What Business Owners Need to Know About the Main Street Lending Program Expansion

Hannah E. Mudd

By Hannah E. Mudd

The Main Street Lending Program (MSLP) from the Federal Reserve has been expanded. With the expansion, more small and medium-sized businesses can receive support. (Click here for details on the original MSLP program requirements.)

mslp loan

Let’s take a look at what is included in the expansion of the MLSP from modified definitions and program requirements to the new third facility called the Main Street Priority Loan Facility. (The Federal Reserve is currently working to establish a program for nonprofit organizations, but such a program is not yet available.)

Under the newly expanded MSLP, the minimum loan amount is lowered, the maximum loan amount is increased, the principal repayment schedule and loan term are extended, and the Federal Reserve’s participation increased to 95% for all loans. The expanded MSLP is now open for lender registration and the Federal Reserve will be actively buying loans soon.

How the Expansion Program Will Operate:

  • The form Loan Participation Agreement, borrower and lender certifications and covenants, and other required form agreements can be found on the Federal Reserve Bank of Boston’s Main Street Lending Program Forms and Agreements website.
  • Once lenders successfully register for the program, they are encouraged to begin making loans immediately.
  • The MSLP Special Purpose Vehicle (SPV) will purchase 95% of each eligible loan submitted as long as the required documentation is complete and transactions are consistent with the relevant program facility’s requirements.
  • The MSLP will also accept Eligible Loans originated under the previously announced terms if they were funded before June 10, 2020.
  • The Federal Reserve is currently working on the infrastructure to make the expanded program operational.
    • Once operational, small and medium-sized businesses can apply for loans under the MSLP by contacting an Eligible Lender and filling out the appropriate application materials.
    • The Federal Reserve will not provide form loan documents for Eligible Lenders to use when making the Eligible Loans. Loan documents related to any Eligible Loan made by Eligible Lenders must reflect the terms of the relevant MSLP facility and include items listed in the chart below.

Modified Program Definitions:

  • Eligible Lenders

    Eligible Lenders for all MSLP loans include:
    • U.S. federally insured depository institutions (including banks, savings associations, or credit unions);
    • U.S. branches or agencies of foreign banks;
    • U.S. bank holding companies;
    • U.S. savings and loan holding companies;
    • U.S. intermediate holding companies of foreign banking organizations; or
    • U.S. subsidiaries of any of these entities.
  • Eligible Borrowers

    Eligible Borrowers for all MSLP loans are Businesses:
    • Established[1] prior to March 13, 2020;
    • Not listed as ineligible in Title 13 of the Code of Federal Regulations as modified by Section 102 of the CARES Act implementing the Paycheck Protection Program on or before April 24, 2020[2];
    • With either 15,000 or fewer employees or 2019 annual revenues of $5 billion or less;
    • Created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of employees based in the U.S.;
    • That are not participants in another MSLP facility or the Primary Market Corporate Credit Facility; and
    • That have not received specific support under the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).  NOTE: The Federal Reserve clarified that businesses who received PPP loans are permitted to borrow under the Program so long as they are otherwise an Eligible Borrower.
  • Eligible Loans

    An Eligible Loan under the expanded facilities of the MSLP:
    • Complies with the terms outlined in the chart below; and
    • If a New or Priority Loan, is a secured or unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated after April 24, 2020; or
    • If an Expanded Loan, is a secured or unsecured term loan or revolving credit facility made by an Eligible Lender(s) to an Eligible Borrower that originated on or before April 24, 2020, and has a remaining maturity of at least 18 months (taking into account adjustments made to the maturity after April 24, 2020, including at the time of upsizing), provided the upsized tranche is a term loan that has the features listed in the chart below.

