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The Federal Reserve outlined certain terms of the “Main Street Lending Program” that it was authorized to create under the CARES Act. The Main Street Lending Program is made up of both the “Main Street New Loan Facility” and the “Main Street Expanded Loan Facility.” The below information contains excerpts and summaries of the Main Street New Loan Facility and Main Street Expanded Loan Facility term sheets issued by the Federal Reserve this morning. The Federal Reserve reserved its right to adjust the terms and conditions set forth in the term sheets.

The Main Street Expanded Loan Facility has a higher maximum loan, and permits an Eligible Borrower that already has a loan with an Eligible Lender to receive the benefits of the program for the portion of its loan expanded on or after April 8, 2020, assuming such Eligible Borrower meets the criteria set forth below in the “Main Street New Loan Facility.” Otherwise, the programs are very similar 

Main Street New Loan Facility - Terms and Conditions

  1. The “New Loan” is a new loan that is taken on or after April 8, 2020.
  2. An “Eligible Borrower”:
    1. Can have up to 10,000 employees or up to $2.5 billion in 2019 annual revenues;
    2. Must be a business created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S.; and
    3. May not participate in the Main Street Expanded Loan Facility or the Primary Market Corporate Credit Facility.
      1. Businesses that have participated in the PPP are eligible.
  3. “Eligible Lenders” are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
  4. Terms:
    1. 4-year maturity;
    2. A rate equal to the Secure Overnight Financing Rate (currently 0.01%) + 2.50-4.00%;
    3. Minimum loan size of $1 million;
    4. The maximum loan size is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower's existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower's 2019 EBITDA;
    5. These loans appear to be unsecured; and
    6. Origination fee of 1% of the principal amount of the loan.

        5.  Attestations:

    1. The Eligible Lender must attest that the proceeds of the Eligible Loan will not be used to repay, or refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower;
    2. The Eligible Borrower must commit to refrain from using the proceeds of the Eligible Loan to repay other loan balances;
    3. The Eligible Borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full;
    4. The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower;
    5. The Eligible Borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender;
    6. The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan;
    7. The Eligible Borrower must attest that it meets the EBITDA leverage condition;
    8. The Eligible Borrower must attest that 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:
      1. Section 4003(c)(3)(A)(ii) provides that a business is subject to the following restrictions and prohibitions while the loan is outstanding and for 12 months thereafter:
        1. If it is a company listed on a national securities exchange, the business may not buy back any of its equity (or that of a parent company) unless an existing agreement requires it;
        2. The business may not make any dividends or distributions on common stock (i.e. not preferred stock);
        3. No officer or employee whose compensation exceeded $425,000 in 2019 may receive compensation exceeding his or her 2019 compensation, and no severance for such officer or employee may exceed twice the maximum compensation received in 2019 – the law is silent about increasing the salary of an employee with compensation below $425,000 in 2019 to above that during the restriction period; and
        4. No officer or employee whose compensation exceeded $3,000,000 in 2019 may receive compensation exceeding the sum of $3,000,000 and 50% of the excess over $3,000,000 that he or she received in 2019. By way of example, if an officer received $4,000,000 in compensation in 2019, they will only be eligible to receive $3,500,000 during the restriction period; and
  1. Eligible Lenders and Eligible Borrowers will each be required to certify that the entity is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

Main Street Expanded Loan Facility - Distinctions

  1. The Expanded Loan is an existing loan with an Eligible Lender (before April 8, 2020) that is amended to take advantage of this new program.
  2. Terms:
    1. The Main Street Expanded Loan Facility has a higher maximum loan than the Main Street New Loan Facility: The maximum loan size is the lesser of (i) $150 million, (ii) 30% of the Eligible Borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s 2019 EBITDA; and
    2. In addition to an Origination fee of 1% on the principal of the expanded portion of the loan, an additional Facility fee of up to 1% of the principal amount of the loan purchased by the government may be assessed.

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