The Federal Reserve Board unanimously voted on April 30 to expand the much-anticipated Main Street Lending Program (MSLP) to facilitate lending to small and medium-sized businesses seeking to address the economic effects of the COVID-19 pandemic.

The action follows the Federal Reserve’s April 9 announcement that it would purchase up to $600 billion in loans under MSLP with the U.S. Treasury Department (Treasury) contributing $75 billion pursuant to the CARES Act. A more detailed summary of the actions taken by the Federal Reserve on April 9 can be found in our previous alert.

As these funding programs are being finalized, the Federal Reserve and Treasury sought input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds. In responding to more than 2,200 comment letters received to date, many specifically calling for expanding the scope and eligibility for MSLP, the Federal Reserve issued further guidance on April 30. It includes updated term sheets for the two previously announced facilities, the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), and a new term sheet to create a third loan facility option for borrowers with greater leverage, the Main Street Priority Loan Facility (MSPLF). The Federal Reserve also provided frequently asked questions and answers for lenders and borrowers. The term sheets and FAQs as well as any future updates are available at the Federal Reserve’s main page for its Main Street Lending Program.

The Federal Reserve has yet to announce a start date for MSLP and may further refine and modify the terms, conditions, and requirements reflected in the term sheets and FAQs before the program is finalized and operational. Our comparison chart of MSLP loan options is based on the currently available guidance as provided by the Federal Reserve on April 30. To emphasize notable changes made to the two earlier announced facilities, MSNLF and MSELF, we have highlighted some of the key modifications in the chart.

In addition to the changes set forth in our comparison chart , the following are noteworthy changes to the program based on the Federal Reserve’s updated guidance:

• Following comments from various banking industry groups, the Federal Reserve used LIBOR, instead of SOFR, as the benchmark rate. Most borrowers and lenders are still using LIBOR as the customary benchmark rate, and there was concern that using the relatively new benchmark of SOFR might add unnecessary complexity and unfamiliarity to the program.
• The Federal Reserve will use 2019 adjusted EBITDA for purposes of the leverage test (instead of EBITDA). Adjusted EBITDA include adjustments or addbacks that are typically included in leveraged credit facilities.
• The Federal Reserve clarified that U.S. branches of foreign banks are eligible lenders. Non-bank lenders, including private debt funds, are still not eligible lenders.
• Nonprofits are not eligible borrowers under the MSLP, but the Federal Reserve is evaluating an alternative for nonprofit institutions, including hospitals and universities.