• Main Street New Loan Facility to provide new loans to companies with up to 10,000 employees or 2019 revenues of not more than $2.5 billion.
• Main Street Expanded Loan Facility to provide upsizes to loans made prior to April 8, 2020 to companies with up to 10,000 employees or with 2019 revenues of not more than $2.5 billion.
• Expansions of the size and scope of the previously announced Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility and Term Asset-Backed Securities Loan Facility.
• Paycheck Protection Program Lending Facility to provide additional liquidity to participating financial institutions through term loans backed by loans made under the previously announced Paycheck Protection Program.
• Municipal Liquidity Facility to provide assistance to state and local governments to deliver critical services.

In this update, we provide a high-level summary of these programs. Vinson & Elkins is carefully monitoring these developments, and we will be updating our clients as more information becomes available.

Main Street New Loan Facility:

The Main Street New Loan Facility (the “New Main Street Facility”), together with the Main Street Expanded Loan Facility described below, will provide up to $600 billion in funding to facilitate the flow of credit to small and mid-sized businesses. The Fed will commit to lend to a single common special purpose vehicle (the “Common Main Street SPV”) for both facilities that has been equitized with $75 billion by the Department of Treasury. The Common Main Street SPV will purchase 95% participations in eligible loans provided by eligible lenders through September 30, 2020, unless extended. Any business that participates in the New Main Street Facility may not also participate in the Expanded Main Street Facility or the Primary Market Corporate Credit Facility (each as outlined below) but may participate in the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Eligible Lenders:

• A lender is eligible to participate if it is a U.S. insured depository institution, a U.S. bank holding company, or a U.S. savings and loan holding company.

Eligible Borrowers: A business is eligible to participate as a borrower

• If the business has (1) up to 10,000 employees or (2) not more than $2.5 billion in 2019 annual revenues; and
• The business is created or organized in the United States or under the laws of the United States and has significant operations in, and a majority of its employees based in, the United States (a “U.S. Entity”).

Eligible Loans: An eligible loan is an unsecured term loan made by an eligible lender to an eligible borrower that was “originated” on or after April 8, 2020 with the following terms:

• Loan amount of (i) not less than $1 million and (ii) not more than the lesser of (A) $25 million or (B) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”);
• Term of four years;
• No principal or interest payments for one year after the loan is made;
• Interest rate of Secured Overnight Financing Rate (“SOFR”) plus 250-400 basis points;
• Origination fee between 95-195 basis points; and
• Prepayable at any time without premium or penalty.

Attestations Required by Borrower Include:

• The borrower will not use the loan proceeds to repay other loan balances;
• The borrower will not repay other debt of equal or lower priority, with the exception of mandatory principal payments, prior to repayment in full of the New Main Street Facility loan;
• The borrower will not seek to cancel or reduce any of its outstanding lines of credit with any lender;
• The borrower requires financing due to the exigent circumstances presented by the COVID-19 pandemic and will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan;
• The borrower meets the EBITDA leverage condition specified above;
• From the date of the loan until 12 months after the loan is repaid (the “covered period”), the borrower will comply with the following restrictions:
  • The borrower will not repurchase its or its parents’ equity securities listed on a national securities exchange (except to the extent required under a pre-existing contractual obligation);
  • The borrower will not make a dividend or capital distribution in respect of its common stock;
  • Any officer or employee whose total compensation exceeded $425,000 in 2019 may not exceed such amount during any 12 consecutive months during the covered period, and severance pay or other benefits upon termination of employment of such officer/employee may not exceed twice such amount during the covered period; and
  • Any officer or employee whose total compensation exceeded $3,000,000 in 2019 may not exceed $3,000,000 plus 50% of such excess compensation during any 12 consecutive months during the covered period;
• The borrower meets the eligibility requirements for the New Main Street Facility, including in light of the conflicts of interest limitations in the CARES Act; and
• Such other attestations as may be required by applicable statutes and regulations.

Main Street Expanded Loan Facility:

The Main Street Expanded Loan Facility is also intended to facilitate lending to small and medium-sized businesses by allowing them to upsize certain of their existing loans that were “originated” before April 8, 2020. As with the New Main Street Facility, the Common Main Street SPV will purchase 95% participations in the upsized tranche of eligible loans provided by eligible lenders through September 30, 2020, unless extended.

Eligibility criteria, terms and attestations for the Main Street Expanded Loan Facility are identical to those for the New Main Street Facility, except that:

• The upsized tranche amount may not exceed the lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt and (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA; and
• The origination fee is 100 basis points on the principal amount of the upsize tranche.

Any business that participates in the Main Street Expanded Facility may not also participate in the New Main Street Facility or the Primary Market Corporate Credit Facility (as outlined below) but may participate in the PPP.

