On April 9, 2020, the Federal Reserve and Department of the Treasury announced the Main Street Lending Program to provide up to $600 billion of funding to small and mid-sized businesses impacted by the ongoing economic fallout of the COVID-19 pandemic.

Borrowers eligible for Main Street Lending Program loans are businesses created or organized in, or under the laws of, the United States, with significant operations and a majority of their employees based in the United States, which either (i) employ no more than 10,000 employees, or (ii) did not have more than $2.5 billion in 2019 annual revenues. No guidance has been issued as to how the employee and revenue caps will be calculated.

Among other things, borrowers under the Main Street Lending Program will be required to attest that they require financing due to the exigent circumstances created by the COVID-19 pandemic and that they will use the proceeds of the financing to make reasonable efforts to maintain payroll and retain employees during the loan term. Borrowers must also attest that they will follow certain restrictions under the CARES Act related to executive and employee compensation, stock repurchases, and the payment of dividends.

Eligible borrowers will be able to either originate new four-year loans, under the Main Street New Loan Facility (the “New Loan Facility”) or increase the size of existing loans that were originated before April 8, 2020 under the Main Street Expanded Loan Facility (the “Expanded Loan Facility”), but cannot participate in both. Borrowers that have taken advantage of the Paycheck Protection Program under the CARES Act may also borrow under the Main Street Lending Program.

Eligible loans under both the New Loan Facility and Expanded Loan Facility will have the following terms:

(i) Four-year maturity

(ii) Principal and interest payments will be deferred for one year

(iii) Adjustable interest rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin between 2.5% and 4.0%

(iv) No prepayment penalty

(v) Minimum loan size of $1 million

The maximum loan size under the New Loan Facility will be the lesser of (i) $25 million, or (ii) an amount that, when added to the borrower’s existing committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

The maximum loan size under the Expanded Loan Facility will be the lesser of (i) $150 million, (ii) 30% of the borrower’s existing committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA.

The term sheet for the New Loan Facility is available here and the term sheet for the Expanded Loan Facility is available here. The Federal Reserve and Department of the Treasury are soliciting comments on the Main Street Lending Program until April 16, 2020. We expect additional guidance on the program to be forthcoming.

While awaiting further guidance, companies interested in participating in the Main Street Lending Program should (1) assess their additional credit needs and determine the maximum loan they may be eligible for using the guidelines above; (2) determine if any consents will be needed under their existing debt documents and other relevant agreements; and (3) discuss with their existing lenders whether they will be participating in the program and request that they provide additional information when available.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.