Under the CARES Act, small businesses have access to the Payroll Protection Program (“PPP”) which is expected to receive additional funding Thursday, April 23, 2020. Mid-size businesses were targeted with the Main Street Loan Program (“MSLP”). While the PPP program received a lot of press and funds went out to businesses right away, the Main Street Loan Program was less clear in dollars, calculations and immediate timing. The funds approved for the Main Street Loan Program and the Main Street Loan Program Expanded Facility (“MSELF”) are up to $600 billion.
These are complicated programs which have not yet been fully developed. Once the Federal Reserve has finalized the structures, lenders will decide if they want to participate in the programs.
A short summary of what we know about the MSLP and MSELF programs is provided below.
Main Street Loan Program (“MSLP”)
Who is eligible?
Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.
The business must be created or organized in the US and have significant operations in and a majority of employees based in the US.
What are the loan terms?
A loan eligible under the MSLP is:
-Unsecured term loan.
-Originated on or after April 8, 2020.
-4 year maturity.
-Deferred principal and interest for the first year.
-Adjustable rate of SOFR + 250 to 400 basis points.
-Minimum size of $1 million.
-Maximum loan size of the lesser of:
$25 million, or
An amount that when added to existing outstanding and committed debt does not exceed 4 times 2019 EBITDA.
-Prepayment is allowed at any time.
The lender receives a 95% participation from the single purpose entity created for this program, and the lender retains 5% of the loan.
The lender and borrower must attest that:
The proceeds of the eligible loan will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower.
The borrower must commit to not using the loan to repay other loans., with the exception of mandatory principal payments.
Lender cannot cancel or reduce existing lines of credit. Borrower must attest that it will not cancel or reduce lines of credit with the lender or other lenders.
Borrower must attest that Covid-19 impacted the business, and that the borrower will make reasonable efforts to maintain its payroll and retain employees during the term of the loan.
Borrower must attest it meets the EBITDA leverage condition related to the maximum loan size.
Borrower must follow compensation, stock repurchase and capital distribution restrictions in the CARES Act.
Borrower and lender must certify they are eligible as specifically related to conflicts of interest prohibitions in the CARES Act.
What are the fees?
The lender will pay the SPV a 100 basis points facility fee. The borrower can be required to pay the fee.
The borrower can pay the lender a 100 basis points origination fee and a 25 basis points annual loan servicing fee.
Main Street Loan Program Expanded Facility (“MSELF”)
How does MSELF differ from MSLP?
A loan eligible under the MSELF is:
-A term loan.
-Originated on or after April 8, 2020.
-4 year maturity.
-Deferred principal and interest for the first year.
-Adjustable rate of SOFR + 250 to 400 basis points.
-Minimum size of $1 million.
-Maximum loan size of the lesser of:
$150 million, or
30% of borrower’s existing outstanding and committed debt, or
An amount that when added to existing outstanding and committed debt does not exceed 6 times 2019 EBITDA.
-Prepayment is allowed at any time.
What does this mean?
Lenders will determine if they want to participate in these programs. There are restrictions that must be adhered to, and documentation of the various items listed must be clearly provided. This will require lenders to monitor and track the borrower’s compliance with the the requirements over the four year facility term.
Focus Management Group is ready to assist lenders as they evaluate the financial performance of their borrowers and the ability to perform under these programs.