Federal Reserve Board Provides Guidance and Expands the Scope and Eligibility for its $600B Combined Main Street Lending Program

In response to public feedback to the proposed Main Street Lending Program, published April 9, 2020, the Federal Reserve Board of Boston (the Board) released guidance on the terms of the program and took additional actions on April 30, 2020, to expand both the scope and eligibility requirements for Main Street loans. Under the terms of the expanded Main Street Lending Program, businesses with up to 15,000 employees and $5 billion or less in annual revenue may now qualify for relief (a marked increase from the 10,000 employees and $2.5 billion in annual revenue threshold afforded in the initial plan).^[1] Notably, the expanded Main Street Lending Program now incorporates certain borrower ineligibility standards based on the Small Business Administration’s (SBA) ineligibility rules. Additionally, enabling leverage calculations in determining loan eligibility to be based on adjusted 2019 earnings before interest, taxes, depreciation and amortization (Adjusted 2019 EBITDA) (as opposed to under the initial proposal, which did not include adjusted or pro forma EBITDA) further broadens the potential borrowing base. Similarly, with the expansion of lender eligibility criteria to include a U.S. branch or agency of a foreign bank and a U.S. intermediate holding company of a foreign banking organization, additional lending institutions may also take advantage of the program. Granted, at this time, non-bank financial institutions are not considered Eligible Lenders^[2] for purposes of the Main Street Lending Program. However, the Federal Reserve is considering options to expand the list of Eligible Lenders in the future. The expanded facility also provides for a new lending platform — the Main Street Priority Loan Facility (MSPLF) to provide additional new loans to Eligible Borrowers of up to $25 million with increased risk sharing between lenders and the Main Street facilities. At the time of origination, Eligible Borrowers^[3] under the MSPLF may also refinance existing debt owed by such borrower to a lender that is not the Eligible Lender. According to the Board, additional details on timing of the launch of the Main Street program are forthcoming.

A. Overview

The Board expanded the Main Street Lending Program, but did not provide for increased funding nor did it change the timing on the purchase of participations. The overall mechanics remain the same. Using a single common special purpose vehicle (SPV), the Main Street program will purchase up to $600 billion in Eligible Loans until September 30, 2020, unless the program is extended by the Board and the Treasury Department. The Board will continue to fund the SPV beyond September 30, 2020, 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). Structured as a “true sale,” it is anticipated that the sale of a participation in an Eligible Loan to the SPV will be completed expeditiously after the loan’s origination. However, the official launch date and the time and date at which the SPV will begin purchasing participations in Main Street loans have yet to be determined.

Main Street loans are full-recourse loans and are not forgivable. Additionally, all three loan programs (the Main Street New Loan Facility (MSNLF), the Main Street Expanded Loan Facility (MSELF) and the MSPLF) share certain features, such as use of the same Eligible Lender and Eligible Borrower criteria:

• Eligible Lender: 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.
  
  
• Eligible Borrower: An eligible borrower is an eligible business, established prior to March 13, 2020, and either has 15,000 employees or fewer or had 2019 annual revenues of $5 billion or less. As discussed in greater detail below, employees and revenues of the business must be aggregated with the employees and revenues of its affiliated entities. Each borrower must be a business 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.

In addition, the three loan programs share the same 4-year maturity, interest rate (adjustable rate of LIBOR (1 or 3 months) + 300 bps), principal and interest payment deferrals (1 year with unpaid interest capitalized) and require prepayment without penalty. EBITDA is the key underwriting metric required for the MSNLF, MSPLF and MSELF. 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.

