender that is not the Eligible Lender).  
• It will not seek to cancel or reduce any of its committed lines of credit.
• It has a reasonable basis to believe that, as of the date of origination of the Eligible Loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period. 
• 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, except that an S corporation or tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings. 
• It is eligible to participate in the loan program, including the conflicts of interest prohibition in section 4019(b) of the CARES Act.
• It will make commercially reasonable efforts to maintain its payroll and retain its employees during the time that the Eligible Loan is outstanding.

Eligible Loans

General Terms

• 4-year maturity.
• Principal and interest payments deferred for one year (unpaid interest is capitalized).
• Adjustable rate of LIBOR (1 or 3 month) + 3.0%.
• Amortization – depends on which Main Street Loan Facility
• Fees:
  • Transaction Fee: Eligible Lender will pay the SPV 1% (New and Priority) or 0.75% (Expanded) of the principal amount of the Eligible Loan at the time of origination. The Eligible Lender may require the Eligible Borrower to pay this fee. 
  • Origination Fee: An Eligible Borrower will pay an Eligible Lender an origination fee of up to 1% (New and Priority) or 0.75% (Expanded) of the principal amount of the Eligible Loan at the time of origination. 
  • Servicing Fee: The SPV will pay an Eligible Lender a servicing fee of 0.25% of the principal amount of its participation in the Eligible Loan per annum for loan servicing.

Main Street New Loan Facility 

Under this program, the Federal Reserve will purchase a 95% participation in a secured or unsecured term Eligible Loan originated on or after April 24, 2020, so long as the loan has all of the following features: 

• Principal amortization of one-third at the end of the second year, third year and fourth year, respectively. 
• Minimum loan size of $500,000.
• Maximum loan size that is the lesser of (i) $25 million and (ii) an amount, that when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s 2019 adjusted EBITDA. 
• Is not, at the time of origination or at any time during the term of the loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments. B.3 of the FAQ further explains that a Main Street New Loan cannot be junior in priority in bankruptcy to the Eligible Borrower's other unsecured loans or debt instruments. 
• No prepayment penalty.

The Federal Reserve will provide additional information about credit administration and loan servicing.

Main Street Priority Loan Facility 

Under this program, the Federal Reserve will purchase an 85% participation in a secured or unsecured term Eligible Loan originated on or after April 24, 2020, so long as the loan has all of the following features: 

• Principal amortization of 15%, 15% and 70% at the end of the second year, third year and fourth year, respectively. 
• Minimum loan size of $500,000.
• maximum loan size that is the lesser of (i) $25 million and (ii) an amount, that when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s 2019 adjusted EBITDA. 
• At the time of origination and at all times during the term of the Eligible Loan, the Eligible Loan must be senior to, or pari passu with, in terms of priority and security, the Eligible Borrower’s other loan or debt instruments (other than mortgage debt).
• No prepayment penalty.

Main Street Expanded Loan Facility 

Under this program, the Federal Reserve will purchase a 95% participation in an upsized tranche of a secured or unsecured term loan or revolving credit facility, which existing loan was originated on or before April 24, 2020, and has a remaining maturity of at least 18 months (taking into account any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing) so long as the upsized tranche of the loan is a term loan and has all of the following features: 

• Principal amortization of 15%, 15% and 70% at the end of the second year, third year and fourth year, respectively. 
• Minimum loan size of $10 million.
• Maximum loan size that is the lesser of (i) $200 million, (ii) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that is pari passu in priority with the Eligible Loan and equivalent in secured status and (iii) an amount, that when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 EBITDA. 
• No prepayment penalty. 
• At the time of upsizing and at all times the upsized tranche is outstanding, the upsized tranche is senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt.

Restrictions 

• Until 12 months after the loan has been repaid, Eligible Borrower may not make any stock buybacks of equity securities listed on a national securities exchange of Eligible Borrower or parent (exceptions for contractual obligations entered in to prior to March 27, 2020), dividend payments or capital distributions on common stock of the Eligible Borrower, except that an S corporation or other tax pass-through entity may make distributions to the extent reasonably required to cover its owner's tax obligations in respect of the entity's earnings.
• During the period from when the Eligible Loan is executed and one-year after the Eligible Loan is repaid, Eligible Borrower must agree to certain restrictions on employee and officer compensation. 
• Borrowers cannot be insolvent as defined by Section 13(3) of the Federal Reserve Act or as the Federal Reserve determines nor be subject to bankruptcy proceedings.  Lenders may impose additional solvency certifications.

Certain Borrower Practical Considerations

• Borrowers will need to determine their eligibility for the Main Street Loan Facilities and decide whether to participate in one of the three Main Street Loan Facilities.  A business that has received or is applying for PPP may be eligible but there are particular considerations regarding the certifications and requirements for each program.  A Borrower may not participate in a Main Street loan and in the Primary Market Corporate Credit Facility.  
• Borrower should review agreements and contractual commitments for limitations on additional borrowings, liens and other terms of the Main Street Loan Facilities, and determine whether consents, amendments and waivers will be required from existing lender(s).  
• Borrowers should review their assets to identify available collateral that may be required for participation in the Main Street Loan Facilities.
• Borrowers interested in the Main Street Loan Facilities should contact their lender now to ensure funds are disbursed soon after the Facilities are operational.

Due to the evolving nature of the Main Street Loan Facilities and the indication by the Federal Reserve that the Treasury and Federal Reserve may make adjustments to the terms and conditions of the Main Street Loan Facilities and will continue to seek input from lenders, borrowers, and other stakeholders, please keep your Foley contact apprised of any steps that you take so we are best positioned to assist once the Treasury and Federal Reserve release further guidance. 

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¹ https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program; https://www.federalregister.gov/documents/2020/04/20/2020-08257/business-loan-program-temporary-changes-paycheck-protection-program-additional-eligibility-criteria; https://www.federalregister.gov/documents/2020/04/28/2020-09098/business-loan-program-temporary-changes-paycheck-protection-program-requirements-promissory-notes

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