Federal Reserve Board Opens Main Street Lending Program Lender Registration and Provides Additional Guidance for the Program

Interested lenders may now register under the Main Street Lending Program, through the lender registration portal, by submitting the Main Street Lending Program Lender Registration Certifications and Covenants (Lender Registration Form) and related wiring instructions to MS Facilities LLC, the single purpose vehicle (SPV) created by the Federal Reserve Board (the Board) to purchase participations in loans under the Main Street Lending Program facilities. Additionally, the Board has also provided updates to its previously posted participation agreement and related documents to be used in connection with the purchase of such participations. The lender registration portal may be found here. The requisite registration documentation and the updated SPV purchase documents may be found here.

Additionally, in response to the continuous public feedback to the proposed Main Street Lending Program, the Board released additional guidance on the terms of the program through a set of Frequently Asked Questions (FAQs), which can be found here: Frequently Asked Questions (FAQs) (PDF). 

Overview

The Main Street Lending Program, comprising the Main Street New Loan Facility (MSNLF), the Main Street Expanded Loan Facility (MSELF) and the Main Street Priority Loan Facility (MSPLF), will provide loans to small and midsize domestic companies. Eligible Lenders^[1] may originate new term loans under the MSNLF or MSPLF or use the MSELF to increase the size of existing loans. Eligible Borrowers^[2] may participate in only one of the three Main Street Lending Program facilities and are expressly prohibited from participating in multiple programs and shall not have participated in the Primary Market Corporate Credit Facility or received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020. However, Eligible Borrowers participating in the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan program are eligible for participation in the Main Street Lending Program.

Using the SPV, the Main Street Lending Program will purchase up to $600 billion in Eligible Loans (see Section B below) until Sept. 30, unless the program is extended by the Board and the Treasury Department. The Board will continue to fund the SPV beyond Sept. 30, until the SPV’s underlying assets mature or are sold. The Treasury Department will also make a $75 billion equity investment in the SPV with funds appropriated from the Coronavirus Aid, Relief, and Economic Security Act.

Once registered, Eligible Lenders are encouraged to begin making Main Street Lending Program loans immediately. The Board has not yet disclosed the official launch date or the time and date when the SPV will begin purchasing participations in loans. However, the Board expects it to happen soon and intends to purchase 95 percent of each Eligible Loan that is submitted to the program. The full text of the term sheets governing the Main Street Lending Program can be found here: Term Sheet: Main Street New Loan Facility (PDF); Term Sheet: Main Street Priority Loan Facility (PDF); Term Sheet: Main Street Expanded Loan Facility (PDF).

Eligible Loans

An Eligible Loan under the MSNLF and MSPLF is a secured or unsecured term loan made by an Eligible Lender to an Eligible Borrower that was originated after April 24, 2020. An Eligible Loan under the MSELF is a secured or unsecured term loan or revolving credit facility made by an Eligible Lender to an Eligible Borrower that was originated on or before April 24, 2020, and that has a remaining maturity of at least 18 months (taking into account any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing).

The maximum loan size of an Eligible Loan under the (i) MSPLF, is the lesser of (x) $50 million or (y) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s Adjusted 2019 EBITDA;^[3] (ii) MSELF, is the lesser of (x) $300 million or (y) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s Adjusted 2019 EBITDA; and (iii) MSNLF, is the lesser of (x) $35 million or (y) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s Adjusted 2019 EBITDA. For purposes of the Main Street Lending Program, an Eligible Borrower’s “existing outstanding and undrawn available debt” should be calculated as of the date of the loan application and includes all amounts borrowed under any loan facility, including unsecured or secured loans from any bank, nonbank financial institution or private lender, as well as any publicly issued bonds or private placement facilities. It also includes all unused commitments under any loan facility, other than any undrawn commitment that (1) serves as a backup line for commercial paper issuance, (2) is used to finance receivables, (3) cannot be drawn without additional collateral or (4) is no longer available due to a change in circumstance. The portion of any outstanding PPP loan that has not yet been forgiven is counted as outstanding debt for the purposes of the maximum loan size test. Further, as set forth in the FAQs, if an Eligible Borrower uses the proceeds of the MSPLF loan to refinance existing debt that is outstanding and owed to lenders other than the Eligible Lender that originates the MSPLF loan, such outstanding debt that is being refinanced should not be included in the calculation of the Eligible Borrower’s “existing outstanding and undrawn available debt.” To the extent that such outstanding debt is only being partially refinanced by the MSPLF loan, only the refinanced portion may be excluded from the “existing outstanding and undrawn available debt” calculation.

