Federal Reserve Board Provides Additional Guidance and Form Loan Documents for Main Street Lending Program

On May 27, the Federal Reserve Board (the Board) released additional guidance on its Main Street Lending Program through a set of Frequently Asked Questions (FAQs). The Federal Reserve Bank of Boston will be administering the Main Street Lending Program. Please see our supplemental alert for additional and new Main Street Lending Program guidance released by the Board shortly after the original publication of this alert on June 8.

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. At the time of origination, Eligible Borrowers (as defined in Section D. below) under the MSPLF may also refinance existing debt owed by such borrower to a lender that is not the Eligible Lender. Using a single common special purpose vehicle (SPV), the Main Street Lending Program will purchase up to $600 billion in eligible loans 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 (CARES Act).

The official launch date and the time and date when the SPV will begin purchasing participations in loans have yet to be determined. As the Board continues to work on creating the requisite infrastructure necessary to operate the program, it has released the form loan participation agreement, form borrower and lender certifications and covenants, and other required form agreements. Such form agreements and certifications may be found on the Federal Reserve Bank of Boston’s Main Street Lending Program Forms and Agreements website. Additional guidance on the Main Street Lending Program can be found here. The full text of the previously published 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).

A. Calculation of Adjusted 2019 EBITDA

As indicated in the recent guidance provided by the Board, it is normal industry practice for loan parties to agree to adjust a borrower’s EBITDA to accommodate differences in business models across industries and one-time events that may impact a borrower’s earnings. Thus, leverage calculations in determining loan eligibility are based on adjusted 2019 EBITDA (Adjusted 2019 EBITDA). Adjusted 2019 EBITDA 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^[2]) 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. EBITDA is the key underwriting metric required for the Main Street Lending Program. However, given that the credit risk of asset-based borrowers is generally not evaluated on the basis of EBITDA, the Board and the Treasury Department will be evaluating the feasibility of adjusting the loan eligibility metrics of the program for such borrowers.

B. Affiliate Participation

Borrowers participating in the Paycheck Protection Program (PPP) are eligible for participation in the Main Street Lending Program. However, borrowers may participate in only one of the three Main Street Lending Program facilities: the MSNLF, MSELF or the MSPLF and are expressly prohibited from participating in multiple programs and shall not have participated in the Primary Market Corporate Credit Facility (PMCCF) or received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020. Borrowers can seek more than one loan under a single Main Street Lending Program facility. The Board guidance further indicates that an affiliated group of companies can participate in only one Main Street Lending Program facility, and may not participate in both a Main Street Lending Program facility and the PMCCF. Additionally, if an affiliate has previously participated, or has a pending application to participate, in a Main Street Lending Program facility, a borrower can participate only in the same Main Street Lending Program facility accessed by its affiliate. Further, an affiliated group’s total participation in a single Main Street Lending Program facility may not exceed the maximum loan size that the affiliated group is eligible to receive on a consolidated basis. Thus, an Eligible Borrower’s maximum loan size is limited by its own leverage level, the leverage level of the affiliated group on a consolidated basis and the size of any loan extended to other affiliates in the group. By way of example, the FAQs note in the case of the MSNLF, the Eligible Borrower’s maximum loan size would be the lesser of (1) $25 million (less any amount extended to an affiliate of the Eligible Borrower under the MSNLF); (2) 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; or (3) an amount that, when added to the Eligible Borrower’s affiliated group’s existing outstanding and undrawn available debt,^[3] does not exceed four times the affiliated group’s Adjusted 2019 EBITDA.

For purposes of the Main Street Lending Program, the affiliation principles will be the same as the rules applicable to the Small Business Administration’s financial assistance programs set forth in 13 CFR 121.301(f).^[4] Generally, entities are considered affiliates of each other when one controls or has the power to control the other, or a third party (or parties) has the power to control both, with affiliation based on any of the following circumstances sufficient to establish affiliation with a business or concern under the Main Street Lending Program:^[5]

• Affiliation Based on Ownership: Having the ownership of, or power to control, more than 50 percent of the concern’s voting equity. If no individual, concern or entity has such control, the board of directors or other officers, managing members or partners who control the management of the concern will be deemed to control. Even a minority shareholder may be deemed in control, if that individual or entity has the ability, under the concern’s charter, by-laws or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholder.^[6]
  
  
• Affiliation Arising Under Stock Options, Convertible Securities and Agreements to Merge: Stock options, convertible securities and agreements to merge (including agreements in principle) are considered to have a present effect on the power to control a concern and are treated as if the rights granted have been exercised. However, when determining affiliation, present effect will not be given to individuals’, concerns’ or other entities’ ability to divest all or part of their ownership interest in order to avoid a finding of affiliation.
  
