New pandemic relief lending program for larger businesses: the Main Street New Loan facility

The Main Street Lending Program, a newly created program by the Federal Reserve, will enhance support for small and mid-sized businesses that were in good financial standing before the COVID-19 crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year.

Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans.

According to a term sheet issued by the Federal Reserve, the loans will have the following terms:

1. Eligible borrowers:

  • No more than 10,000 employees or $2.5 billion in 2019 annual revenue
  • Organized in the U.S., have significant operations in the US, and a majority of its employees are based in the US
  • Cannot also participate in the Main Street Expanded Loan Facility or the Primary Market Corporate Credit Facility

2. Terms:

  • 4 year, unsecured loans with no prepayment penalties
  • Principal amount between $1 million and the lesser of (i) $25 million and (ii) an amount that, when added to the borrower’s existing debt and committed but undrawn debt, does not exceed 4 times the borrower’s 2019 EBITDA
  • Interest rate equal to the Secured Overnight Financing Rate (currently 0.01%) plus 2.5% to 4%
  • Principal and interest payments deferred for 1 year, but interest accrues as of the date the loan is made
  • Origination fee of 1% of the principal amount of the loan

3. Attestations (in addition to required certifications):

  • Loan will not be used to repay or refinance preexisting loans or lines of credit made by the lender to the borrower (and the lender must not cancel or reduce any existing lines of credit to the borrower)
  • Borrower will not do any of the following:
    1. Use loan proceeds to repay other loans
    2. Repay debt of equal or lower priority, except for mandatory principal payments
    3. Cancel or reduce its outstanding lines of credit with any lender
  • Borrower requires financing due to COVID-19 and it will use the loan proceeds to make reasonable efforts to maintain its payroll and to retain its employees during the loan term
  • Borrower will maintain 4x leverage relative to EBITDA over the term of the loan
  • Borrower will abide by the compensation, stock repurchase, and distribution provisions in section 4003 of the CARES Act

For information on how your small or medium-sized business can take advantage of the Main Street Lending Program, contact your ShindelRock tax professional.