Additionally, loans under the Main Street Lending Program must further comply with all the terms and conditions set forth in the applicable term sheet. Set forth on Annex A hereto is a summary chart of required material terms for loans under each of the Main Street Lending Program facilities.

Lender Registration

To register, an Eligible Lender would need to submit the following documents to the SPV:

• Lender Registration Form: An Eligible Lender’s principal executive officer and principal financial officer (or such individuals performing similar functions) (Executive Officer) are required to submit the Lender Registration Form.^[4] The Executive Officer must certify to all of the following:
  
  
  • Eligible Lender. That the lender is an Eligible Lender.
    
    
  • Eligible Under Conflicts of Interest Prohibition. That the lender is not an entity in which the President of the United States, the Vice President of the United States, the head of an Executive department of the Federal government of the United States or a member of Congress, or a family member of any of the aforementioned individuals (each, a Covered Individual), directly or indirectly holds more than 20 percent of the outstanding amount of any class of equity interest. As set forth in the FAQs, prospective lenders must conduct reasonable diligence to determine whether any conflicts of interest exist: considering its actual knowledge (or if information regarding beneficial ownership has been disclosed pursuant to the Securities Exchange Act of 1934, an entity may rely on this information in addition to its actual knowledge), determining whether beneficial owners (or their financial intermediaries, such as broker-dealers, custodians and investment funds) of any 5 percent or greater equity interest are Covered Individuals and, if necessary, asking the beneficial owners to confirm whether they are Covered Individuals.
    
    
  • Solvency. That the lender is not in a bankruptcy proceeding, a resolution proceeding under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other federal or state insolvency proceeding (as defined in paragraph B(ii) of Section 13(3) of the Federal Reserve Act), nor is it generally failing to pay undisputed debts as they become due during the 90 days preceding the date of borrowing.

Further, in the event that any of the above certifications becomes untrue at any time prior to Sept. 30 (or such later date to which any of the Main Street Lending Program facilities is extended by the Board and the Treasury Department), the lender must promptly notify the SPV and the Board and cease engaging in new transactions with the Main Street Lending Program.

• Lender Wire Instructions Direction: At the time of registration, an Eligible Lender’s principal financial officer (or an individual performing a similar function) must submit such lender’s wire instructions for the bank account into which the SPV will transfer the purchase price and any other payments in respect of the SPV’s purchase of a participation in each loan.

Updated Participation Agreement and Related Documents and Certifications

On June 8, the Board posted guidance and certain additional changes to the requisite terms of the Eligible Loans under each of the Main Street Lending Program facilities. For instance, the Board (i) lowered the minimum loan amount for the MSPLF and the MSNLF from $500,000 to $250,000; (ii) increased the maximum loan size for all Main Street Lending Program facilities (with increases ranging from $25 million to $35 million for the MSNLF, $25 million to $50 million for the MSPLF and $200 million to $300 million for the MSELF); (iii) increased the term for all Main Street Lending Program loans from four to five years; (iv) deferred the principal payments for two years for all Main Street Lending Program loans; and (v) adjusted the principal amortization for all Main Street Lending Program facilities to 15 percent at the end of the third year, 15 percent at the end of the fourth year and a balloon payment of 70 percent at maturity at the end of the fifth year.^[5] The Board also updated the previously posted borrower and lender certifications and covenants to reflect these changes. The full text of the certifications and covenants can be found here: MSNLF Lender Transaction Specific Certifications and Covenants; MSELF Lender Transaction Specific Certifications and Covenants; MSPLF Lender Transaction Specific Certifications and Covenants; MSNLF Borrower Certifications and Covenants; MSELF Borrower Certifications and Covenants; MSPLF Borrower Certifications and Covenants.

As part of the changes, the Board also authorized the SPV to purchase 95 percent of the aggregate outstanding principal amount of all loans issued under the three Main Street Lending Program facilities. Previously, the SPV’s participation purchase was limited to an 85 percent participation interest with respect to the MSPLF. This change brings the MSPLF in line with each of the other two Main Street Lending Program facilities for which the SPV was already authorized to purchase a 95 percent participation interest. The increase in the SPV’s purchase percentage is reflected in each of the updated Participation Agreement Transaction Specific Terms and Assignment-In-Blank, which may be found here: Loan Participation Agreement Transaction Specific Terms; Assignment-in-Blank. 

