Member Article

In order to facilitate lending to mid-sized businesses in the wake of COVID-19, the Fed instituted the Main Street New Loan Facility and the Main Street Expanded Loan Facility to provide financing to lenders that make direct loans to "main street" businesses.

This emergency lending facility will support small and mid-sized businesses that were in good financial standing before the pandemic and that may be too small to access broader capital markets or the Fed’s facilities supporting larger corporations, or that may not qualify for the SBA’s Paycheck Protection Program.

Eligible entities are businesses with up to 10,000 employeesorup to $2.5 billion in 2019 annual revenues. Each business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S. No guidance was provided as to whether affiliation rules may apply to these eligibility thresholds or how applicants must count their employees. It should also be noted that neither of these facilities prohibit a business with under 500 employees from participating or those same businesses from receiving funds under the PPP as well as these facilities.

The Main Street New Loan Facility is designed for the issuance of new loans after April 8, 2020, while the Main Street Expanded Loan Facility is designed to supplement loans by way of “upsizing tranches” in loans already existing as of April 8, 2020. They both have essentially all of the same terms, minus a few key details.

The following is an outline of the two facilities, with links to their term sheets.

Main Street New Loan Facility

• The facility will purchase 95% of Eligible Loans at par value from Eligible Lenders, sharing the risk on apari passubasis.
• Eligible Lenders
• U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
• Eligible Borrowers
• Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenue;
• 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; and
• May not also participate in the Main Street Expanded Loan Facility or the Primary Market Corporate Credit Facility
• Eligible Loan
• Unsecured term loan made by Eligible Lender(s) to an Eligible Borrower that was originated on orafter4/8/2020, provided it has the following features:
• 4 year maturity;
• Amortization of principal and interest deferred for one year;
• Adjustable rate of SOFR + 250-400 basis points;
• Minimum loan size of $1 million;
• Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceedfourtimes the Eligible Borrower’s 2019 EBITDA; and
• Prepayment permitted without penalty.
• Restrictions:
• The proceeds may not be used to:
• repay or refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower;
• repay other loan balances;
• repay other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full; or
• cancel or reduce any existing lines of credit outstanding to the Eligible Borrower.
• The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by COVID-19.
• The Eligible Borrower will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.
• The Eligible Borrower will be subject to compensation, stock repurchase, and capital distribution restrictions found in section 4003(c)(3)(A)(ii) of the CARES Act.

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