The Main Street Lending Program


The Federal Reserve has established the “Main Street Lending Program” (MSLP) under The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), that provides for up to $600 billion of new or expanded credit facilities to small and medium-sized businesses. MSLP loans are funded by a combination of “Eligible Lenders” and a Federal Reserve “special purpose vehicle” (SPV) lender in favor of “Eligible Borrowers”. The scope of qualified “Eligible Borrowers” is very broad. The Fed’s SPV will purchase a 95% participation in each loan made by an Eligible Lender to an Eligible Borrower, with the remainder of the loan retained by the Eligible Lender.

MSLP loans may be secured or unsecured (subject to certain lien priority requirements), and the program includes loans structured as either term loans or revolving credits. Within the MSLP, there are three different types of loan facilities: (1) term loans under the Main Street Priority Loan Facility (MSPLF), (2) term loans under the Main Street New Loan Facility (MSNLF), and (3) term loans and revolving credits under the Main Street Expanded Loan Facility (MSELF).

Following is a summary of certain key conditions and requirements that apply to each type of MSLP loan. Note that this summary does not describe all requirements of the MSLP program. We have included links to MSLP program documents at the end of this summary for further information. We would be pleased to assist you if you want further information or have any questions regarding the Main Street Lending Program.

Key Business Terms:

MSLP Loan Facility

Click here to view original table. 

Fees:

Key Requirements and Covenants:

Priority of Debt and Liens: 

Main Street loans may be secured or unsecured, but certain priority rules apply in the event the borrower has other outstanding debt:

Priority Requirements for MSNLF (“New Loan Facility”) Loans – MSNLF loans may not be expressly “contractually subordinated” to the borrower’s other debt. The Fed guidance indicates this only requires that an MSNLF loan may not be junior in bankruptcy to the Eligible Borrower’s other unsecured loans or debt instruments.

Priority Requirements for MSPLF (“Priority Loan Facility”) and MSELF (“Expanded Loan Facility”) Loans – MSPLF and MSELF loans may be secured or unsecured, but in any event they must be senior to or pari passu with the Eligible Borrower’s other debt, and may not be subordinated to the Eligible Borrower’s other debt, except for outstanding mortgage debt.

Continuing Mezzanine or Other Subordinate Debt – If an Eligible Borrower has existing mezzanine or other subordinate debt that it seeks to continue outstanding following an MSLP loan, various issues should be considered.

MSNLF Loans - Existing mezzanine debt likely could remain outstanding following incurrence of an MSNLF loan so long as the MSNLF loan is not expressly made contractually subordinate to the mezzanine debt.

MSPLF and MSELF Loans – Existing mezzanine debt cannot not be senior to (but may be pari passu with) MSPLF and MSELF loans. The parties would need to consider the terms of any existing continuing mezzanine debt documents to determine if they conform to this requirement. If such documents include terms that automatically continue subordination of the mezzanine debt to future financings or other future debt, then a new MSPLF or MSELF loan automatically may be prior to the continuing mezzanine debt. However mezzanine debt terms often include a limit on the amount and scope of permitted senior debt. Thus, it is possible that an agreement would need to be reached with the mezzanine debt holder to satisfy the requirement that MSPLF and MSELF loans must be senior or pari passu with the borrower’s other debt.

Other Requirements and Considerations:

MSLP Term Sheets and FAQs:

Following are links to loan Term Sheets, Frequently Asked Questions (FAQs), and other materials published by the Fed. These provide more detailed information about the terms of the various loan facilities established under the Main Street Lending Program:

MSLP - MSNLF (New Loan Facility Term Sheet) https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a1.pdf

MSLP - MSPLF (Priority Loan Facility Term Sheet) https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a2.pdf

MSLP - MSELF (Expanded Loan Facility Term Sheet) https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a3.pdf

Summary and FAQ https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm

https://www.bostonfed.org/-/media/Documents/special-lending-facilities/mslp/legal/frequently- asked-questions-faqs.pdf

Conclusion:

Potential borrowers will need to consider whether the MSLP loan requirements, including restrictions regarding distributions, compensation and employees, would be appropriate in their particular circumstances. However, with relatively low interest rates at a fixed spread plus generous deferral periods, MSLP loans may be a good solution for companies seeking credit in the current economic environment.


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National Law Review, Volume X, Number 203