Main Street Lending Program Loans

Loan Options

New Loans

Priority Loans

Expanded Loans

Term

5-year maturity
(previously 4 years)

Minimum Loan Size

$250,000
(previously $500,000)

Maximum Loan Size

The lesser of $35 million, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA
(previously $25 million)

The lesser of $50 million, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA
(previously $25 million)

The lesser of $300 million, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA
(previously $200 million)

Risk Retention

5%

5%
(presiously 15%)

5%

Priority

Shall not be contractually subordinated to any of the Eligible Borrower’s other loans or debt instruments at any time during the origination or term

At any time during origination and term loan is outstanding, the loan shall be senior to or pari passu with (in priority and security) to the Eligible Borrower’s other loans or debt instruments, or mortgage debt

At time of upsizing and all times the upsized tranche is outstanding, it is senior to or pari passu with (in priority and security) to the Eligible Borrower’s other loans, debt instruments, or mortgage debt

Principal Repayment

Principal deferred for two years, years 3-5: 15%, 15% at the end of the 4th year, 70% balloon payment at maturity at the end of the 5th year. Prepayments permitted without penalty.

(previously principal deferred for one year and 33.33% repayment due in years 2-4)

Principal deferred for two years, years 3-5: 15%, 15% at the end of the 4th year, 70% balloon payment at maturity at the end of the 5th year. Prepayments permitted without penalty.

(previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively)

Interest Payments

Deferred for one-year, unpaid interest will be capitalized

Rate

Adjustable rate LIBOR (1 or 3 month) + 3%

Required Certifications

Remain the same for both Eligible Lenders and Eligible Borrowers.

Additionally, Eligible Lenders are expected to collect the required certifications and covenants from each Eligible Borrower at the time of origination.

Eligible Lenders may rely on an Eligible Borrower’s certifications and covenants, as well as any later self-reporting by the Eligible Borrower.

Outstanding Loans

An Eligible Borrower seeking a New or Priority Loan with the Eligible 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.

Eligible Lenders must assess each potential borrower’s financial condition at the time of their applicable under all the Facilities in the Program.

Eligible Loans under the Expanded Loan Priority must also have had a ‘pass’ rating under the same standard as of December 31, 2019.

Eligible Lenders must assess each potential borrower’s financial condition at the time of their applicable under all the Facilities in the Program.

SPV Involvement

The SPV will purchase at par value a 95% participation in the Eligible Loan.

 The SPV and Eligible Lender will share risk on a pari passu basis.

The Eligible Lender must retain its 5% until the Loan matures or the SPV sells all its 95% participation, whichever comes first.

The sale of a participation to the SPV will be structed as a “true sale” and must be completed quickly after the origination.

These same SPV terms apply on Eligible Loans under the Expanded Loan Facility provided the upsized tranche was upsized on or after April 24, 2020.

The Eligible Lender must be one of the lenders holding an interest in the underlying loan at the date of upsizing.

The Eligible Lender must retain its interest in the underlying Eligible Loan until the underlying Eligible Loan matures, the upsized tranche matures, or the SPV sells all its 95% participation, whichever comes first.

Any collateral securing the Eligible Loan at the time of upsizing or on any later date must secure the upsized tranche on a pro rata basis.

[1] A “Business” is an entity organized for profit as a partnership; LLC; corporation; association; trust; cooperative; joint venture with no more than 49% participation by foreign business entities; or a tribal business concern as defined in 15 U.S.C. § 657a(b)(2)(C), except that “small business concern” in the paragraph should be replaced with “Business” as defined here. Other forms of organization may be considered for inclusion as a business under the program at the discretion of the Federal Reserve.

[2] An “Ineligible Business” is a business listed in 13 CFR 120.110(b)-(j) and (m)-(s), as modified by regulations implementing the Paycheck Protection Program in § 1102 of the CARES Act (“PPP”) on or before April 24, 2020. The application of these restrictions to the MSLP may be further modified at the discretion of the Federal Reserve.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

Posted by Attorney Hannah E. Mudd. Mudd is a member of Danna McKitrick’s transaction team. As a member of the team she advises clients on a variety of corporate and business transactions including entrepreneurial, real estate, banking, employment, and corporate formation and governance matters.


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