Borrowers may only participate in one of the three Main Street Loan facilities — the MSNLF, MSELF or the MSPLF — and are expressly prohibited from participating in multiple programs, and shall have not participated in the Primary Market Corporate Credit Facility or received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020; however, they can seek more than one loan under a single Main Street program. Borrowers participating in the Paycheck Protection Program (PPP) are eligible for participation in the Main Street program. Eligible Lenders are expected to conduct an assessment of a potential borrower’s financial condition at the time of the borrower’s application. To obtain a loan under the Main Street Lending Program, an Eligible Borrower must submit an application and any other documentation required by an Eligible Lender to such lender. Eligible Borrowers should contact an Eligible Lender for more information on whether the Eligible Lender plans to participate in the program and to request more information on the application process. 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). Additional guidance on the Main Street Lending Program can be found here: Main Street Lending Program Frequently Asked Questions (PDF).

B. Main Street Priority Loan Facility

• Mechanics: Eligible Lenders may extend a new MSPLF to an Eligible Borrower and sell an 85% participation in the Eligible Loan to the SPV, with risk shared between the SPV and the Eligible Lender on a pari passu basis. The Eligible Lender must retain its 15% of the Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first.
  
  
• Eligible Loans: An Eligible Loan under the MSPLF is a secured or unsecured term loan made by an Eligible Lender to an Eligible Borrower that was originated after April 24, 2020. At the time of origination, Eligible Borrowers may refinance existing debt owed by the Eligible Borrower to a lender that is not the Eligible Lender. Eligible Loans will be an amount not less than $500,000 and are capped at the lesser of (x) $25 million and (y) an amount that when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed 6x Adjusted 2019 EBITDA. The methodology used by the Eligible Lender to calculate Adjusted 2019 EBITDA must be the same methodology used for adjusting EBITDA when extending credit to the Eligible Borrower or similarly situated borrowers on or before April 24, 2020. 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, non-bank 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 change in circumstance. If the Eligible Borrower had other loans outstanding with the Eligible Lender as of December 31, 2019, such loans must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date.
  
  
• Seniority: In terms of priority and security, at the time of origination and at all times the Eligible Loan is outstanding, the Eligible Loan must be senior to or on a pari passu basis with the Eligible Borrower’s other loans or debt instruments, other than mortgage debt.
  
  
• Repayment: Principal amortization of 15% at the end of the second year, 15% at the end of the third year and a balloon payment of 70% at maturity at the end of the fourth year.
  
  
• Fees: Eligible Borrowers will pay Eligible Lenders an origination fee of up to 100 basis points on the principal amount of the Eligible Loan at the time of origination. The SPV will further pay Eligible Lenders 25 basis points of the principal amount of its participation in the loan per annum for loan servicing. Eligible Lenders are required to pay a transaction fee of 100 basis points on the principal amount of the Eligible Loan at the time of origination to the SPV, this fee may be passed on to Eligible Borrowers.
  
  
• Return: For example, assuming interest at 300 basis points and that the facility fee is passed on to the borrower, a single originating Lender holding $3.75 million of a $25 million loan under the MSPLF could yield 6.08% per annum ((Sum of (Interest amount equal to $3.75 million * 300 bps per annum) + (annualized origination fee amount equal to $25 million * (100 bps/4) per annum) + (SPV fee amount equal to $21.25 million * 25 basis points per annum)) divided by (loan amount held by the lender, $3.75 million)) in the first two years of the term of the loan, with an increase to 6.37% in year three and 6.79% in year four after taking into account amortization.
  
  Alternatively, presuming the facility fee is not passed on to borrower, 4.41% per annum ((Sum of (Interest amount equal to $3.75 million * 300 bps per annum) + (annualized origination fee amount equal to $25 million * (100 bps/4) per annum) + (SPV fee amount equal to $21.25 million * 25 basis points per annum)) – (facility fee payable by lender to SPV in an amount equal to $25 million * (100 bps/4) per annum)) divided by (loan amount held by the lender, $3.75 million)).

C. Main Street Expanded Loan Facility

• Mechanics: Eligible Lenders that have extended an existing term or revolving credit facility to an Eligible Borrower may increase that facility by adding a new increment. The SPV will purchase at par value a 95% participation in the upsized tranche of the Eligible Loan, provided it is upsized on or after April 24, 2020, with risk shared between the SPV and the Eligible Lender on a pari passu basis. The Eligible Lender must retain both its 5% portion of such upsize and its interest in the underlying Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first.
  
