The Federal Reserve released details on a Main Street Expanded Loan Facility (the "Expanded Loan Facility") today. The Expanded Loan Facility is intended to facilitate lending to small and medium-sized businesses that are not eligible for the SBA Paycheck Protection Program, through the purchase of participations in upsized tranches of existing loans. The Fed will operate this facility along-side the Main Street New Loan Facility (see separate e-Alert regarding that facility). Participations will be purchased by special purpose vehicles ("SPVs") created by the Federal Reserve Banks.
Eligible Borrowers: Businesses with up to 10,000 employees or $2.5 billion in 2019 annual revenues that are U.S.-based or have significant operations and the majority of its employees in the U.S. Eligible Borrowers that participate in the Expanded Loan Facility may not also participate in the Main Street New Loan Facility or the Federal Reserve's Primary Market Credit Facility.
Eligible Lenders: Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
Eligible Loans: Eligible Loans are upsize tranches of term loans made by an Eligible Lender to an Eligible Borrower originated before April 8, 2020, where the new tranche has the following features:
- Maturity: 4 years
- Deferral: Amortization of principal and interest deferred for one year
- Rate: Adjustable rate of SOFR + 250-400 basis points
- Minimum loan size: $1 million
- Maximum loan size: The lesser of (i) $150 million, (ii) 30% of the Eligible Borrower's existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Eligible Borrower's existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower's 2019 earnings before interest, taxes, depreciation, and amortization ("EBITDA")
- Prepayment: Allowed without penalty
- Use of Proceeds: Cannot be used to repay other loan balances
Attestations: Eligible Borrowers and Eligible Lenders must attest, among other things, that with respect to the upsized tranches:
- The Eligible Loan will not be used to repay or refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower, including the pre-existing portion of the Eligible Loan.
- The Eligible Borrower must commit to refrain from using the proceeds of the upsized tranche of the Eligible Loan to repay other loan balances. The Eligible Borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full.
- The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower. The Eligible Borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender.
- The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 ("COVID-19") pandemic, and that, using the proceeds of the upsized tranche of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the upsized tranche of the Eligible Loan.
- The Eligible Borrower must attest that it meets the EBITDA leverage condition required of Eligible Loans.
- The Eligible Borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under the CARES Act.
- Eligible Lenders and Eligible Borrowers will each be required to certify that the entity is eligible to participate in the Expanded Loan Facility, including in light of the conflicts of interest prohibition in the CARES Act.
Participations: SPVs will purchase 95% participations in Eligible Loans from Eligible Lenders. Eligible Lenders will retain 5% of each Eligible Loan.
Termination of Participation Purchases: The SPVs will cease purchasing participations in Eligible Loans on September 30, 2020, unless the Fed Board and Treasury extend the Expanded Loan facility.
The full release is here.
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.
