On April 9, the U.S. Federal Reserve provided details on $2.3 trillion of new loan programs that are made available under the CARES Act, including terms for the Main Street New Loan Facility and Main Street Expanded Loan Facility (together the Main Street Facility). Together, the Main Street Facility will make $600 billion available in direct lending from Federal Reserve banks through certain U.S. eligible financial institutions to eligible U.S. businesses with up to 10,000 employees or with revenues less than $2.5 billion.  Below is an outline of the key terms for the new Main Street Facility.

What are the loan terms?

Key terms of the new Main Street Facility for loans that originate after April 8, 2020:

• Unsecured term loan;
• 4-year maturity;
• Amortization of principal and interest deferred for one year;
• Adjustable rate of SOFR + 250-400 basis points;
• Minimum loan size of $1 million;
• Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the eligible borrower’s 2019 EBITDA; and
• Prepayment permitted without penalty.

For loans that originated before April 8, the Main Street Expanded Loan Facility includes the same terms as the Main Street New Loan Facility, except that any upsized tranche of funds made available to the borrower must be made on these additional terms:

• The Expanded Loan Facility includes maximum loan size equal to 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 EBITDA; and
• The Federal Reserve’s Special Purpose Vehicle (SPV) and the eligible lender will share risk in the upsized tranche on a pari passu basis. Any collateral securing the loan whether such collateral was pledged under the original terms of the loan, or at the time of upsizing, will secure the loan participation on a pro rata basis.

Are there any facility, origination or service fees?

Under the Main Street New Loan Facility, the eligible lender may require the eligible borrower to pay the SPV a facility fee of 100 basis points of the principal amount of the loan.  An eligible borrower is also required to pay a loan origination fee of 100 basis points of the principal amount of the loan. The SPV will pay each eligible lender 25 basis points of the principal amount of its participation in the loan each year for loan servicing.

Under the Main Street Expanded Loan Facility, the eligible lender may require the eligible borrower to pay the SPV a loan origination fee of 100 basis points of the principal amount of the upsized tranche of the eligible loan at the time of upsizing. The SPV will pay each eligible lender 25 basis points of the principal amount of its participation in the upsized tranche of the loan each year for loan servicing.

Do affiliation rules apply?

Based on current guidance, Title IV of the CARES Act (which includes this Main Street Facility) does not contain any affiliation rules for eligible borrowers that receive a loan, loan guarantee, or other investment under the Main Street Facility or other loan programs under Title IV of the CARES Act.

Are there eligible borrower loan covenants and restrictions?

Yes, the Main Street Facility loans are made available subject to certain restrictions on the eligible borrower’s business, including an attestation from the eligible borrower that:

• The eligible borrower is located in the United States and has significant operations in and a majority of its employees based in the United States.
• The eligible borrower will use the loan proceeds to make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
• For the term of the loan plus 12 months after repayment, the eligible borrower will not purchase any equity security listed on a national securities exchange (e.g., NYSE, NASDAQ) of the borrower or any parent entity, except where required under a contractual obligation in effect as of March 27.
• For the term of the loan plus 12 months after repayment, the eligible borrower will not pay dividends or make other capital distributions to its common stock.
• For the term of the loan plus 12 months after repayment, no officer or employee of the eligible borrower whose “total compensation” exceeded $425,000 in 2019 (other than an employee whose compensation is determined under a preexisting collective bargaining agreement) may receive:
  • Total compensation in any 12 consecutive months that exceeds 2019 total compensation, and
  • Severance pay or other termination benefits that exceed twice 2019 total compensation.
• For the term of the loan plus 12 months after repayment, no officer or employee of the eligible borrower whose “total compensation” exceeded $3 million in calendar year 2019 may receive total compensation in any 12 consecutive months that exceeds the sum of $3 million plus half of any amounts by which 2019 total compensation exceeded $3 million.
• “Total compensation” includes salary, bonuses, stock awards and other financial benefits.

Can an eligible borrower use Facility loan proceeds to refinance or pay off an existing loan? 

No.  Under the Main Street Facility, the eligible borrower must commit to refrain from using the loan proceeds to repay other loan balances, with the exception of mandatory principal payments, until the Main Street Facility loan is repaid.

How does the Main Street Facility loan impact existing lines of credit?

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 also 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.

How will the Reserve Bank’s SPV support the loans made by eligible lenders?

The SPV will purchase 95% participations in Facility loans from eligible lenders. Eligible lenders would retain 5% of each loan. The Treasury Department of the Treasury will make a $75 billion equity investment in the single common SPV in connection with the Main Street Facility.

When does the Main Street Facility terminate?

The SPV will cease purchasing participations in eligible loans on September 30, 2020, unless the Federal Reserve Board and the Treasury Department extend the Main Street Facility. The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.