  
• Affiliation Based on Management: Affiliation arises where the CEO or president of the applicant concern (or other officers, managing members or partners who control the management of the concern) also controls the management of one or more other concerns. Potential borrowers should carefully review the boards of directors of their portfolio companies, as officers, managing members or partners who control the management of the concern and also control the management of one or more other concerns may be considered affiliates. Affiliation also arises where a single individual, concern or entity that controls the board of directors or management of one concern also controls the board of directors or management of one or more other concerns or where a single individual, concern or entity controls the management of the applicant concern through a management agreement.
  
  
• Affiliation Based on Identity of Interest: Affiliation arises when there is an identity of interest between close relatives with identical or substantially identical business or economic interests. An individual or firm may rebut a conclusion of affiliation with evidence showing that the interests deemed to be one are in fact separate.

C. Loan Documentation

The guidance indicates that Eligible Lenders are expected to use their own documentation for Main Street Lending Program loans, which should be substantially similar to the loan documents (including with respect to required covenants) used in their ordinary course lending to Similarly Situated Borrowers, adjusted only as appropriate to reflect the requirements of the Main Street Lending Program. For instance, the loan documentation for a loan under the Main Street Lending Program may not include any provision that would cause such loan to be contractually subordinated to any other debt, whether in or outside of bankruptcy.^[7] Similarly, such loan documentation must ensure that the MSELF upsized tranche remains secured on a pari passu basis by the collateral securing the underlying credit facility. Further, loan documentation for MSELF upsized tranches that are part of bilateral facilities (where the Eligible Lender is the only lender) and loans under the MSPLF must also contain a lien covenant or negative pledge that is of the type (and contains exceptions, limitations, carve-outs, baskets, materiality thresholds and qualifiers) that are consistent with those used by the Eligible Lender in its ordinary course lending to Similarly Situated Borrowers.^[8]

Certain model covenants have also been provided by the Board as a guide to satisfying the negative covenant and other requisite documentation principles.^[9] However, use of such model covenants is not required as Eligible Lenders may instead use variations of such provisions to the extent they serve the same substantive purpose and are otherwise similar to provisions such lender uses in its ordinary course lending to Similarly Situated Borrowers. The model covenants may be found in Appendix B to the FAQs.

A checklist of the items that must be reflected in the loan documentation (including principal and interest deferral, interest capitalization, minimum loan size, cross acceleration and financial reporting) may be found in Appendix A to the FAQs. Additionally, a list of requisite financial information and calculations to be delivered by borrowers on a quarterly basis may be found in Appendix C to the FAQs.

D. Eligible Borrowers

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.^[10] 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. The FAQs further state that to determine whether an Eligible Borrower has significant operations in the United States, evaluation of its operations on a consolidated basis together with those of its subsidiaries (but not of its parent companies or sister affiliates) should be conducted. For example, as illustrated in the FAQs, an Eligible Borrower would have significant operations in the United States if, when consolidated with its subsidiaries, greater than 50 percent of the Eligible Borrower’s (i) assets are located in the United States or (ii) annual net income, annual net operating revenues or annual consolidated operating expenses (excluding interest expense and any other expenses associated with debt service) are generated in the United States.^[11] Notably, 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, as clarified by the FAQs, loan proceeds may be used only for the benefit of the Eligible Borrower, its consolidated U.S. subsidiaries and other affiliates of the Eligible Borrower that are U.S. businesses. Loan proceeds may not be used for the benefit of an Eligible Borrower’s foreign parents, affiliates or subsidiaries.

