Federal Reserve Takes Significant Steps To Expand The Main Street Lending Program - Financial Services

The Federal Reserve is currently working to create the infrastructure necessary to implement the program.

On June 8, 2020, the Federal Reserve issued additional guidance with respect to the Main Street Lending Program that made significant additional changes to the previously released terms thereof, aimed at making the program more attractive to small- and mid-sized businesses as well as lenders.

This Alert supplements our prior summaries by identifying the major changes to the terms of the program, which may allow more borrowers to participate therein. These changes may also incentivize those who are considering the available loans. This Alert does not restate or summarize the unchanged provisions of the Main Street Lending Program that we covered in prior Alerts.

Noteworthy Changes to the Program

Pursuant to recently released new guidance, the Federal Reserve now has (i) decreased the minimum loan amount for the New Loan and Priority Loan Facilities to $250,000; (ii) increased the maximum loan size for all facilities; (iii) extended the term of all loans to five years; (iv) deferred the repayment of principal on all loans for two years; and (v) conformed the amortization schedule of loans made under the New Loan Facility to those made under the Priority and Expanded Loan Facilities (15 percent in years three and four, with a 70 percent balloon at maturity).

The Federal Reserve anticipates that the revised parameters for eligible program loans will open the door to more small- and mid-sized borrowers that may have been locked out under the previously released program terms. The following table summarizes these changes and notes the previous terms in parentheses.

Summary of Facility Loan Terms
Main Street Lending Program Loan Options	New Loans	Priority Loans	Expanded Loans
Term	5 years (previously 4 years)	5 years (previously 4 years)	5 years (previously 4 years)
Minimum Loan Size	$250,000 (previously $500,000)	$250,000 (previously $500,000)	$10,000,000
Maximum Loan Size	The lesser of $35 million, or an amount that, when added to outstanding and undrawn debt, does not exceed four times the adjusted 2019 EBITDA (previously $25 million)	The lesser of $50 million, or an amount that, when added to outstanding and undrawn debt, does not exceed six times the adjusted 2019 EBITDA (previously $25 million)	The lesser of $300 million, or an amount that, when added to outstanding and undrawn debt, does not exceed six times the adjusted 2019 EBITDA (previously $200 million or 35% of existing outstanding or undrawn available debt)
Lender Risk Retention	5%	5% (previously 15%)	5%
Principal Repayment (Deferred for Two Years)	Years 3-5: 15%, 15%, 70% (previously Years 2-4: 33.33% each year)	Years 3-5: 15%, 15%, 70% (previously Years 2-4)	Years 3-5:15%, 15%, 70% (previously Years 2-4)
Interest Repayment (Deferred for One Year)	Years 2-5; LIBOR + 3%	Years 2-5; LIBOR + 3%	Years 2-5; LIBOR + 3%

The Main Street Lending Program will also accept loans that were originated under the previously announced terms published on April 30, 2020, if funded before June 10, 2020. Such loans may be amended or refinanced in accordance with the June 8, 2020, terms and remain program qualified. Lenders may not charge additional fees for services related to the refinancing or amendment of a loan issued under the original term sheets may not charge additional fees for services related to the refinancing or amendment of such loan, with the exception of customary fees for such services, such as legal fees, that are directly related to the refinancing and are de minimis.

The Federal Reserve has not formally announced a start date for the program, but interested borrowers can and should commence the application process with eligible lenders, if they have not already done so. The Federal Reserve is currently working to create the infrastructure necessary to implement the program.

For More Information

If you have any questions about this Alert, please contact Bruce H. Jurist, Jonathan M. Petrakis, Matthew W. Gaspari, Max W. Fargotstein, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.