Loan Relief for Nonprofit Organizations Through the Main Street Lending Program Expansion

Hannah E. Mudd

By Hannah E. Mudd

The Federal Reserve’s Main Street Lending Program (MSLP) has expanded to include two new loans specifically for nonprofit organizations: The Nonprofit Organization New Loan Facility (“NONLF”) and the Nonprofit Organization Expanded Loan Facility (“NOELF”). Nonprofit organizations will now be able to receive support from relief efforts similar to those available to for-profit entities. Many of the basic eligibility, certification, and fees track those already in place for for-profit counterparts.

How the Program Will Operate:nonlf loan noelf loan

  • Nonprofit organizations can access the Loan Participation Agreement form, borrower and lender certifications and covenants, and other required form agreements on the Federal Reserve Bank of Boston’s Main Street Lending Program Forms and Agreements website.
  • Lenders are encouraged to begin making loans immediately upon successful registration.
  • The NONLF and NOELF Special Purpose Vehicle (SPV) will purchase 95% of each eligible loan submitted if the required documentation is complete and transactions meet the relevant program facility’s requirements.

Program Definitions NONLF and NOELF Loans:

  • Eligible Lenders – The same eligible lenders provided for for-profit MSLP facilities.
  • Eligible Borrowers – Eligible Borrowers are nonprofit organizations:
    • Created or organized in the U.S. or under the laws of the U.S. with significant operations in the U.S. and a majority of its employees are based in the U.S.;
    • In continuous operation since January 1, 2015;
    • That are not an ineligible business[i];
    • With fewer than 15,000 employees or $5 billion or less in 2019 annual revenues;
    • With a minimum of 10 employees;
    • With an endowment under $3 billion;
    • With total non-donation revenues of at least 60% of expenses from 2017-2019[ii];
    • With a ratio of adjusted 2019 earnings of at least 2% before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue[iii];
    • With a ratio of at least 60 days of liquid assets[iv] at the time of loan origination to average daily expenses over the previous year;
    • With, at the time of origination, a ratio greater than 55% of unrestricted cash and investments to existing outstanding and undrawn available debt, plus the amount of any under the Facility, plus the amount of any CMS Accelerated and Advance Payments;
    • That are not a participant in another MSLP facility or the Primary Market Corporate Credit Facility; and
    • 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 nonprofits who received PPP loans are permitted to borrow under either the NONLF or NOELF if they meet the other Eligible Borrower conditions.

  • Eligible Loans:

MSLP Nonprofit Loan Terms

Nonprofit Organizations New Loan Facility (NONLF)

Nonprofit Organizations Expanded Loan Facility (NOELF)

Origination Date

Originated after June 15, 2020

Originated on or before June 15, 2020

Term

5-year maturity

5 years
Has a remaining maturity of at least 18 months
Considers any adjustments made to the maturity of the loan after June 15, 2020, such as at the time of upsizing, provided the upsized tranche of the loan is a term loan following NOELF eligibility requirements

Minimum Loan Size

$250,000

$10 million

Maximum Loan Size

Whichever is less: $35 million or Eligible Borrower’s average 2019 quarterly revenue

Whichever is less: $300 million or Eligible Borrower’s average 2019 quarterly revenue

Rate

LIBOR (1 or 3 month) + 3%

Principal Repayment

Principal deferred for two years,
15% principal payment at end of years 3 and 4
70% balloon payment at maturity (end of year 5)

Interest Payments

Interest payments deferred for one year
Any unpaid interest capitalized

Prepayment

No Penalty

Loan Priority

At the time of origination or at any time during the Eligible Loan’s term, it may not be contractually subordinated in terms of priority to any other loans or debt instruments of the Eligible Borrower

At the time of upsizing and at all times the upsized tranche is outstanding, the tranche is to be senior to or pari passu with, as for priority and security, the Eligible Borrower’s other loans or debt instruments other than possible mortgage debt.

Required Certifications and Covenants

In addition to any standard certifications, specific certifications will be required with any Eligible Loan:

  • Eligible Lenders must:
    • Commit to not request the Eligible Borrower repay debt extended by the lender to the borrower, or pay interest on such obligation, until the upsized tranche or loan is repaid in full, unless the debt or interest is mandatory and due, or in the case of default and acceleration.
    • Agree to not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower.
    • Certify that the methodology used to calculate an Eligible Borrower’s adjusted 2019 EBIDA and operating revenue is the methodology previously used for an adjusted EBIDA when originating or amending the loan on or before June 15, 2020 (unless otherwise so instructed)
  • Both Eligible Lenders and Borrowers will:
    • Certify that they are eligible to participate in the program, including the conflicts of interest prohibition in § 4019 of the CARES Act.
  • Eligible Borrowers must:
    • Certify they will refrain from repaying other loan balances or interest until the Eligible Loan is repaid in full unless the other debt or interest is mandatory and due.
    • Commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender.
    • Certify it has reasonable basis to believe that, as of the date of origination and after giving an Eligible Loan, it has the ability to meet its financial obligations for at least 90 days and does not expect to file for bankruptcy during that time.
    • Certify they will follow compensation, stock repurchase, and dividend and capital distribution restrictions that exist under § 4003(c)(3)(A)(ii) of the CARES Act.