Employees and revenues of an Eligible Borrower must be aggregated with the employees and revenues of its affiliated entities. In the determination of the size of a business, the calculation includes receipts and employees of the business whose size is at issue and those of all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. As clarified by the FAQs, businesses may use either of the following methods to calculate 2019 annual revenues for purposes of determining eligibility: (1) annual “revenue” per its 2019 GAAP audited financial statements or (2) its and its affiliates’ annual receipts for the fiscal year 2019, as reported to the Internal Revenue Service. If a potential borrower or its affiliate does not yet have audited financial statements or annual receipts for 2019, the borrower or its affiliate should use its most recent audited financial statements or annual receipts.^[12]

E. Additional Guidance on Certain Material Main Street Lending Program Provisions

Set forth on Annex A hereto is a summary chart of certain required material terms that differ among the three loan facilities under the Main Street Lending Program.^[13]

F. Certifications and Covenants

Eligible Lenders and Eligible Borrowers must certify that they are eligible to participate in the Main Street Lending Program, including in light of the conflicts of interest prohibition in the CARES Act. Moreover, a determination by the Board that a borrower made a material misstatement in certification or materially breached covenants relating to the CARES Act (borrower eligibility certifications and covenants), the Federal Reserve Act or the Board’s Regulation A (Regulation A) triggers mandatory prepayment of the Main Street Lending Program loan. An Eligible Lender must collect the required certifications and covenants from each Eligible Borrower at the time of origination or upsizing. As with the PPP, Eligible Lenders are expressly entitled to rely on the certifications and covenants of (and any subsequent self-reporting by) an Eligible Borrower. The Eligible Lender is not expected to independently verify the Eligible Borrower’s certifications or actively monitor ongoing compliance with covenants required for Eligible Borrowers under the Main Street Lending Program. However, if an Eligible Lender becomes aware that an Eligible Borrower made a material misstatement or otherwise breached a covenant during the term of a Main Street Lending Program loan, the Eligible Lender should notify the Board.

In addition to other certifications required by applicable statutes and regulations, Eligible Borrowers and Eligible Lenders are required to provide certifications and covenants with respect to each of the following:

• Restrictions on Prepayments and Modifications of Debt: The Main Street Lending Program prohibits Eligible Lenders from requesting Eligible Borrowers to repay debt extended by such Eligible Lender or interest thereon, with the exception of mandatory principal and interest payments or, in the case of default or acceleration, until the Main Street Lending Program loan is paid in full. An Eligible Lender must also commit that it will not cancel or reduce any existing committed lines of credit to the Eligible Borrower, except after an event of default. However, as clarified by the FAQs, this requirement does not prohibit the reduction or termination of uncommitted lines of credit, the expiration of existing lines of credit in accordance with their terms, or the reduction of availability under existing lines of credit in accordance with their terms due to changes in borrowing bases or reserves in asset-based or similar structures.

Unlike under the MSPLF, if an Eligible Borrower has existing debt that requires prepayment of more than a de minimis amount upon the incurrence of new debt, the Eligible Borrower cannot receive a loan under the MSNLF or MSELF unless such requirement is waived or reduced to a de minimis amount by the relevant creditor. In addition, Eligible Borrowers are prohibited from repaying other debt until the Main Street Lending Program loan is paid in full, unless the debt or interest payment is mandatory and due.^[14] Eligible Borrowers must also commit not to seek to cancel or reduce any of their committed lines of credit with an Eligible Lender or any other lender. There are exceptions to these prepayment restrictions. Specifically, 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 maturing debt.

• Solvency: An Eligible Borrower must have a reasonable basis to believe that as of the date of origination of the Main Street Lending Program loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time.
  
  
• Unavailability of Credit: An Eligible Borrower must certify that it is unable to secure adequate credit accommodations from other banking institutions because the amount, price or terms of credit available from other sources are inadequate for the borrower’s needs during the current unusual and exigent circumstances.
  
  
• Employee Retention: Eligible Borrowers must commit to make commercially reasonable efforts to maintain payroll and retain workers during the time the Main Street Lending Program loan is outstanding. Specifically, the FAQs clarify that Eligible Borrowers should use good-faith efforts to maintain payroll and retain employees, in light of their capacities, the economic environment, their available resources and the need of the business for labor. Borrowers that have already laid off or furloughed workers as a result of the disruptions from COVID-19 are eligible to apply for Main Street Lending Program^[15]

G. The Roles and Powers of the SPV

Structured as a “true sale,”^[16] it is anticipated that the sale of a participation in a loan to the SPV will be completed expeditiously after the loan’s origination. Apart from the program’s size and time limitations, there is no limit on the number of participations the SPV may purchase from an Eligible Lender. Main Street Lending Program loans are full-recourse loans that are generally not forgivable. However, in the event of restructurings or workouts, the SPV may agree to (i) reductions in interest (including capitalized interest); (ii) extended amortization schedules and maturities; and (iii) higher-priority “priming” loans.