  
• Eligible Loans: Initially, Eligible Loans under the MSELF were comprised of term loans originated prior to April 8, 2020, by an Eligible Lender to an Eligible Borrower. With the expansion, an Eligible Loan is now 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. However, the expansion also includes a new maturity component, as such loan must have a remaining maturity of at least 18 months (any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing will be taken into account).
  
  Prior to the expansion, Eligible Loans were limited to an amount not less than $1 million with a cap at the lesser of (x) $150 million, (y) 30% of existing debt (including undrawn commitments) and (z) 6x the Eligible Borrower’s 2019 EBITDA, with leverage calculations to include undrawn commitments and other outstanding debt and EBITDA defined as earnings before interest, taxes, depreciation and amortization (not adjusted or pro forma EBITDA). Today, Eligible Loans are limited to an amount of not less than $10 million with a cap at the lessor of (i) $200 million, (ii) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that shares the same secured status (i.e., secured or unsecured) and pari passu in priority with the Eligible Loan, or (iii) an amount that when added to the Eligible Borrower’s existing outstanding and undrawn available debt does not exceed 6x Adjusted 2019 EBITDA. The methodology used by the Eligible Lender to calculate Adjusted 2019 EBITDA must be the same methodology used for adjusting EBITDA when originating or amending the Eligible Loan on or before April 24, 2020. 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, non-bank 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 change in circumstance. Further, the Eligible Loan must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system as of December 31, 2019.

• Collateral: Any collateral securing the Eligible Loan (at the time of upsizing or on any subsequent date) must secure the upsized tranche on a pro rata basis.
  
  
• Seniority: In terms of priority and security the upsized tranche is required to be senior to or pari passu with the Eligible Borrower’s other loans or debt instruments, other than mortgage debt, at the time of upsizing and at all times the upsized tranche is outstanding.
  
  
• Repayment: The Board’s publication provided new amortization requirements: principal amortization of 15% at the end of the second year, 15% at the end of the third year and a balloon payment of 70% at maturity at the end of the fourth year.
  
  
• Fees: Initially Eligible Borrowers under the MSELF were required to pay Eligible Lenders a fee of 100 basis points on the principal amount of the upsized tranche at the time of upsizing, with the SPV further paying Eligible Lenders 25 basis points of the principal amount of its participation in the loan per annum for loan servicing. While the SPV will still pay Eligible Lenders the servicing fee, the origination fee has been decreased to 75 basis points. Additionally, Eligible Lenders are now also required to pay a transaction fee equal to 75 basis points of the principal amount of the upsized tranche of the Eligible Loan to the SPV at the time of upsizing, which may be passed on to the borrower.
  
  
• Return: For example, assuming interest at 300 basis points, a single originating lender holding $7.5 million of a $150 million loan under the Main Street Expanded Loan Facility could yield 11.5% per annum ((Sum of (Interest amount equal to $7.5 million * 300 bps per annum) + (annualized fee amount equal to $150 million * (75 bps/4) per annum) + (SPV fee amount equal to $142.5 million * 25 basis points per annum)) divided by (loan amount held by the lender, $7.5 million)) in the first two years of the term of the loan, with an increase to 12.16% in year three and 13.10% in year four after taking into account amortization.
  
  Alternatively, presuming the facility fee is not passed on to the borrower, 7.75% per annum ((Sum of (Interest amount equal to $7.5 million * 300 bps per annum) + (annualized origination fee amount equal to $150 million * (75 bps/4) per annum) + (SPV fee amount equal to $142.5 million * 25 basis points per annum)) – (facility fee payable by lender to SPV in an amount equal to $150 million * (75 bps/4) per annum)) divided by (loan amount held by the lender, $7.5 million)).