Participation Purchases, Classifications, and Conditions

  • Eligible Borrowers must have had an internal risk rating equivalent to a “pass” if they have other outstanding loans with the Eligible Lender, or loans to be expanded, as of December 31, 2019.
  • Eligible Lenders are expected to conduct a financial condition assessment of each potential borrower at the time of application.
  • For NONLF loans, the SPV will purchase at par value, a 95% participation in the Eligible Loan, and the SPV and Eligible Lender will share the risk on a pari passu basis. The Eligible must retain its 5% until it matures or the SPV sells all its participation, whichever comes first. The sale of a participation to the SPV will a “true sale” and must be completed quickly after origination.
  • The same participation rules apply to NOELF loans so long as the tranche was upsized on or after June 15, 2020. The Eligible Lender must be one of the lenders holding an interest in the underlying Eligible Loan at the date of upsizing. In addition to retaining 5% portion of the upsized tranche until the upsized tranche matures, the Eligible Lender must also retain its interest in the underlying Eligible Loan until it matures, the upsized tranche matures, or the SPV sells all of its participation, whichever comes first. Any securing collateral – at the time of upsizing or on a later date – must secure the upsized tranche on a pro rata basis.
  • Under both NONLF and NOELF, Eligible Borrowers must make commercially reasonable efforts to maintain its payroll and retain employees during the time the Eligible Loan is outstanding.

Origination, Servicing Fees, and Program Length

  • Origination Fee:
    • NONLF Loan:
      • An Eligible Lender will pay the SPV a transaction fee of 100 basis points of the principal on the Eligible Loan at origination for NONLF loans.
      • Eligible Borrowers may pay an origination fee of up to 100 basis points of the principal amount at the discretion of the Eligible Lender.
    • NOELF Loan:
      • An Eligible Lender will pay the SPV a transaction fee of 75 basis points of the principal of the upsized tranche at the time of upsizing
      • Eligible Borrowers may pay a fee of up to 75 basis points of the principal amount of the NOELF Upsized Tranche at the time of upsizing at the discretion of the Eligible Lender.
    • Loan Servicing:
      • NONLF Loan: The SPV will pay the Eligible Lender 25 basis points of the principal of its participation per annum for servicing a NONLF loan.
      • NOELF Loan: The SPV will pay 25 basis points of the principal of its participation in the upsized tranche per annum for servicing a NOELF loan.
    • Program Length:
      • Information regarding credit administration and loan servicing will be made available on the Federal Reserve’s website.
      • The SPV will no longer purchase participations in Eligible Loans under the MSLP after December 31, 2020 unless the Federal Reserve and the Department of the Treasury extend the facilities.
      • The Federal Reserve will continue to fund the SPV after that date until the SPV’s underlying assets mature or are sold.

Information regarding credit administration and loan servicing will be made available on the Federal Reserve’s website.

For further questions, please do not hesitate to reach out to one of our corporate attorneys.

Resources:

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.

 

[i] Ineligible Businesses are the same under the NONLF and NOELF facilities as under the other MSLP facilities.

[ii] Under the MSLP: “non-donation revenues” equal gross revenues minus donations; “donations” include proceeds from fundraising events, federated campaigns, gifts, donor-advised funds, and funds from similar sources, but exclude (i) government grants, (ii) revenues from a supporting organization, (iii) grants from private foundations that are disbursed over the course of more than one calendar year, and (iv) any contributions of property other than money, stocks, bonds, and other securities (noncash contributions), provided that such noncash contribution is not sold by the organization in a transaction unrelated to the organization’s tax-exempt purpose; and “expenses” equal total expenses minus depreciation, depletion, and amortization.

[iii] The methodology used by an Eligible Lender to calculate the adjusted 2019 EBIDA must be the same previously used for adjusting EBIDA when extending credit to the Eligible Borrower or similarly situations borrowers on or before June 15, 2020. The Eligible Lender should calculate operating revenue as unrestricted operating revenue, excluding funds committed to be spent on capital, and including a proxy for endowment income in place of unrestricted investment gains or losses. The methodology used by the Eligible Lender to calculate the proxy for endowment income must be the same as used for the Eligible Borrower or similarly situated borrowers on or before June 15, 2020.

[iv] Under the MSLP: “liquid assets” is defined as unrestricted cash and investments that can be accessed and monetized within 30 days. An organization may include in “liquid assets” the amount of cash receipts it reasonably estimates to receive within 60 days related to the provision of services, facilities, or products, or any other program service that exceed its reasonably estimated cash outflows payable within the same 60-day period.


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