Ice Miller LLP: Insights

Main Street Lending Program Goes Live

On June 15, 2020, the Federal Reserve’s Main Street Lending Program went live. The $600 billion program has three loan facilities designed to aid small and medium-sized businesses during the COVID-19 pandemic, including: (1) the Main Street New Loan Facility (MSNLF), (2) the Main Street Priority Loan Facility (MSPLF), and (3) the Term Sheet (June 8, 2020) (PDF). In addition, the Federal Reserve and the Treasury are seeking comment on two additional facilities to support nonprofit organizations; guidance for these programs is expected on June 22, 2020.

The Federal Reserve Bank of Boston has set up a special purpose vehicle to purchase participations in loans originated by eligible lenders; the lenders will retain a percentage of the loans. Instructions, forms, certifications, and other requirements for the program can be found on the Federal Reserve Bank of Boston’s Main Street Lending Program website.

	New Loans (MSNLF)	Priority Loans (MSPLF)	Expanded Loans (MSELF)
Explanation of Program	The MSNLF provides for new loans to Borrowers whose debt to EBITDA multiple would be no more than 4x after obtaining the loan.	The MSPLF provides for new loans to Borrowers whose debt to EBITDA multiple would be no more than 6x after obtaining the loan.	The MSELF provides for new tranches to existing loans (originated before April 24, 2020) for Borrowers whose debt to EBITDA multiple would be no more than 6x after obtaining the loan.
Eligibility	Not more than 15,000 employees or $5 billion in 2019 annual revenue. Must be established prior to March 13, 2020. Must be organized under laws of the U.S. with no more than 49% foreign ownership. Must have significant operations and majority of employees in the U.S. Must not be an ineligible business under 13 C.F.R 120.110 (b)-(j) and (m)-(s). Must not have received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act). (Borrowers who have received PPP loans are permitted to borrow under the Main Street Lending Program). Must not have participated in the Federal Reserve’s Primary Market Corporate Credit Facility. May participate in only one of MSNLF, MSPLF and MSELF.
Loan Term	5-year maturity		5-year maturity for MSELF tranche
Loan Term	Principal amortization of: 15% at the end of the third year 15% at the end of the fourth year 70% at the end of the fifth year (upon maturity)
Loan Amount	Minimum Loan Size: $250,000 Maximum Loan Size: Lesser of: $35 million; or Loan Amount + Outstanding undrawn debt* does not exceed 4x EBITDA	Minimum Loan Size: $250,000 Maximum Loan Size: Lesser of: $50 million; or Loan Amount + Outstanding undrawn debt* does not exceed 6x EBITDA	Minimum Loan Size: $10 million Maximum Loan Size: Least of: $300 million; or Loan Amount + Outstanding undrawn debt* does not exceed 6x EBITDA
Loan Amount	Note: “Outstanding debt” for purposes of Main Street loans includes any portion of outstanding PPP loans that have not yet been forgiven.
Interest Rate	Option of either 1-month or 3-month LIBOR + 3%.
Loan Fees	No prepayment penalty.
Loan Fees	Lender will pay the SPV a transaction fee of 1% of the principal amount of the loan at the time of origination. (Lender may require Borrower to pay this fee.) Borrower will pay Lender an origination fee of up to 1% of the principal amount of the loan at the time of origination. The SVP will pay Lender 0.25% of the principal amount of its participation in the loan per annum.		Lender will pay the SPV a transaction fee of 0.75% of the principal amount of the MSELF tranche at the time of origination. (Lender may require Borrower to pay this fee.) Borrower will pay Lender an origination or "Loan Upsizing" fee of up to 0.75% of the principal amount of the MSELF tranche at the time of upsizing. The SPV will pay Lender 0.25% of the principal amount of its participation in the upsized tranche per annum.
Security	Loans may be secured or unsecured.		The MSELF tranche may be secured or unsecured, but if other tranches of the loan are secured, then the MSELF tranche must be secured on a pro rata basis.
Payment Deferral	Principal is deferred for 2 years. Interest is deferred for 1 year (any unpaid interest will be capitalized).
Forgiveness	None.
Employment & Payroll	Borrower must make commercially reasonable efforts to maintain its payroll and retain its employees while the Loan is outstanding.
Compensation Limits	Until 1 year after the loan is no longer outstanding, no officer or employee of Borrower whose total compensation exceeded $425,000 in 2019 may receive from the Borrower: during any 12 consecutive month period, total compensation exceeding the total compensation she/he received from the Borrower in 2019; or severance pay or other termination benefits from Borrower exceeding twice the maximum total compensation she/he received from the borrower in 2019. Until 1 year after the loan is no longer outstanding, no officer or employee of Borrower whose total compensation exceeded $3 million in 2019 may receive from Borrower during any 12 consecutive month period, total compensation exceeding the sum of: $3 million; and 50% of the excess over $3 million of the total compensation received by the officer or employee from Borrower in 2019.
Stock Repurchase Limits	Until 1 year after the loan is no longer outstanding, the Borrower may not repurchase any equity security of Borrower or any parent company of Borrower if such equity security is listed on a national securities exchange, unless there is a contractual obligation to do so that was in effect on March 27, 2020.
Capital Distribution Limits	No Borrower may pay dividends or distributions until 1 year after the loan is no longer outstanding, except that an S corporation or other tax pass-through entity that is a Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the Borrower’s earnings.
Underwriting	Lenders are expected to assess each potential borrower’s financial condition at the time of application.
Repayment of Other Debt	Borrower must not repay the principal balance of, or interest on, any debt until the Loan is repaid in full, unless such payment is mandatory and due.	Borrower must not repay the principal balance of, or interest on, any debt from the MSPLF Lender until the Loan is repaid in full, unless the debt or interest payment is mandatory and due. But Borrower may, at the time of Loan origination, refinance existing debt owed by Borrower to a lender that is not the MSPLF Lender.	Borrower must not repay the principal balance of, or interest on, any debt until the Loan is repaid in full, unless such payment is mandatory and due.
Priority as to Other Debt	At the time of origination and during the Term, the Loan must not be contractually subordinated in terms of priority to any of the Borrower’s other loans or debt instruments.	At the time of origination and while the Loan is outstanding, the Loan must be senior to or equal with, in terms of priority and security, the Borrower’s other loans or debt instruments, other than mortgage debt.
Borrower Risk Rating	Any other Borrower loans outstanding with the Lender as of December 31, 2019 must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date.		The Loan must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system as of December 31, 2019.
Borrower Certification as to Financial Viability	Borrower must certify it has a reasonable basis to believe, as of the date of origination and after giving effect to the Loan, 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.		Borrower must certify it has a reasonable basis to believe, as of the date of upsizing and after giving effect to the upsizing of the Loan, 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.
Additional Borrower Certifications	MSNLF Borrower Certifications: https://www.bostonfed.org/-/ media/Documents/special-lending-facilities/mslp/legal/msnlf-borrower-certifications-and-covenants.pdf	MSPLF Borrower Certifications: https://www.bostonfed.org/-/ media/Documents/special-lending-facilities/mslp/legal/msplf- borrower-certifications-and- covenants.pdf	MSELF Borrower Certifications: https://www.bostonfed.org/-/ media/Documents/special-lending-facilities/mslp/legal/mself- borrower-certifications-and -covenants.pdf
Lender Certification as to Calculation of EBITDA	The Lender must certify that its methodology for calculating Borrower’s 2019 adjusted EBITDA is the same methodology it previously used for adjusting EBITDA when extending credit to the Borrower or similarly situated borrowers on or before April 24, 2020.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.