On April 30, 2020, the Federal Reserve announced changes to its Main Street Lending Program (MSLP) to provide credit support to small- and medium-sized businesses during the current economic crisis caused by the COVID-19 pandemic. Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), $75B was allocated for the Main Street Lending Program (MSLP). The $75B will be leveraged at 8:1 equalling $600B to support the program.
These are the things you need to know:
Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
An Eligible Borrower is a Business that:
- Was established prior to March 13, 2020
- Meets at least one of the following two conditions
- Has 15,000 employees or fewer
- Has 2019 annual revenue of $5 billion or less
- 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;
- Does not also participate in the MSPLF, the MSELF, or the Primary Market Corporate Credit Facility
- Has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).
- Businesses that have received PPP loans are permitted to borrow under the Facility, provided that they are Eligible Borrowers.
- Is not an Ineligible Business, Review the list of eligible businesses here.
An Eligible Loan is an unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated on or after April 8, 2020, provided that the loan has the following features:
- Loan size of $500K to $25 million
- 4-year maturity
- Amortization of principal and interest deferred for one year
- Adjustable rate of SOFR + 250-400 basis points
- Prepayment permitted without penalty
The SPV created by the Federal Reserve will purchase a 95% participation in an Eligible Loan at par value, and the Eligible Lender will retain 5% of the Eligible Loan. The SPV and the Eligible Lender will share risk on a pari passu basis.
Lender Certifications and Covenants
- The Lender must commit that it will not request that the Borrower repay debt or pay interest on such outstanding obligations, until the Loan is repaid in full, unless the debt or interest payment is mandatory and due, or in the case of default and acceleration.
- The Lender must commit that it will not cancel or reduce any existing committed lines of credit to the Borrower, except in an event of default
- The Lender must certify that they used the correct methodology for calculating the Eligible Borrower’s adjusted 2019 EBITDA
- The Lender must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
Borrower Certifications and Covenants
- The Borrower must commit to refrain from repaying the principal balance of, or paying any interest on, any debt until the Loan is repaid in full, unless the debt or interest payment is mandatory and due.
- The Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Lender or any other lender.
- The Borrower must certify that it has a reasonable basis to believe that, 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.
- The Borrower must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply.
Each Borrower that participates in the Facility should make efforts to maintain its payroll and retain its employees during the time the Loan is outstanding.
A Lender will pay the SPV a transaction fee of 100 basis points of the principal amount of the Loan at the time of origination. The Lender may require the Borrower to pay this fee.
Loan Origination and Servicing Fees
The Borrower will pay the Lender an origination fee of up to 100 basis points of the principal amount of the Loan at the time of origination. The SPV will pay a Lender 25 basis points of the principal amount of its participation in the Loan per annum for loan servicing.
The SPV will cease purchasing participations of Loans on September 30, 2020, unless the Board and the Department of the Treasury extend the Facility. The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.
Download the latest term sheet here.
Keep ahead of COVID-19
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