Column: The Main Street Lending Program

      The Main Street Lending Program (MSLP) is a separate initiative, making $600 billion available through a Federal Reserve Board-Treasury Dept. special purpose vehicle. The program establishes three new loan facilities:

• The Main Street New Loan Facility (MSNLF) for new term loans originated after April 24, 2020
• The Main Street Priority Loan Facility (MSPLF) for new term loans originated after April 24, 2020 for more highly leveraged borrowers
• The Main Street Expanded Loan Facility (MSELF) for term loans or revolving credit facilities originated or purchased before April 24, 2020 (in each case, referred to as the Eligible Loan). Those loans must have remaining maturity of at least 18 months and be subsequently upsized with a term loan amount (referred to as the upsized amount).

     Loans are made through traditional banks or federally insured depositary institutions (not alternative or direct lenders, such as receivables financers).

Loan Terms

     The following provisions apply to Main Street loans:

• Five-year maturity;
• Payment of interest deferred for one year (but unpaid interest will be capitalized);
• Principal repayment deferred for the first two years, and then principal payments of 15% at the end of each of the third and fourth years, followed by 70% at the end of the fifth year;
• Interest rate is based on one-month or three-month LIBOR + 3%; and
• Minimum loan size of $250,000 for MSNLF & MSPLF; $10,000,000 for MSELF.

      Loans under the program may be secured or unsecured. Loans under the program may not be contractually subordinated in terms of priority of payment to other debt.

      Loans under the MSPLF and MSELF shall be senior to, or pari passu (on equal footing) in terms of security with other debt (except mortgage debt).

      MSPLF: At the time of origination of the eligible loan under the MSPLF, the Collateral Coverage Ratio must be either (1) at least 200% or (2) not less than the aggregate Collateral Coverage Ratio for all other secured debt.

      MSELF: The upsized tranche under the MSELF must be secured by collateral securing any other term loan tranche of the underlying credit facility on at least a pari passu basis.

      Prepayment is permitted without penalty. The originating bank or depositary institution must return a 5% interest in loans it approves, introducing a small amount of risk on the lender to assure loans are appropriately evaluated for risk of repayment.

Maximum loan size

      The maximum amount of the loan varies depending upon which program option applies:

• $35M for the New Loan Facility (MSNLF), but cannot exceed four times the adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization). This is a $10M increase over the prior program;
• $50M for the Priority Loan Facility (MSPLF), but cannot exceed six times the adjusted EBITDA. This is a $25M increase over the prior program; and
• $300M for the Expanded Loan Facility (MSELF), but cannot exceed six times the adjusted EBITDA. This is a $100M increase over the prior program.

Loan requirements, restrictions and certifications

      A number of other key provisions apply to these lending programs:

• Borrowers must commit to refrain from repaying other debt, with the exception of mandatory principal and interest payments or, in the case of the MSPLF, refinancing of debt owed to other lenders, until the Eligible Loan (or, in the case of the MSELF, the upsized tranche) has been repaid in full or an interest therein is no longer held by the Main Street SPV or a governmental assignee.
• Borrowers must certify that they will not seek to cancel or reduce any of their outstanding lines of credit;
• Borrowers must certify that they have a reasonable basis to believe that on a pro forma basis they have the ability to meet their financial obligations for at least the next 90 days and do not expect to file for bankruptcy during this period;
• Borrowers that are public companies may not buy back any related stock;
• Borrowers may not pay any dividends or make other capital distribution (other than tax distributions for pass-through entities) for 12 months following repayment of the loan;
• Borrowers may not increase compensation for employees making more than $425,000 in salary and other financial compensation, with additional limits on those making more than $3 million; and
• Borrowers must have robust quarterly and annual financing reporting covenants.

      Lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of application. Lenders must certify as to the methodology for calculating adjusted 2019 EBITDA and make certain other certifications, which in certain instances will be following due inquiry. The labor relation restrictions from the Cares Act are not (to date) imposed under this program.

      Note that the Federal Reserve will publicly disclose information regarding the names of lenders and borrowers, amounts borrowed, interest rates charged, and overall costs, revenues and other fees.

Michael Clark is managing director of Pierce Capital Partners, a privately-held investment banking firm. Pierce provides project financing and corporate transaction services, including growth financing, merger and acquisition advisory and valuation services. Clark may be reached at mjc@piercefinancial.net to discuss your unique needs.

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Column: The Main Street Lending Program

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