Primary Market Corporate Credit Facility:

Under the previously announced Primary Market Corporate Credit Facility (“PMCCF”), the Federal Reserve Bank of New York will lend to a special purpose vehicle (the “Common PMCCF/SMCCF SPV”) on a recourse basis. The Common PMCCF/SMCCF SPV will (i) purchase qualifying corporate bonds as the sole investor in a bond issuance and (ii) purchase up to 25% of the syndicated loans or bonds of eligible issuers in an issuance with other investors. The Department of the Treasury will make a $75 billion equity investment in the Common PMCCF/SMCCF SPV to support both the PMCCF and the previously announced Secondary Market Corporate Credit Facility described below (“SMCCF”). The combined size of the PMCCF and the SMCCF will be up to $750 billion and the initial allocation of the equity will be $50 billion toward the PMCCF and $25 billion toward the SMCCF. The PMCCF will cease purchasing eligible assets no later than September 30, 2020, unless extended.

Eligible Assets:

• With respect to the purchase of 100% of an issuance, corporate bonds that are issued by an eligible issuer (as outlined below) and have a maturity of four years or less.
• With respect to the purchase of a portion (not to exceed 25%) of an issuance, syndicated loans or bonds that are issued by an eligible issuer and have a maturity of four years or less.

Eligible Issuers:

• The issuer must be a U.S. Entity;
• The issuer must be rated at least BBB-/Baa3 as of March 22, 2020, by a nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020. Issuers that were rated at least BBB-/Baa3 as of March 22, 2020, but are subsequently downgraded, must be rated at least BB-/Ba3 at the time the PMCCF makes a purchase. If rated by multiple NRSROs, the issuer must be rated at least BB-/Ba3 by two or more NRSROs (subject to review by the Fed);
• The issuer may not be an insured depository institution or depository institution holding company under the Dodd-Frank Act;
• The issuer must not have received specific support pursuant to the CARES Act or any subsequent federal legislation; and
• The issuer must satisfy the conflicts-of-interest requirements of the CARES Act.

Pricing Terms:

• Pricing for corporate bonds will be informed by market conditions for the specific issuer, plus a 100 basis point facility fee.
• Pricing for portions of syndicated loans or bonds will be the same pricing other syndicate members receive, plus a 100 basis point facility fee on the PMCCF’s share of the syndication.

Limits Per Issuer:

• Issuers may approach the PMCCF to refinance outstanding debt three months ahead of the maturity date. Issuers may also approach the PMCCF at any time to issue additional debt so long as their rating is reaffirmed at BB-/Ba3 or above with the additional debt by each NRSRO that rates the issuer.
• The maximum amount of outstanding bonds or loans of an eligible issuer that borrows from the PMCCF may not exceed 130% of the issuer’s maximum outstanding bonds and loans on any day between March 22, 2019 and March 22, 2020.
• The maximum amount of instruments that the PMCCF and the SMCCF combined will purchase with respect to any eligible issuer is capped at 1.5% of the combined potential size of the PMCCF and the SMCCF.

Secondary Market Corporate Credit Facility:

Under the SMCCF, the Federal Reserve Bank of New York will lend on a recourse basis to the Common PMCCF/SMCCF SPV. The Common PMCCF/SMCCF SPV will purchase in the secondary market corporate debt issued by eligible issuers. The Common PMCCF/SMCCF SPV will purchase eligible individual corporate bonds as well as eligible corporate bond portfolios in the form of exchange-traded funds (“ETFs”). The SMCCF will cease purchasing eligible assets no later than September 30, 2020, unless extended.

Eligible Assets:

• Corporate bonds that, at the time of the purchase by the SMCCF, (i) were issued by an eligible issuer, (ii) have a remaining maturity of five years or less and (iii) were sold to the SMCCF by an eligible seller.
• U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. corporate bonds. The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high yield corporate bonds.

Eligible Issuers:

• The eligibility requirements for issuers under the SMCCF are the same as under the PMCCF.

Eligible Sellers:

• Each institution from which the SMCCF purchases securities must be a U.S. Entity and must also satisfy the conflicts-of-interest provisions of the CARES Act.

Pricing Terms:

• The SMCFF will purchase eligible corporate bonds at fair market value in the secondary market.
• The SMCCF will avoid purchasing shares of eligible ETFs when they trade at prices that materially exceed the estimated net asset value of the underlying portfolio.

Limits Per Issuer:

• The maximum amount of bonds that the SMCCF will purchase from the secondary market of any eligible issuer is capped at 10% of the issuer’s maximum bonds outstanding on any day between March 22, 2019 and March 22, 2020. The SMCFF may not purchase shares of a particular ETF if after such purchase the SMCFF would hold more than 20% of that ETF’s outstanding shares.
• The maximum amount of instruments that the PMCCF and the SMCCF combined will purchase with respect to any eligible issuer is capped at 1.5% of the combined potential size of the PMCCF and the SMCCF.

