On April 9, 2020, the Department of the Treasury and the Federal Reserve Board released the details of their previously announced Main Street Lending Program (the “Program”). The Program is comprised of two lending facilities: the Main Street New Loan Facility (the “New Loan Facility”) and the Main Street Expanded Loan Facility (the “Expanded Loan Facility”). It is intended to facilitate lending to small and medium-sized businesses that were in good financial standing before the COVID-19 pandemic by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year, and borrowers are subject to restrictions, including with respect to compensation, stock repurchase, and dividend restrictions.

The New Loan Facility will be used for Eligible Loans originated on or after April 8, 2020, and the Expanded Loan Facility will be used for Eligible Loans that were originated before April 8, 2020 and are subsequently upsized. Under the facilities, the Federal Reserve will commit to lend to a single common special purpose vehicle (“SPV”) on a recourse basis. The SPV will purchase 95% participations in Eligible Loans from Eligible Lenders. Eligible Lenders would retain 5% of each Eligible Loan. Treasury, using funds appropriated under the CARES Act, will make a $75 billion equity investment in the single common SPV in connection with facilities, and, when leveraged by the Federal Reserve, the size of the facilities on a combined basis will be up to $600 billion.

Notably, some businesses that are ineligible for Paycheck Protection Program (“PPP”) loans (e.g., because they individually, or together with their affiliates, have more than 500 employees) may be eligible for this Program. Moreover, applying for, or receiving, a PPP loan does not preclude eligibility for the Program. However, unlike PPP loans, loans issued under the Program will not be eligible for forgiveness.

The Program is still being finalized, and Treasury and the Federal Reserve are accepting comments from lenders, borrowers and other stakeholders until April 16.

Eligible Lenders: Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.

Eligible Borrowers: Eligible Borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each Eligible Borrower must be a business that is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States. Eligible Borrowers that participate in the New Loan Facility may not also participate in the Expanded Loan Facility, and vice versa.

Eligible Loans: An Eligible Loan—whether a new loan or an upsized tranche of an existing loan—is an unsecured term loan made by an Eligible Lender to an Eligible Borrower having the following features:

• 4-year maturity
• Amortization of principal and interest deferred for one year
• Adjustable rate of SOFR + 250-400 basis points
• Minimum loan size of $1 million
• Prepayment permitted without penalty
• For Eligible Loans under the New Loan Facility:
  • Originated on or after April 8, 2020
  • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”);
• For Eligible Loans under the Expanded Loan Facility:
  • Originated before April 8, 2020 and subsequently upsized
  • Maximum loan size that is the lesser of (i) $150 million, (ii) 30% of the Eligible Borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s 2019 EBITDA

Lenders are permitted to charge certain fees prescribed by the Program.

Loan Participations: The SPV will purchase a 95% participation in an Eligible Loan at par value, and the Eligible Lender will retain 5% of the Eligible Loan. The SPV and the Eligible Lender will share risk on a pari passu basis.

Restrictions Placed on Borrower: A borrower will be required to attest, among other things, that:

• it will not seek to cancel or reduce any of its outstanding lines of credit or use the proceeds from an Eligible Loan to repay other loan balances;
• it requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan; and
• it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under the CARES Act.

Facility Termination: The SPV will cease purchasing participations in Eligible Loans on September 30, 2020, unless the Federal Reserve and Treasury extend the Program. The Federal Reserve will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.

We will continue to monitor any developments related to the Main Street Lending Program and update our clients and friends as necessary.

Seward & Kissel has established a COVID-19 Resource Center on our web site to access all relevant alerts that we distribute.