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Covid-19: Main Street Loan Program Important Update

The Main Street Loan Program has changed significantly since our original description of the program when it was under discussion in April 2020. While the purpose of the program did not change, the Treasury Department listened to feedback and made changes to support the differing needs of lenders and borrowers.


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. Originally the program was divided into two sections – the new loan facility and the expanded loan facility. That has changed.


There are now three different programs known as:


  1. Main Street New Loan Facility (“MSNLF”)

  2. Main Street Priority Loan Facility (“MSPLF”)

  3. Main Street Expanded Loan Facility (“MSELF”)


The funds approved for the Main Street New Loan Facility (“MSNLF”), the Main Street Priority Loan Facility (“MSPLF”) and the Main Street Loan Program Expanded Facility (“MSELF”) are up to $600 billion.


These are complicated programs which have been evolving. The data is in this presentation is current as of May 6, 2020.


These programs now involve various sizes of loans from as low as $500,000 to as high as $200 million to one borrower. Companies with different leverage positions qualify for different loans and terms. The ability to refinance companies from another borrower into a new lender’s portfolio now exists.


Once the Federal Reserve has finalized the structures, lenders will decide if they want to participate in the programs.


The Federal Reserve Bank of Boston will be creating a special purpose vehicle (“SPV”) to purchase participations in loans originated under this program by eligible lenders. The Federal Reserve will issue a form loan participation agreement, form borrower and lender certifications, and other form agreements that are necessary to facilitate the participation. Eligible lenders will need to provide their own documentation to use when making eligible loans to eligible borrowers. These loan documents related to loans that are participated to the SPV must reflect the terms of the Main Street Program.


What are the eligibility requirements under the Main Street Program?


-Businesses that were established prior to March 13, 2020, and in operations on that date.

-Businesses meeting at least one of these conditions:

  • up to 15,000 employees or

  • up to $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.


When does the Main Street Program end?


The SPV will cease purchasing loans under this program on September 30, 2020.


Main Street New Loan Facility (“MSNLF”)


  • The MSNLF can be summarized as a new loan to a new or existing borrower.

  • The amount could be between $500,000 and $25 million. The calculation is total existing and undrawn loans, including the MSNLF, cannot exceed 4 times EBITDA.

  • It is a 4 year loan.

  • The interest for the first year will be capitalized, and then payments will occur at 1/3 of the total oustandings in years 2, 3 and 4.


The table shows the loan possibilities for a company under this MSNLF program. Three different EBITDA performance levels are compared to the program requirements resulting in the potential loan a borrower and lender could consider.


Main Street Priority Loan Facility (“MSPLF”)

  • The MSPLF can be summarized as a new loan to a new or existing borrower.

  • But, the lender is able to refinance existing debt with another lender under this MSPLF facility.

  • It is a 4 year loan.

  • The amount could be between $500,000 and $25 million. The calculation is total existing and undrawn loans, including the MSNLF, cannot exceed 6 times EBITDA.

  • The interest for the first year will be capitalized, and then payments will occur at 15% of the total oustandings in years 2, 3 and a balloon payment in year 4.

The next table shows the loan possibilities for a company under this MSPLF program. The same three EBITDA performance levels are compared to the program requirements resulting in the potential loan a borrower and lender could consider.

Main Street Expanded Loan Facility (“MSELF”)


  • The MSELF can be summarized as a new loan to an existing borrower.

  • This is an upsized tranche of funding.

  • It is a 4 year loan.

  • The amount could be between $10 million and $200 million. The calculation is total existing and undrawn loans, including the MSNLF, cannot exceed 6 times EBITDA.

  • The interest for the first year will be capitalized, and then payments will occur at 15% of the total oustandings in years 2, 3 and a balloon payment in year 4.


The next table shows the loan possibilities for a company under this MSELF program. The same three EBITDA performance levels are compared to the program requirements resulting in the potential loan a borrower and lender could consider.

Comparison


A borrower may participate in only one of the Main Street Programs – either the new, priority or expanded facilities.


Size of need, current leverage compared to EBITDA, existing lending relationship and ability to repay over the 4 year period will be key decision factors.


The next table compares the loan possibilities for a company under each of the three loan facility programs.

Lenders will determine if they want to participate in one or all of these programs.


Lenders will determine if they want to approve a loan to any borrower under each of these programs.


The decision making is at the lender level. And will certainly include a use of capital component in the decision making process.


When a lender participates in these programs, there are restrictions that must be adhered to, and documentation of the various items listed must be clearly provided. Legal documentation will need to address complying with requirements for subordination, pari passu, etc. The Main Street Loan program requires lenders to monitor and track the borrower’s compliance with the requirements over the four year facility term.


Call us to discuss


Focus Management Group is ready to assist you in evaluating the various options available for a borrower under the Main Street Loan Programs. We will help determine the cash flow impacts, fees, interest, and repayment requirements, under the various programs.


Please see this link to the US Treasury website for access to the PDF Term Sheets for MSNLF, MSPLF, MSELF.

©2020 by Focus Management Group