D. Main Street New Loan Facility

• Mechanics: Eligible Lenders may extend a new MSNLF to an Eligible Borrower and sell a 95% participation in the Eligible Loan to the SPV, with risk shared between the SPV and the Eligible Lender on a pari passu basis. The Eligible Lender must retain its 5% portion of the Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first.
  
  
• Eligible Loans: Initially, Eligible Loans under the MSNLF were unsecured term loans originated on or after April 8, 2020, by an Eligible Lender to an Eligible Borrower. Today, such loans include secured or unsecured term loans made by an Eligible Lender to an Eligible Borrower that were originated after April 24, 2020.
  
  Prior to the expansion loans under the MSNLF were limited to an amount not less than $1 million with a cap of the lesser of (x) $25 million and (y) 4x the Eligible Borrower’s 2019 EBITDA, with leverage calculations to include undrawn commitments and other outstanding debt and EBITDA defined as earnings before interest, taxes, depreciation and amortization (not adjusted or pro forma EBITDA). Today, the minimum loan size has decreased to $500,000, with a cap of the lesser of (i) $25 million or (ii) an amount that when added to the Eligible Borrower’s existing outstanding and undrawn available debt does not exceed 4x Adjusted 2019 EBITDA. The methodology used by the Eligible Lender to calculate Adjusted 2019 EBITDA must be the same methodology used for adjusting EBITDA when extending credit to the Eligible Borrower or similarly situated borrowers on or before April 24, 2020. 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, non-bank 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 change in circumstance. Additionally, if the Eligible Borrower had other loans outstanding with the Eligible Lender as of December 31, 2019, such loans must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date.
  
  
• Seniority: At the time of origination or at any time during the term of the Eligible Loan, the Eligible Loan may not be contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments.
  
  
• Repayment: The Board now requires principal amortization of 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.
  
  
• Fees: Eligible Borrowers will pay Eligible Lenders an origination fee of 100 basis points of the principal amount of the Eligible Loan at the time of origination. The SPV will further pay Eligible Lenders 25 basis points of the principal amount of its participation in the loan per annum for loan servicing. Eligible Lenders are required to pay the SPV a facility fee of 100 basis points of the principal amount of the loan, which may be passed on to the borrower. This is different from the pass-through fee initially imposed, which only required 100 basis points of the principal amount of the participation purchased by the SPV.
  
  
• Return: For example, assuming interest at 300 basis points and that the facility fee is passed on to the borrower, a single originating Lender holding $1.25 million of a $25 million loan under the MSPLF could yield 12.75% per annum ((Sum of (Interest amount equal to $1.25 million * 300 bps per annum) + (annualized origination fee amount equal to $25 million * (100 bps/4) per annum) + (SPV fee amount equal to $23.75 million * 25 basis points per annum)) divided by (loan amount held by the lender, $1.25 million)) in the first two years of the term of the loan, with an increase to 15.25% in year three and 22.75% in year four after taking into account amortization.
  
  Alternatively, presuming the facility fee is not passed on to the borrower, 7.75% per annum ((Sum of (Interest amount equal to $1.25 million * 300 bps per annum) + (annualized origination fee amount equal to $25 million * (100 bps/4) per annum) + (SPV fee amount equal to $23.75 million * 25 basis points per annum)) – (facility fee payable by lender to SPV in an amount equal to $25 million * (100 bps/4) per annum)) divided by (loan amount held by the lender, $1.25 million)).

E. Aggregation Rules as Applied to Eligible Borrowers Under the Main Street Lending Program

Employees and revenues of an Eligible Borrower must be aggregated with the employees and revenues of its affiliated entities. In determining the size of a business, the focus includes receipts and employees (or the alternate size standard (if applicable)) of the business whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.