• SPV Purchase of Participations: When the Main Street Lending Program is operational, Eligible Lenders will have two options for funding loans under the Main Street Lending Program:
  
  
  • Funded Loan. An Eligible Lender may extend and fund a loan to an Eligible Borrower and then seek to sell a participation in such loan to the SPV by submitting all the requisite documentation for processing. Upon review of such documentation, if it was complete and consistent with program requirements, the SPV would purchase a participation. Eligible Lenders using this option must submit the loan to the SPV for sale of a participation interest no later than 14 days after the closing of such loan.
    
    
  • Condition of Funding. An Eligible Lender may also make the funding of a loan contingent on a binding commitment from the SPV that it will purchase a participation in the loan. An Eligible Lender would submit all the requisite documentation for processing, but would indicate in its submission that the loan has not yet been funded. The SPV would review the required documentation and, if it was complete and consistent with program requirements, would provide the Eligible Lender with a binding commitment to purchase the loan after it is funded (Commitment Letter). The Eligible Lender is required to fund the loan within three business days of the date of the Commitment Letter, and the SPV will purchase the participation in the loan not later than three business days after the Eligible Lender notifies the SPV that the Eligible Lender has funded the loan.
    
    
• Transfer of Loan Participation by SPV: Generally, the SPV will be permitted to (i) sell its participation (without elevating it into an assignment) only with the contemporaneous consent of the Eligible Lender and (ii) elevate its participation into an assignment only with the contemporaneous consent of the Eligible Borrower, the Eligible Lender and other necessary parties (e.g., the administrative agent).^[17]
  
  
• Borrower Distress:
  
  
  • Assignment. Prior to an Eligible Borrower entering distress, the SPV will rely on the Eligible Lender to service each Main Street Lending Program loan in accordance with the standard of care set out in the Loan Participation Agreement^[18] and in light of the duties of the Eligible Lender under the Servicing Agreement.^[19] Once an Eligible Borrower misses a mandatory payment on a Main Street Lending Program loan (and any applicable grace period has expired), or the Eligible Borrower or Eligible Lender enters into bankruptcy or other insolvency proceedings, the SPV will have the option to elevate its participation to an assignment to be in privity with the Eligible Borrower.
    
    
  • Voting Rights. Consistent with Section 13(3) of the Federal Reserve Act and the Board's obligations under the CARES Act, the SPV will make commercially reasonable decisions to protect taxpayers from losses on Main Street Lending Program loans. Upon elevation of its participation into an assignment, such decisions and determinations to exercise voting rights under the Loan Participation Agreement or the Co-Lender Agreement will not be influenced by noneconomic factors including with respect to a borrower that is the subject of a workout or restructuring.
    
    
• Bankruptcy Code Section 507(a)(2) Administrative Priority: Under the Loan Participation Agreement and Co-Lender Agreement, the SPV has waived and disclaimed its right to assert special administrative priority under Bankruptcy Code Section 507(a)(2).

^[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. 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. Notably, as clarified by the FAQs, multiple affiliated entities may register as Eligible Lenders under the same Main Street Lending Program facility.}

^[2] _{Or if the Eligible Borrower’s EBITDA was not calculated or included in the loan documentation or internal risk analysis when originating the underlying loan or revolving credit facility in connection with an upsized tranche under the MSELF, the Eligible Lender Eligible Borrower to calculate its adjusted EBITDA using a methodology that the Eligible Lender has required to be used in other contexts for the Eligible Borrower or, if there is no such calculation, for Similarly Situated Borrowers. The FAQs identify similarly situated borrowers (Similarly Situated Borrowers) as borrowers in similar industries with comparable risk and size characteristics and caution Eligible Lenders to document their process for identifying Similarly Situated Borrowers when they originate an MSNLF or MSPLF loan.}

^[3] _{For purposes of the Main Street Lending Program, 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.}

