Ice Miller LLP: Insights

Summary of the Main Street Lending Program

The Federal Reserve Bank (“Fed”) has introduced a program to provide $2.3 billion in liquidity commitments to support the economy. A major piece of this effort is the Main Street Lending Program: a $600 billion program to provide small- and medium-size businesses with new loans or expansions of existing loans.

Overview
The Fed has committed to lend to a single common special purpose vehicle (“SPV”) on a recourse basis. The Department of the Treasury is making a $75 billion investment in the SPV. The combined result is to support $600 billion in loans to borrowers. The SPV will purchase 95% participations in eligible loans from eligible lenders, with such lenders retaining 5% of each loan. The SPV and the lender will share loan risk on a pari passu basis. The SPV will cease purchasing loans after September 30, 2020, unless the program is extended by the Fed.

Two types of loans can be made subject to the Main Street Program: new loans (a “Main Street New Loan Facility” or “New Loan”) and upsizings of loans existing prior to April 8, 2020 (a “Main Street Expanded Loan Facility” or “Expanded Loan”). There is no set allocation of the $600 billion among New Loans and Expanded Loans.

Main Street New Loan Facility (MSNLF or New Loan Program)

Eligible Lenders and Eligible Borrowers:
To be eligible, a Borrower must:

have not more than 10,000 employees or not more than $2.5 billion in 2019 annual revenues;
be organized under the laws of the U.S.;
have significant operations and the majority of its employees in the U.S.; and
not participate in both (a) the New Loan Program and (b) either the Extended Loan Program or the Fed’s Primary Market Corporate Credit Facility.

To be an eligible Lender, a Lender must be a U.S. insured depositary institution, a U.S. bank holding company or a U.S. saving and loan holding company.

New Loan Terms
A loan made by an Eligible Lender to an Eligible Borrower on or after 4/8/20 can be made part of the New Loan Program. The New Loan will have the following features:

4 year maturity
Minimum loan amount is $1 million; maximum loan amount is the lesser of: (i) $25 million or (ii) an amount that when added to existing outstanding and committed but undrawn debt, does not exceed 4X the borrower’s 2019 EBITDA
Amortization of principal and interest is deferred for one year
Unsecured
Interest rate of SOFR + 250 to 400 basis points
Facility Fee: 100 bp paid to the SPV by lender (but the lender can pass this fee to borrower)
Origination Fee: 100 bp paid to the lender by borrower
Loan Servicing Fee: 25 bp paid annually to the lender by the SPV
No penalty for prepayments

Lender Attestations
The Lender must attest:

Loan proceeds will not be used to repay or refinance loans made by lender to borrower.
Lender will not cancel or reduce outstanding lines of credit to borrower.
None of the President, Vice President, head of an Executive Department, member of Congress or certain family members thereof controls or owns 20% or more of borrower.

Borrower Attestations
The Borrower must attest that it:

Will not use New Loan proceeds to repay existing loan balances
Will not pay other debt of equal or lower priority (other than mandatory principal payments), until the New Loan is repaid in full
Will not seek to cancel or reduce any outstanding lines of credit with any Lender
Requires financing due to COVID-19 and will use reasonable efforts to use the proceeds of the New Loan to maintain payroll and retain its employees during the term of the New Loan
Meets the 4X EBITDA requirement
Is not controlled or 20% or more owned by the President, Vice President, head of an Executive Department, member of Congress or certain family members of the foregoing persons
Will obey the following restrictive covenants:
- until 1 year after the loan is repaid, Borrower will not repurchase an equity security of the Borrower or a parent of Borrower that is listed on a national securities exchange, unless required under a contractual obligation in effect on 3/27/20
- until 1 year after the loan is repaid, Borrower will not pay dividends or make other capital distributions with respect to its common stock; and
- Borrower will enforce the high-wage employee compensation limits described below.

High-Wage Employee Compensation Limits
If a Borrower receives a New Loan or an Expanded Loan, then for the period from origination of the New Loan or the upsized tranche through the first anniversary of the loan repayment, no officer or employee of borrower whose total compensation exceeded $425,000 in 2019 may receive from the Borrower:

total compensation exceeding, during any 12 consecutive months of such period, 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.

If a Borrower receives a New Loan or an Expanded loan, then for the period from origination of the New Loan or the upsized tranche through the first anniversary of the loan repayment, no officer or employee of the Borrower whose total compensation exceeded $3,000,000 in 2019 may receive from the Borrower during any 12 consecutive months of such period total compensation exceeding the sum of:

$3,000,000; and
50% of the excess over $3,000,000 of the total compensation received by the officer or employee from the eligible business in calendar year 2019.

The term “total compensation” includes salary, bonuses, awards of stock, and other financial benefits provided by Borrower to an officer or employee of the Borrower.

Main Street Expanded Loan Facility ( MSELF or Expanded Loan Program)

Eligible Lenders and Eligible Borrowers:
To be eligible, a Borrower must:

have not more than 10,000 employees or not more than $2.5 billion in 2019 annual revenues;
be organized under the laws of the U.S.;
have significant operations and the majority of its employees in the U.S.; and
not participate in both (a) the Expanded Loan Program and (b) either the New Loan Program or the Fed’s Primary Market Corporate Credit Facility

To be an eligible Lender, a Lender must be a U.S. insured depositary institution, a U.S. bank holding company or a U.S. saving and loan holding company.

Expanded Loan Terms
For loans made by an Eligible Lender to an Eligible Borrower and originated before 4/8/20, an upsized tranche of such loan can be made a part of the Expanded Loan Program. The upsized tranche will have the following features:

4 year maturity
Minimum loan amount is $1 million; maximum loan amount is the least of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn debt, and (iii) an amount that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6X the borrower’s 2019 EBITDA
Amortization of principal and interest is deferred for one year
If the loan was secured originally or secured at upsizing, the collateral must secure the loan participations by the lender and the SPV on a pro rata basis
Interest rate of SOFR + 250 to 400 basis points
Facility Fee: none
Origination Fee: 100 bp on the upsized tranche paid to the lender by borrower
Loan Servicing Fee: 25 bp on the upsized tranche paid annually to the lender by the SPV
No penalty for prepayments

Lender Attestations
The Lender must attest:

Loan proceeds will not be used to repay or refinance loans made by Lender to Borrower, including the pre-existing portion of the upsized loan
Lender will not cancel or reduce outstanding lines of credit to borrower
None of the President, Vice President, head of an Executive Department, member of Congress or certain family members thereof controls or owns 20% or more of borrower

Borrower Attestations
The Borrower must attest that it:

Will not use the proceeds of the upsized tranche to repay existing loan balances
Will not pay other debt of equal or lower priority (other than mandatory principal payments), until the upsized loan is repaid in full
Will not seek to cancel or reduce any outstanding lines of credit with any Lender
Requires financing due to COVID-19 and will use reasonable efforts to use the proceeds of the upsized tranche to maintain payroll and retain its employees during the term of the New Loan
Meets the 6X EBITDA eligibility requirement
Is not controlled or 20% or more owned by the President, Vice President, head of an Executive Department, member of Congress or certain family members of the foregoing persons
Will obey the following restrictive covenants:
- until 1 year after the loan is repaid, Borrower will not repurchase an equity security of the Borrower or a parent of Borrower that is listed on a national securities exchange, unless required under a contractual obligation in effect on 3/27/20
- until 1 year after the loan is repaid, Borrower will not pay dividends or make other capital distributions with respect to its common stock; and
- Borrower will enforce the high-wage employee compensation limits described above in the New Loan Program summary.

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