The Federal Reserve’s Main Street Lending Program: What Borrowers Need to Know (Updated June 9, 2020) | Perkins Coie

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This update supplements our previous release dated June 5, 2020 and contains new information based on additional guidance from the Federal Reserve dated June 8, 2020.

Approved under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and previously published on 9th COVID-19. As part of the Main Street program, the Federal Reserve will provide a mechanism to purchase up to $ 600 billion in interest in loans made by eligible lenders. The Federal Reserve has not yet announced a start date for the program.

On June 8, 2020, the Federal Reserve released updated term sheets for the three types of credit facilities established under the Main Street program and released new FAQs detailing the Main Street program.[1] On May 27, 2020, the Federal Reserve posted Certification and Agreement Forms through the Federal Reserve Bank of Boston website.

Overview of facilities under the Main Street program

The Main Street program will consist of the following three credit facilities:

  • New Credit Facility on Main Street (the New Credit Facility): The new credit facility provides a mechanism for purchasing a special purpose vehicle established by the Federal Reserve Bank of Boston (FRB) New fixed-term loans. The FRB special purpose vehicle will acquire 95% of the loan interest in the new credit facility.
  • Main Street Senior Loan Facility (the Senior Loan Facility): The Senior Loan Facility will also provide a mechanism for the FRB’s SPV to purchase New fixed-term loans. FRB’s special purpose vehicle will acquire 95% of the interests in senior loans.
  • Main Street Extended Credit Facility (the Extended Credit Facility): The extended credit facility provides the FRB special purpose vehicle with a mechanism to purchase new tranches of fixed-term credit existing credit facilities. To be eligible for upsizing, the existing term loan or revolving credit facility must have been granted on or before April 24, 2020 and have a remaining term of at least 18 months. The lender can extend the term of an existing loan or a revolving credit facility at the time of the topping up of the base value to meet the remaining term of 18 months. FRB’s special purpose vehicle will acquire 95% of the equity interest in loans under the extended credit facility. An existing credit facility can be expanded to provide an expanded credit facility even if the existing credit facility does not have an “accordion” function.

These loans must be granted by “Eligible Lenders” (see FAQ No. 4 below), not directly by the FRB. However, in order to be sold to the FRB’s special purpose vehicle, the loans must meet the program requirements. The following table summarizes the main mandatory terms of the New Credit Facility, Senior Credit Facility and Extended Credit Facility (collectively the Facilities). In addition to the terms required by the Federal Reserve, loans under these facilities will have other terms and conditions as are customary for such facilities.

New credit facility

Priority Credit Facility

Extended Credit Facility

Minimum loan size

$ 250,000

(previously $ 500,000)

$ 10 million

Maximum loan size

Less than (1) $ 35 million or (2) an amount that, together with existing outstanding and undrawn debt, does not exceed 4 times Adjusted EBITDA for 2019.

(previously $ 25 million)

Less than (1) $ 50 million or (2) an amount that, together with existing outstanding and undrawn debt, does not exceed 6 times Adjusted EBITDA for 2019.

(previously $ 25 million)

Less than (1) $ 300 million or (2) an amount that, together with existing outstanding and undrawn debt, does not exceed 6 times Adjusted EBITDA for 2019.

(previously $ 200 million)

safety

Can be secured or unsecured.

Can be secured or unsecured, but any collateral securing the underlying loan must secure the topped up tranche equally.

priority

Must not be contractually subordinate to any other debt of the borrower with regard to the payment priority.

Must not be contractually subordinate to any other debt of the borrower with regard to the payment priority.

Must be senior or equal to the borrower’s other non-mortgage debt for priority and security (mortgage debt is defined as debt backed by real estate and financings with limited recourse for equipment such as purchase money loans).

For more information on the priority rules, see FAQ # 8 below.

expression

5 years

(previously four years)

repayment

Repayment is deferred for two years and interest is deferred for one year. Deferred and unpaid interest are capitalized. Lump-sum payments of 15%, 15% and 70% at the end of the third, fourth and fifth year, respectively.

(Previously the principal was deferred for one year and the 33.33% repayment due in Years 2-4 under the new credit facility; capital previously deferred for one year and 15%, 15%, 70% repayment due in years 2, 3 and 4 respectively under the senior credit facility and the extended credit facility)

Voluntary prepayment

Allowed without penalty.