^[4] _{The FAQs specifically refer to the Jan. 1, 2019 version of 13 CFR 121.301(f), whose affiliation rules differ from those governing the PPP in that the January 2019 version additionally includes rules regarding affiliation based on franchise and license agreements. For additional information related to the affiliation rules, please see our prior alert, which may be found here: SBA Releases Interim Final Rule Implementing Paycheck Protection Program.}

^[5] _{While the affiliation rules applicable to the Main Street Lending Program are broad, there are exceptions; for example, business concerns owned in whole or substantial part by investment companies qualifying under the Small Business Investment Act of 1958, as amended, are not considered affiliates of such investment companies.}

^[6] _{The FAQs clarify that this affiliation test applies to private equity-owned businesses in the same manner as any other business subject to outside ownership or control. Thus, even if the private equity company itself satisfies the Eligible Borrower criterion by having fewer than 15,000 employees and/or 2019 annual revenues below $5 billion, the analysis would also capture such business’s ownership of more than 50 percent of the voting equity in a multitude of businesses as these entities would be considered affiliated entities.}

^[7] _{With respect to a Main Street Lending Program loan, the FAQs note that this means such loan may not be junior in priority in bankruptcy to the Eligible Borrower’s other unsecured loans or other debt instruments. The subordination prohibition does not prevent (i) the incurrence of obligations that have mandatory priority under the Bankruptcy Code or other insolvency laws, or other relevant law or regulation, that apply to entities generally or (ii) (A) the issuance of a loan under the Main Street Lending Program that is a secured loan (including in a second lien or other capacity) to an Eligible Borrower, whether or not the Eligible Borrower has an outstanding secured loan of any lien position or maturity; (B) the issuance of a loan under the Main Street Lending Program that is an unsecured loan to an Eligible Borrower, regardless of the term or secured or unsecured status of the Eligible Borrower’s existing indebtedness; or (C) the Eligible Borrower from taking on new secured or unsecured debt after receiving a loan under the Main Street Lending Program, provided the new debt would not have higher contractual priority in bankruptcy than the loan under the Main Street Lending Program.}

^[8] _{With respect to an underlying credit facility that has more than one lender, lien covenants negotiated in good faith prior to April 24, 2020, are sufficient to satisfy this negative covenant criterion.}

^[9] _{For instance, for the convenience of Eligible Lenders, the FAQs contain the following model Negative Covenant: “The Borrower will not, nor will it permit any subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, securing any debt for borrowed money or any obligations evidenced by a bond, debenture, note, loan agreement or other similar instrument, or any guarantee of the foregoing, other than the following: (a) Liens securing obligations under the [MSPLF Loan]/[MSELF Loan]; (b) [Liens on real property in connection with loans with respect to which substantially all of the proceeds were used for acquisition, construction, fit-out, and/or renovation of the property]; (c) [Junior Liens securing permitted Indebtedness]; or (d) [Liens on receivables assets and related assets incurred in connection with a receivables facility, provided that such debt is secured only by the newly acquired property.”}

^[10] _{For an analysis and discussion on what constitutes an ineligible business for purposes of the Main Street Lending Program, see Section A of our prior alert, “Federal Reserve Board Provides Guidance and Expands the Scope and Eligibility for Its $600B Combined Main Street Lending Program,” which may be found here.}

^[11] _{This is a nonexhaustive list of examples meant to reflect the principles that should be applied to this eligibility evaluation.}

^[12] _{For a discussion and analysis of what constitutes receipts and which types of employees qualify as employees for purposes of the Main Street Lending Program, see Section E of our prior alert, which may be found here.}

^[13] _{For a more detailed discussion, including an analysis of the potential return available to Eligible Lenders, see Sections B (MSPLF), C (MSELF) and D (MSNLF) of our prior alert, which may be found here.}

^[14] _{Principal and interest payments related to debt that predates the Main Street Lending Program loan are considered “mandatory and due” (i) on the future date on which they were scheduled to be paid as of April 24, or (ii) upon the occurrence of an event that automatically triggers mandatory prepayments under the contract for indebtedness that the Eligible Borrower executed prior to April 24, provided that if such prepayments are triggered by the incurrence of new debt, it can only be paid (A) if such prepayments are de minimis or (B) under the MSPLF at the time of origination of an MSPLF loan. Eligible Borrowers may continue to pay interest or principal payments on outstanding debt on (or after) the payment due date, provided that the payment due date was scheduled prior to April 24. However, payments on such debt may not be made ahead of schedule during the life of the Main Street Lending Program loan, unless required by a mandatory prepayment clause as specifically permitted by clause (ii). Future debt payments incurred by the Eligible Borrower in compliance with the terms and conditions of the Main Street Lending Program are mandatory and due on their scheduled dates or upon the occurrence of an event that automatically triggers mandatory prepayments.}

