Fed Announces Key Changes to Main Street Lending Program

Revised term sheets and FAQs issued by the Federal Reserve Board expand the program and provide additional guidance for borrowers affected by the COVID-19 crisis. A chart outlining the updated term sheets can be found in the link below.

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On April 30, 2020, the Federal Reserve Board announced changes to the Main Street Lending Program, expanding the scope and eligibility for the program and issuing new term sheets with additional guidance regarding key loan terms. The new guidance will help borrowers and lenders evaluate whether the Main Street Lending Program could be of assistance to them.

Responding to over 2,200 letters from individuals, businesses, and nonprofits providing feedback on the Main Street Lending Program, the Federal Reserve Board increased the maximum size of businesses that are eligible for the program (now businesses with up to 15,000 employees or $5 billion in annual revenue are eligible) and expanded the loan options available to businesses. The changes include:

Creating a third loan option for borrowers (the Priority Loan Facility) with greater leverage (which requires greater risk-sharing by lenders);
Lowering the minimum loan size for certain loans to $500,000; and
Expanding the pool of businesses eligible to borrow.

Under the newly announced Priority Loan Facility, lenders would retain 15 percent of loans, and borrowers would be able to borrow an amount that, when added to existing debt, does not exceed six times the borrower’s adjusted EBITDA. The chart below summarizes certain key terms of the different loan options under the Main Street Lending Program.

In addition to expanding the Main Street Loan Program as described above, the Federal Reserve Board also updated the terms of the program and provided further guidance on issues such as amortization, calculation of EBITDA, the permissibility of dividend distributions for tax payments for pass-through entities, priority of debt obligations and certain borrower eligibility standards. Critically, the FAQs issued by the Federal Reserve Board indicate that, for the purposes of determining eligibility for participation in the Main Street Lending Program, a borrower’s employees and 2019 revenues will be calculated by aggregating the employees and 2019 revenues of the borrower itself with those of the borrower’s affiliated entities in accordance with the Small Business Administration’s affiliation test set forth in 13 CFR 121.301(f).

The Federal Reserve Board also indicated that it is evaluating a separate approach to providing financing for non-profit organizations, which are currently ineligible under the Main Street Lending Program.

Links to the term sheets for the three facilities can be found here:

The Federal Reserve also provided answers to frequently asked questions that can be found here.

Main Street Lending Program Loan Options	New Loan Facility	Priority Loan Facility	Expanded Loan Facility[1]
Term	4 years	4 years	4 years
Minimum Loan Size	$500,000	$500,000	$10,000,000
Maximum Loan Size	Lesser of $25M or 4x 2019 adjusted EBITDA	Lesser of $25M or 6x 2019 adjusted EBITDA	Lesser of $200M, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA
Risk Retention	5%	15%	5%
Payment (year one deferred for all)	Years 2-4: 33.33% each year	Years 2-4: 15%, 15%, 70%	Years 2-4: 15%, 15%, 70%
Rate	LIBOR (1 month or 3 month) + 3%	LIBOR (1 month or 3 month) + 3%	LIBOR (1 month or 3 month) + 3%
Seniority	Eligible loan not subordinated in terms of priority to borrower’s other loans	Eligible loan is senior to or pari passu with, in terms of priority and security, borrower’s other loans other than mortgage debt	Upsized tranche is senior to or pari passu with, in terms of priority and security, other loans other than mortgage debt. Any collateral securing the underlying loan (at the time of upsizing or on any subsequent date) must secure the upsized tranche on a pro-rata basis.

Arent Fox will continue to update, and expand on, this summary as more information becomes available.

[1] Under the Expanded Loan Facility, an upsized tranche may be applied to an existing term or revolving facility that was originated on or before April 24, 2020 and that has a remaining maturity of at least 18 months.