^[1] _{An Eligible Lender under the Main Street Lending Program is a U.S. federally insured depository institution (including a bank, savings association or credit union), a U.S. branch or agency of a foreign bank, a U.S. bank holding company, a U.S. savings and loan holding company, a U.S. intermediate holding company of a foreign banking organization, or a U.S. subsidiary of any of the foregoing. Multiple affiliated entities may register as Eligible Lenders under the same Main Street Lending Program facility. At this time, nonbank financial institutions are not considered Eligible Lenders for purposes of the Main Street Lending Program. However, the Board is considering options to expand the list of Eligible Lenders in the future.} 

^[2] _{An Eligible Borrower under the Main Street Lending Program is an eligible business established prior to March 13 that together with its affiliated entities, either has 15,000 employees or fewer, or had 2019 annual revenues of $5 billion or less. Each borrower must be a business created or organized in the United States or under the laws of the United States, a state, the District of Columbia, any of the territories and possessions of the United States, or an Indian Tribal government, with significant operations in and a majority of its employees based in the United States. To determine if an Eligible Borrower has significant operations in the United States, evaluation of its operations on a consolidated basis together with its subsidiaries (but not its parent companies or sister affiliates) should be conducted. An Eligible Borrower may be a subsidiary of a foreign company if the borrower itself is created or organized in the United States or under the laws of the United States, and the borrower on a consolidated basis has significant operations in and a majority of its employees based in the United States. However, loan proceeds may only be used for the benefit of the Eligible Borrower, its consolidated U.S. subsidiaries and other affiliates of the Eligible Borrower that are U.S. businesses. While nonprofit organizations are not currently eligible under the Program, the Board is working to establish one or more loan options that are suitable for these organizations. For additional information related to ineligible businesses and the affiliation rules, please see our prior alert, which may be found here.} 

^[3] _{When calculating Adjusted 2019 EBITDA, Eligible Lenders must use the methodology that the Eligible Lender has previously required for EBITDA adjustments when extending credit to the Eligible Borrower (or if the Eligible Borrower is a new customer, similarly situated borrowers in similar industries with comparable risk and size characteristics (Similarly Situated Borrowers)) on or before April 24. If an Eligible Lender has used multiple EBITDA adjustment methods with respect to the Eligible Borrower or Similarly Situated Borrowers, the most conservative method must be employed. An Eligible Lender must also select a single method used at a point in time in the recent past and before April 24, and may not apply adjustments used at different points in time or for a range of purposes. The rationale for selection of an adjusted EBITDA methodology must be documented by the Eligible Lender.} 

^[4] _{Notably, if the Lender Registration Form contains a known material misrepresentation, or a lender materially breaches a covenant contained therein, the SPV, the Board or the Treasury Department may refer the matter to the relevant law enforcement authorities for investigation and possible action in accordance with applicable criminal and civil law.} 

^[5] _{Previously, only loans under the MSPLF and the MSELF would be amortized 15 percent at the end of the second year, 15 percent at the end of the third year and a balloon payment of 70 percent at maturity at the end of the fourth year. Loans under the MSNLF would be amortized one-third at the end of the second year, one-third at the end of the third year and one-third at maturity at the end of the fourth year.} 

^[6] _{The Board recognizes that some aspects of an MSELF may be attractive to Eligible Borrowers seeking a loan below $10 million and will continue to evaluate whether the loan amounts allowed under the program should be adjusted.} 

^[7] _{If an MSELF upsized tranche is part of a multi-lender facility, more than one lender may choose to “upsize” the existing facility to originate an MSELF upsized tranche, subject to the MSELF maximum loan size tests. Such MSELF upsized tranches should be separately submitted to the SPV for the sale of a participation interest.} 

^[8] _{Notably, during the term of the Eligible Loan, Eligible Borrowers are not prohibited from (i) repaying a line of credit (including credit cards) in the normal course of business for usage of such credit line; (ii) taking on and paying additional debt obligations (such as inventory and equipment financing, provided such debt is secured by newly acquired property, and is of equal or lower priority than the Main Street Lending Program loans and on standard terms and required in the normal course of business); and (iii) refinancing debt that is maturing no later than 90 days from the date of such refinancing.} 

^[9] _{For purposes of the MSPLF or MSELF loan priority and security requirement, (i) “Loans or Debt Instruments” means debt for borrowed money and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, and all guarantees of the foregoing; and (ii) “Mortgage Debt” means debt secured by real property at the time of origination of the MSPLF or MSELF loan.} 

^[10] _{Eligible Lenders may not charge Eligible Borrowers any other additional fees, except de minimis fees for services that are customary and necessary.}