^[15] _{For additional information on the certification and covenants required to comply with the CARES Act, see Section F of our prior alert, which may be found here.}

^[16] _{The transfer of an undivided participation interest in a Main Street Lending Program loan is structured with the intent to (a) meet the accounting definition of a participating interest; (b) qualify as a true sale under the Bankruptcy Code; and (c) meet the criteria for sale accounting outlined in ASC 860, Transfers and Servicing. The aforementioned accounting considerations relate to situations where an Eligible Lender has concluded that the MSELF upsized tranche is a separate and distinct unit of account for accounting purposes. This conclusion will vary and is dependent on transaction-specific considerations, as Eligible Lenders have the ability to customize certain details that may be relevant to the unit of account analysis. Suggested factors an Eligible Lender should consider in evaluating whether the MSELF upsized tranche can be considered a separate and distinct unit of account for accounting purposes set forth in the FAQs are (i) the characteristics of the MSELF upsized tranche compared with the characteristics of the existing term loan or revolving credit facility (e.g., maturity date, amortization schedule, collateral requirement, payment date and interest rate) and (ii) how an Eligible Lender operationalizes the MSELF upsized tranche, including whether scheduled principal and interest payments are commingled with payments on the existing term loan or revolving credit facility, whether the payments made by the Eligible Borrower clearly indicate which loan the payment is intended to settle, and whether the Eligible Lender separately maintains detailed recordkeeping.}

^[17] _{However, the SPV may do the following without such consent: (i) sell or transfer its loan participation in full, but not in part, without elevating it to an assignment, at any time to any Federal Reserve Bank, any vehicle authorized to be established by the Board or any Federal Reserve Bank, any entity created by an act of Congress, or any vehicle established or acquired by the Treasury Department or any other department or agency of the federal government (but in no case by way of a securitization) or (ii) sell or transfer its loan participation, or elevate its participation to an assignment (to itself or a third party), upon the following events: (A) at the option of the SPV (1) upon failure of the Eligible Borrower to make any payment due under its loan contract with the Eligible Lender (after expiration of any applicable grace period) or (2) if the Eligible Borrower or the Eligible Lender has become the subject of bankruptcy or other insolvency proceedings; (B) automatically, if the Eligible Lender would take, or refrain from taking, an action that would result in impermissible forgiveness of principal of the portion of the loan beneficially owned by the SPV; and (C) if required to do so by a statute or court.}

^[18] _{Under the terms of the Participation Agreement, an Eligible Lender will not be held to the standard of care of a fiduciary but will exercise the same duty of care in the administration and enforcement of the participation and transferred rights it would exercise if it held the same solely for its own account, and except for losses that result from an Eligible Lender’s bad faith, gross negligence, willful misconduct or breach of any of the express terms and provisions of the Participation Agreement, an Eligible Lender shall not be liable for any error in judgment or for any action taken or not taken by it.}

^[19] _{Under the terms of the Servicing Agreement, the Eligible Lender, as servicer, shall provide the SPV (or applicable governmental assignee) with the requisite financial information and calculations received from the Eligible Borrower in accordance with the terms of the loan documents.}

^[20] _{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.}

^[21] _{If the MSELF upsized tranche is part of a secured loan, then all secured debt for borrowed money of the Eligible Borrower that has not been made junior in priority through contractual subordination should be included in the calculation, regardless of the value or type of collateral. If the MSELF upsized tranche is part of an unsecured loan, then all unsecured debt for borrowed money of the Eligible Borrower that has not been made junior in priority through contractual subordination should be included in the calculation.}

^[22] _{For purposes of MSPLF and MSELF priority and security requirement, the FAQs clarify that (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.}

^[23] _{Eligible Lenders may not charge Eligible Borrowers any other additional fees, except de minimis fees for services that are customary and necessary.}