The Federal Reserve Board announced Thursday, April 30, it is expanding the scope and eligibility for the Main Street Lending Program, offering more options for a wider set of small and medium-sized businesses.

The changes come on the heels of updates made to the Municipal Liquidity Facility, which serves as the Program’s counterpart for state and local governments. Both lending programs were originally announced by the Fed on April 9, outlined in our blog post here.

Among the changes, which were made in response to public input, the Board created a third loan option, lowered the minimum loan amount from $1 million to $500,000, and expanded eligibility by allowing for businesses with up to 15,000 employees or up to $5 billion in annual revenue to borrow funds, an increase from the 10,000 employees and $2.5 billion cap previously announced. Below is an overview of the Program, which has been updated accordingly (noted in bold).

The Main Street Lending Program

The Main Street Lending Program will enhance support for small and mid-sized businesses by offering 4-year loans to companies with up to 15,000 employees or making up to $5 billion in annual revenue. The loans will be for a minimum of $500,000 and a maximum of $200 million, with principal and interest payments deferred for one year. The Federal Reserve will purchase up to $600 billion in loans, made possible in part by a $75 billion equity investment made by the Department of Treasury using funding from the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

How it works

The Program establishes three new loan facilities authorized under section 13(3) of the Federal Reserve Act: (1) the Main Street New Loan Facility (MSNLF), (2) the Main Street Priority Loan Facility (MSPLF), and (3) the Main Street Expanded Loan Facility (MSELF). For all three facilities, the Fed commits to lend to a single purpose vehicle (SPV) on a recourse basis. Under the MSNLF and MSELF, the loans will be issued by domestic banks who will retain a 5% share, while the Fed purchases the other 95% through the SPV. Under the newly announced third loan option, the MSPLF, lenders will retain a 15% share on loans rather than 5%, allowing for more highly leveraged borrowers.

Treasury, using funds appropriated under the CARES Act, will make a $75 billion equity investment in the SPV, and the three Main Street Facilities will purchase up to $600 billion in loans until September 30, 2020, unless the program is extended. Of note, businesses that take advantage of the Small Business Administration’s Paycheck Protection Program may also take out Main Street loans.

Who are eligible businesses and what must they do?

• Businesses with up to 15,000 employees, or up to $5 billion in annual revenue for 2019;

• Businesses established prior to March 13, 2020;

• Businesses created or organized in the U.S. or operating under the laws of the U.S. with “significant operations in and a majority of its employees based in the U.S.”;

• Must require financing due to “exigent circumstances presented by the coronavirus”;

• Must commit to make reasonable efforts to maintain payroll and retain workers;

• Must follow compensation, stock repurchase and capital distribution restrictions that apply under Section 4003(c)(3)(A)(ii) (e.g. no stock buy-backs, no payment of dividends, etc.).;

• Must not participate in the Primary Market Corporate Credit Facility; and

• Must not seek to cancel or reduce an existing outstanding line of credit with the lender.

Snapshot of the loans

• Four-year maturity.

• Principal and interest payments deferred for one year.

• Adjustable interest rate of LIBOR (1 or 3 month), +300 basis points.

• Principal amortization of 15% at end of 2^nd and 3^rd years, with a balloon payment of 70% at the end of the 4^th year (maturity).

• Prepayment permitted without penalty.

• Minimum loan size: $500,000.

• For MSNLF loans, the maximum loan size is the lesser of

  1. $25 million, or

  2. Four times 2019 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

• For MSPLF loans, the maximum loan size is the lesser of

  1. $25 million, or

  2. Six times 2019 EBITDA.

• For MSELF loans, the maximum loan size is the lesser of

  1. $200 million,

  2. 35% of the borrower’s existing outstanding and committed but undrawn bank debt, or

  3. Six times 2019 EBITDA.

Additional Resources on the Main Street Lending Program:

• Main Street New Loan Facility (MSNLF) Fact Sheet
• Main Street Priority Loan Facility (MSPLF) Fact Sheet
• Main Street Expanded Loan Facility (MSELF) Fact Sheet
• Federal Reserve Press Release (4/30/20)
• Federal Reserve Press Release (4/9/20)