Term Asset-Backed Securities Loan Facility:

The previously announced Term Asset-Backed Securities Loan Facility (“TALF”) will initially provide up to $100 billion in loans to meet the needs of consumers and businesses by facilitating the issuance of asset-backed securities (“ABS”) and will serve as a funding backstop to facilitate the issuance of eligible ABS. Under the TALF, the Federal Reserve Bank of New York will lend to a special purpose vehicle (the “TALF SPV”) on a recourse basis. The Department of Treasury will make an equity investment of $10 billion in the TALF SPV. No new credit extensions will be made after September 30, 2020, unless extended.

Eligible Borrowers: A business is eligible to participate as a borrower if it:

• is a U.S. Entity;
• owns eligible collateral (as outlined below);
• maintains an account relationship with a primary dealer; and
• satisfies the conflicts of interest provisions of the CARES Act.

Eligible Collateral: Eligible collateral includes U.S. dollar-denominated cash ABS that (i) have a credit rating in the highest long-term or, in the case of non-mortgage backed ABS, the highest short term investment-grade rating category from at least two NRSROs and (ii) do not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. All or substantially all of the credit exposures underlying eligible ABS must have been originated by a U.S. Entity, and the issuer of eligible collateral must be a U.S. Entity. Eligible ABS must be issued on or after March 23, 2020 (with the exception of certain commercial mortgage-backed securities which will be eligible ABS only if issued before March 23, 2020) and the underlying credit exposures must be one of the following:

• Auto loans and leases;
• Student loans;
• Credit card receivables (consumer and corporate);
• Equipment loans and leases;
• Floorplan loans;
• Insurance premium finance loans;
• Certain small business loans that are guaranteed by the Small Business Administration;
• Leveraged loans; or
• Commercial mortgages.

*Other asset classes may be considered in the future.

**Single-asset single borrower commercial mortgage-backed securities and commercial real estate collateralized loan obligations are not eligible collateral.

*** Only static collateralized loan obligations will be eligible collateral.

Eligible collateral will not include ABS that bear interest payments that step up or step down to predetermined levels on specific dates. In addition, the underlying credit exposures of eligible collateral must not include exposures that are themselves cash ABS or synthetic ABS. To be eligible collateral, all or substantially all of the underlying credit exposures must be newly issued, except for legacy commercial mortgage-backed securities.

Pricing Terms:

• For collateralized loan obligations, the interest rate will be 150 basis points over the 30-day average SOFR.
• For Small Business Administration Pool Certificates (Section 7(a) loans), the interest rate will be the top of the federal funds target range plus 75 basis points.
• For Small Business Administration Development Company Participation Certificates (Section 504 loans), the interest rate will be 75 basis points over the 3-year federal funds overnight index swap (“OIS”) rate.
• For all other eligible ABS with underlying credit exposures that do not have a government guarantee, the interest rate will be 125 basis points over the 2-year OIS rate for securities with a weighted average life less than two years, or 125 basis points over the 3-year OIS rate for securities with a weighted average life of two years or greater.
• There will also be an administrative fee of 10 basis points of the loan amount on the settlement date for collateral.
• Each TALF loan is pre-payable in whole or in part at the option of the borrower, however, substitution of the collateral is not allowed.
• Each loan will have a maturity of three years.

More detailed terms and conditions regarding the TALF are to be provided at a later date and will be primarily based off of the terms and conditions used for the 2008 TALF.

Paycheck Protection Program Lending Facility:

The Paycheck Protection Program Lending Facility (the “PPP Lending Facility”) is intended to facilitate lending by eligible depository institutions that originate loans to small businesses under the PPP. Under the PPP Lending Facility, the Federal Reserve Banks will lend to eligible depository institutions on a non-recourse basis, taking PPP loans as collateral. The principal amount of such loans will be equal to the principal amount of the PPP loans pledged as collateral to secure the extension of credit. Eligible depository institutions may participate in the PPP Lending Facility through the Federal Reserve Banks in whose district the eligible depository institution is located. No new credit will be extended under the PPP Lending Facility after September 30, 2020, unless extended.

Municipal Liquidity Facility:

The Municipal Liquidity Facility (the “Municipal Facility”) will support lending to (i) U.S. states and the District of Columbia, (ii) U.S. cities with a population exceeding 1 million residents and (iii) U.S. counties with a population exceeding 2 million residents. Eligible issuers may use proceeds derived from eligible notes to help manage the impact of a variety of COVID-19 related issues: (i) income tax deferrals resulting from an extension of an income tax filing deadline, (ii) potential reductions of tax and other revenues, (iii) increases in expenses related to COVID-19 and (iv) requirements for the payment of principal and interest on obligations of the relevant city, state or county. Under the Municipal Facility, a Federal Reserve Bank will lend to an SPV on a recourse basis. The SPV will purchase eligible notes directly from eligible issuers. The Department of Treasury will make an initial equity investment of $35 billion in the SPV and the SPV will have the ability to purchase up to $500 billion of eligible notes. The SPV will cease purchasing eligible notes on September 30, 2020, unless extended.

The following associates contributed to the development of this article: Michael Makhotin and Matt Usdin.