Fed Adds New Facility and Changes Terms of Main Street Lending Program

On April 30, 2020, the Federal Reserve Board (the “Fed”) released new term sheets for the $600 billion Main Street Lending Program, which was initially announced on April 9, 2020. In addition to changing terms to the two existing facilities, the Main Street New Loan Facility and the Main Street Expanded Loan Facility, the Fed also added a Main Street Priority Loan Facility for borrowers that increases the maximum borrowing amount for businesses with higher existing debt or lower EBITDA. The Fed also stated that it will provide another update once the program is operational, but as of now, there is no firm date for when that will be. Some material changes to the facilities are as follows:

• Eligible Borrowers have either (i) 15,000 or fewer employees (increased from 10,000) or (ii) 2019 revenue of $5 billion or less (increased from $2.5 billion).

• The minimum borrowing amount was lowered to $500,000 from $1 million for the Main Street New Loan Facility and Main Street Priority Loan Facility. The minimum borrowing amount was increased to $10 million from $1 million for the Main Street Expanded Loan Facility.

• The interest rate was changed to 1 or 3 month LIBOR plus 300 basis points. Previously, the rate was the Secured Overnight Financing Rate plus 250 to 400 basis points.

• For the Main Street Expanded Loan Facility, the maximum loan size is now the lesser of (i) $200 million (increased from $150 million), (ii) 35% of the borrower’s existing outstanding and committed but undrawn debt (increased from 30%) that is pari passu in priority with the loan and equivalent in secured status, or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, is less than six times the company’s 2019 EBITDA.

• The term sheets clarify that lenders are expected to assess borrowers’ financial conditions at the time of application and if a borrower has other loans outstanding with the lender as of December 31, 2019, the loans must have an internal risk rating of “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system.

The terms of the Main Street Priority Loan Facility are similar to those of the Main Street New Loan Facility. However, for the Main Street Priority Loan Facility, the maximum loan size is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, is less than six times the company’s 2019 EBITDA (rather than four times for the Main Street New Loan Facility). Additionally, a borrower under the Priority Loan Facility may use loan proceeds to refinance its existing debt at the time of origination.

Summary

The Fed’s changes will expand the number of eligible borrowers and increase the amount of borrowers that will ultimately participate in the program. However, the size of the program was not increased. Given the funding shortage that the Paycheck Protection Program has experienced thus far, potential Main Street Lending Program borrowers should be prepared to apply as soon as the facilities are operational.