Compulsory prepayment

Every Main Street loan must include a provision requiring prepayment if the borrower violates certain covenants or makes a material misstatement regarding certain certifications.

interest rate

LIBOR (one or three months) + 3.00%

fees

  • 1.00% transaction fee paid by the original lender – fee can be passed on to the borrower.
  • Up to 1.00% commitment fee paid by the borrower.
  • 0.25% service fee paid to the lender by the federal government.
  • 0.75% transaction fee paid by the original lender – fee can be passed on to the borrower.
  • Up to 0.75% commitment fee paid by the borrower.
  • 0.25% service fee paid to the lender by the FRB federal government.

Participation percentage

FRB buys 95% stake in the company.

FRB buys 95% stake in the company.

(previously 85%)

FRB buys 95% stake in the company.

Covenants (compensation)

Up to 12 months after repayment of the loan:

  • Executives and employees whose total compensation exceeds $ 425,000 for calendar year (CY) 2019 may not:
    • Receive total compensation in excess of total compensation received in CY2019 for a consecutive 12 month period.
    • Upon termination of the employment relationship, you will receive a severance payment or other benefits that exceed twice the total remuneration received in CY2019.
  • Executives / employees whose total compensation exceeded $ 3 million in CY2019 may not total compensation greater than (1) $ 3 million plus (2) 50% of the over $ 3 million over a consecutive 12 month period of the total compensation received in CY2019.

“Total Compensation” includes salary, bonuses, stock awards and other financial benefits.

Covenants (payment restrictions)

Up to 12 months after repayment of the loan:

  • The borrower may not buy back listed equity securities (including securities issued by the borrower’s parent company) unless this is required by a contractual obligation as of March 27, 2020.
  • The borrower may not pay dividends or make other capital distributions in respect of the common stock of the company (other than tax distributions from S companies and other transit companies).

Covenants (debt repayments)

  • No payments may be made on other debts (with the exception of mandatory and due payments) until the loan has been repaid. However, the borrower may refinance other debts under the senior credit facility at the time the loan is extended.
  • Payments on other debts will be deemed “mandatory and due” (1) on the future payment dates on which they should be paid from the date the Main Street Program Loan was granted, or (2) on a mandatory prepayment event under a Debt Agreement that precedes was completed on the date the Main Street Program Loan was granted (except that such prepayments triggered by the emergence of new debt can only be paid (i) if such prepayments are negligible, or (ii) under a Loan im Under the Senior Loan Facility at the time such loan is granted).
  • A termination or reduction of approved credit lines is not permitted.

Covenants (employee loyalty)

The borrower must use commercially reasonable efforts to retain staff throughout the life of the loan. In the Main Street Program FAQ guides, the FRB states that a borrower “should use good faith efforts to maintain payroll and given their capacity, economic environment, available resources and business needs for labor To keep employees ”. Borrowers who have already made redundant workers or on leave due to the disruption caused by COVID-19 can apply for the Main Street program.

Covenants (financial reporting)

Borrowers must meet solid annual and quarterly reporting requirements that are more detailed than many standard loan agreements require.

The sample language for such an agreement is provided in the Main Street Program FAQ guides.[2]

Must include the same annual and quarterly reporting requirements as loans under the New Credit Facility and the Senior Credit Facility, except that for loans under the Extended Credit Facility that are part of multiple lender lines of credit, a good faith-negotiated financial reporting requirement before April 24, 2020 is considered sufficient.

Lateral acceleration

Any Main Street loan that is part of a bilateral facility must contain a cross-acceleration clause that will trigger a Main Street loan default when a debt of a borrower to the lender or an affiliate of the lender is accelerated .

The model language for such cross-acceleration deployment is provided in the Main Street Program FAQ guides.[3]

Must contain the same cross-acceleration provision as loans under the New Loan Facility and the Priority Loan Facility, except that a cross-default or cross is required for loans under the Expanded Loan Facility that are part of multi-lender credit facilities -Acceleration provision negotiated in good faith before April 24, 2020 is deemed sufficient.

frequently asked Questions

Below are answers to frequently asked questions about the Main Street Program.

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