CARES ACT-MAIN STREET LENDING PROGRAM UPDATE: The Federal Reserve Announces Expansion of the Main Street Loan Program
Author: Bruce S. Goodman, Esq.
The Federal Reserve announced on April 30 that it is expanding the scope and eligibility of the Main Street Lending Program (MSLP). Prior to yesterday's announcement, the MSLP comprised two loan categories: (i) the Main Street New Loan Facility (New Loans) pursuant to which the Fed could purchase unsecured term loans between $1 million and $25 million in value originated on or after April 8, 2020, in which the borrower's total debt did not exceed 4 times its 2019 EBITDA, and (ii) the Main Street Expanded Loan Facility (Expanded Loans) pursuant to which the Fed could purchase term loans between $1 million and $150 million in value originated before April 8, 2020, in which the loan did not exceed 30% of the borrower's existing outstanding undrawn bank debt, and the borrower's total debt did not exceed six times its 2019 EBITDA.
Among the changes the Federal Reserve announced yesterday include (i) introduction of a third lending option with increased risk to be shared by lenders for borrowers with increased leverage (i.e. Priority Loans), (ii) modification of the minimum loan sizes for the existing loan options, and (iii) expanded borrower eligibility.
Pursuant to these changes, the three categories of MSLP loans are now (i) New Loans, (ii) Priority Loans, and (iii) Expanded Loans. Businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible to borrow under the program. Lenders may apply their industry-specific expertise and underwriting standards to best measure a borrower’s income.
Each of the loan categories has a 4-year term, deferred payment for one year, and an interest rate of LIBOR +3%. A borrower’s repayment schedule for each of the loans is: (i) for New Loans, 33% each year in years 2-4, and (ii) for Priority and Expanded Loans, 15% in year two, 15% in year three, and 70% in year four.
The minimum loan size for New Loans and Priority Loans is $500,000, while the minimum loan size for Expanded Loans is $10 million. The maximum loan size for each loan category is: (i) for New Loans, the lesser of $25 million or 4×2019 adjusted EBITDA, (ii) for Priority Loans, the lesser of $25 million or 6×2019 adjusted EDITDA, and (iii) for Expanded Loans, the lesser of $200 million, 35% of outstanding undrawn available debt, or 6×2019 adjusted EBITDA. The Federal Reserve is permitted to purchase a 95% interest in New Loans and Expanded Loans, and an 85% interest in Priority Loans.