• Receipts. Receipts denote all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 1065 for partnerships; Form 1040, Schedule F for farms; Form 1040, Schedule C for other sole proprietorships). Tax returns or amendments filed with the IRS after the initiation of a size determination may not be relied upon. Instead, the federal income tax return and any amendments filed with the IRS on or before the date of self-certification must be used to determine the size status of a business. If a business has not filed a federal income tax return with the IRS for a fiscal year that must be included in the period of measurement, calculations will be based on annual receipts using any other available information, such as the business’s regular books of account, audited financial statements or information contained in an affidavit by a person with personal knowledge of the facts.
  
  For size determination purposes, receipts do not include net capital gains or losses; taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income and employee-based costs such as payroll taxes, are not excluded from receipts.

• Employees. To determine how many employees a potential borrower has, it should follow the framework set out in the SBA’s regulation at 13 CFR 121.106. As set out in 13 CFR 121.106, the business should count as employees all full-time, part-time, seasonal or otherwise employed persons, excluding volunteers and independent contractors. Businesses should count their own employees and those employed by their affiliates. In order to determine the applicable number of employees, businesses should use the average of the total number of persons employed by the potential borrower and its affiliates for each pay period over the 12 months prior to the origination or upsizing of the Main Street loan.
  
  
• Determining Affiliates. For purposes of the Main Street Lending Program, affiliation principles will be the same as the rules applicable to the SBA’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 controls or parties control 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. This affiliation means having the ownership of, or power to control, more than 50% 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, bylaws or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.
    
    
  • 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.
    
    
  • Affiliated 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 of 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.

F. Restrictions on Use of Proceeds and Other Requirements Applicable to the Main Street Loans

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. As with the PPP, Eligible Lenders are expressly entitled to rely upon the certifications of an Eligible Borrower. Further, 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 below mandates:

• Restrictions on Use of Proceeds: The requirement that proceeds from the Main Street Lending Program may not be used to repay or refinance preexisting loans or lines of credit is no longer expressly included among borrower covenants. However, with the exception that Eligible Borrowers under the MSPLF may refinance existing debt owed to a lender that is not an Eligible Lender at the time of origination, the expansion on prepayment restrictions set forth below operate to the same effect.
  
  
• Restrictions on Prepayments and Modifications of Debt: The expanded Main Street Lending Program prohibits Eligible Lenders from requesting that Eligible Borrowers 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 Eligible Loan is paid in full. In addition, the previous prohibition on the Eligible Borrower against repaying other debt of equal or lower priority unless the Main Street Loan is paid in full has been expanded to prohibit payment by such borrower on any debt until the Eligible Loan is repaid in full, unless the debt or interest payment is mandatory and due. Similarly, the prohibition on canceling or reducing any existing lines of credit outstanding to such borrower has also been augmented. Under the expanded program, an Eligible Lender must commit that it will not cancel or reduce any existing committed lines or credit to the Eligible Borrower, except in an event of default. Eligible Borrowers must also commit not to seek to cancel or reduce any of their committed lines of credit with the Eligible Lender or any other lender.
  
  There are exceptions to the aforementioned prepayment restrictions. Specifically, the Board has clarified that Eligible Borrowers are not prohibited from (i) repaying a line of credit (including credit card) in accordance with 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 new acquired property and is of equal or lower priority than the Main Street loans and on standard terms and required in the normal course of business); and (iii) refinancing maturing debt.

• New Bankruptcy Requirement: Under the expanded Main Street Lending Program, an Eligible Borrower must have a reasonable basis to believe that as of the date of origination of the Eligible 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.
  
  
• Employee Retention: The requirement that Eligible Borrowers must commit to making reasonable efforts to maintain payroll and retain workers remains. However, the expanded Main Street Lending Program clarifies that Eligible Borrowers are required to use commercially reasonable efforts to comply with this requirement during the time the Eligible Loan is outstanding. 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 loans.
  
  
• Compliance With Title IV of the CARES Act: With the exception that an S corporation or other tax pass-through entity that is an Eligible Borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings, the expanded Main Street Lending Program retains the requirement that Eligible Borrowers must abide by compensation, stock repurchase and dividend restrictions that apply to direct loan programs under Title IV of the CARES Act. Specifically:
  
  
  • Stock buybacks: Companies that receive loans are subject to a ban on purchasing equity securities listed on a national exchange of the company or a parent company through the life of the loan, plus one year, except to the extent required by preexisting contracts.
    
    
  • Dividends: Companies that receive loans cannot pay dividends or other capital distributions on common stock of the company for the life of the loan, plus one year.
    
    
  • Executive compensation limits: For companies that receive loans, officers and employees who received more than $425,000 in total compensation in 2019 cannot receive more than their 2019 total compensation during any 12-consecutive-month period and cannot receive severance pay of more than twice their 2019 compensation. Officers and employees who received more than $3 million in 2019 cannot receive more than $3 million plus 50% of their excess total compensation over $3 million. Total compensation includes salary, bonuses, awards of stock and other financial benefits provided by the borrower to an officer or employee of the borrower. These restrictions will continue for the life of the loan, plus one year.
    
    
• Additional Certifications/Restrictions: It remains unclear from the Main Street program term sheets and FAQ whether, due to the fact that the Treasury Department is committing $75 billion to the Main Street programs from funds allocated under the CARES Act, the additional certifications and undertakings of a borrower under the Treasury Department’s midsize business loan program or facility contemplated by Section 4003(c)(3)(D)(i) of the CARES Act will apply to the Main Street programs, including in particular the certification of the borrower that the uncertainty of economic conditions as of the date of the application makes necessary the loan application to support the ongoing operations of the borrower. This is the same need-based certification as applies to the PPP, which has been the subject of recent additional scrutiny and guidance from the SBA and Treasury Department with respect to the requirement that a borrower take into account alternative sources of liquidity not significantly detrimental to the business in making such certification. We would expect the applicability of such additional certifications, if any, to be evident in the final Main Street loan application and Eligible Lender loan documents.

^{[1] While the threshold has been increased, the calculation now includes affiliates.}

^{[2] Eligible Lender criteria are the same for each of MSPLF, MSNLF and MSELF.}

^{[3] Eligible Borrower criteria are the same for each of MSPLF, MSNLF and MSELF. The term sheets for each of the Main Street Lending Programs and the FAQs released on April 30 now provide that certain of the SBA exclusions of ineligible businesses from its Section 7(a) business loan programs will apply to the Main Street Lending Program, but only as such exclusions have been modified by the regulations implementing the PPP on or before April 24, 2020. Such ineligible businesses include: financial businesses primarily engaged in lending or investments, or otherwise eligible businesses engaged in financing or factoring, including hedge funds, private equity funds, banks, finance companies, investment companies and other businesses whose stock in trade is money; passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds; loan packagers earning more than one-third of their gross annual revenue from packaging SBA loans; businesses in which the proposed lender or any of its affiliates owns an equity interest; and speculative businesses, including where loans are made for the sole purpose of purchasing and holding an item until the market price increases or engaging in a risky business for the chance of an unusually large profit (such as businesses involved in oil wildcatting; dealing in stocks, bonds, commodity futures and other financial instruments; mining gold or silver in other than established fields; and building homes for future sale (other than those homes under contract with an identified purchaser). In addition, while the list of such exclusions include casinos as ineligible businesses, subsequent guidance from the SBA released on April 24 has expressly made businesses receiving revenue from legal gaming activities eligible and, as such, would appear to likewise be eligible for the Main Street programs. Faith-based organizations have similarly subsequently been determined by the SBA not to be per se ineligible. Additional factors concerning these types of ineligible businesses can be found in the SBA’s Standard Operating Procedures 50 found here.}

^{[4] The Main Street Lending Program FAQs specifically refer to the January 1, 2019 version of 13 CFR 121.301(f), which 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.}

^{[5] While the affiliation rules applicable to the Main Street 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.}