On July 31, 2020, the Federal Reserve Bank of Boston (the “Reserve Bank”) released amended form documents and certifications (the “Form Documents”) for the Main Street Lending Program (the “Program”) to accommodate the Nonprofit Organization New Loan Facility (the “NONLF”) and Nonprofit Organization Expanded Loan Facility (the “NOELF” and together with the NONLF, the “Nonprofit Facilities”). Additionally, on July 31st and August 6th, respectively, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) released updated frequently asked questions (the “Updated FAQs”) for the Nonprofit Facilities. In this blog, we provide an overview of the Form Documents, to familiarize lenders and nonprofit organizations with the overall structure of the Nonprofit Facilities.
For a detailed discussion of the Nonprofit Facilities, please see our previous blogs entitled “Federal Reserve Considers Expanding the Main Street Lending Program to Accommodate Nonprofit Organizations – Comments Welcome” (“MSLP Blog 1”), “Federal Reserve Approves Nonprofit Organizations for Main Street Lending Program and Releases Updated Term Sheets” (“MSLP Blog 2”) and “Federal Reserve Releases FAQs for Nonprofit Lending Facilities under Main Street Lending Program” (“MSLP Blog 3” and collectively with MSLP Blog 1 and MSLP Blog 2, the “Previous MSLP Blogs”) which can be found on our website: https://www.apslaw.com/its-your-business/. Capitalized terms not otherwise defined in this blog have the meanings set forth in the Previous MSLP Blogs.
Background
The Federal Reserve established the Program to support lending to small and medium-sized for-profit businesses and nonprofit organizations (the latter being the focus of the Nonprofit Facilities). The Program is authorized under the CARES Act and is administered by the Reserve Bank. To effectuate the Program, the Reserve Bank has set up a special purpose vehicle, MS Facilities LLC (the “SPV”), to purchase a 95% participation interest in newly-originated Eligible Loans under the NONLF or Upsized Tranches of existing Eligible Loans under the NOELF, in each instance, originated by Eligible Lenders for the benefit of Eligible Borrowers.
Eligible Lenders may, but are not required to, fund the Eligible Loan before the SPV has committed to purchase the participation interest. Alternatively, as a condition precedent to funding the Eligible Loan, the Eligible Lender may require a commitment letter from the SPV evidencing the SPV’s binding commitment to purchase the participation interest after the funding of the Eligible Loan.
The Reserve Bank is providing the Form Documents to enable Eligible Lenders and Eligible Borrowers to access the Nonprofit Facilities. As the Nonprofit Facilities are not yet operational, however, the Form Documents remain subject to further updating by the Reserve Bank. The Form Documents will be governed by the laws of the State of New York.
Main Street Lender Portal
Eligible Lenders interested in participating in the Nonprofit Facilities must create a lender account in the Federal Reserve’s online Main Street Lender Portal (the “Portal”). To submit a request for the SPV to purchase a participation interest in an Eligible Loan (a “Participation Request”), the Eligible Lender must: (i) upload to the Portal the Eligible Borrower’s required financial information, as particularly described in the term sheets and Updated FAQs for the Nonprofit Facilities, and (ii) fill in certain information regarding the Eligible Loans in data fields provided by the Portal, including:
- The name and contact information for the Eligible Lender and Eligible Borrower;
- The type of Nonprofit Facility (NONLF versus NOELF);
- The principal amount of the Eligible Loan;[1]
- Other details of the Eligible Loan (e.g., origination date, maturity date, interest rate, principal amortization schedule, collateral (if any), guarantors (if any) and default rate);
- Whether: (i) the Eligible Loan is being provided to the Eligible Borrower by a single Eligible Lender (a “Bilateral Facility”) or (ii) the Eligible Loan is being provided to the Eligible Borrower by a group of lenders (a syndicate) including the Eligible Lender (a “Syndicated Facility”);
- The date of the underlying credit agreement between the Eligible Lender and the Eligible Borrower governing the Eligible Loan (the “Credit Agreement”);
- The name of the administrative agent that will act on behalf of the lenders (the “Administrative Agent”) in connection with an Eligible Loan that is or may become a Syndicated Facility (see “Co-Lender Agreement” below); and
- The fee for elevating a participation interest in an Eligible Loan to a full assignment of legal title (the “Elevation Transfer Fee”) (see “Assignment and Assumption Agreement (a.k.a Assignment Executed in Blank)” below).[2]
The applicable information is then auto-populated into the Form Documents consisting of the Transaction-Specific Terms portion of the Participation Agreement, the Lender Transaction-Specific Certifications and Covenants and the Servicing Agreement, which are discussed below. These Form Documents will be presented to the Eligible Lender in the Portal for execution at a later stage of the Participation Request process.
Credit Agreement
The Form Documents address the Eligible Lender’s sale of the participation interest in the Eligible Loan to the SPV. For the Eligible Loan itself, the Updated FAQs emphasize that Eligible Lenders should use their own loan documentation in preparing the Credit Agreement, related promissory notes and security documents (if applicable). However, to assist Eligible Lenders in preparing the Credit Agreement, the Updated FAQs include (as Appendices A, B and C thereof):
- A checklist of term sheet requirements for the Nonprofit Facilities that must be included in the Credit Agreement in order for the SPV to purchase the participation interest;
- Model covenants to address certain requirements of the Nonprofit Facilities (e.g., priority and security rights, mandatory prepayment upon a material breach of the Borrower Certifications and Covenants (discussed below); cross-default and cross-acceleration provisions and financial reporting requirements); and
- A list of the financial information that Eligible Borrowers must provide to the Eligible Lenders on an ongoing basis until the maturity date of the Eligible Loan.
Eligible Lender Registration Required Documentation
Main Street Lending Program Lender Registration Certifications and Covenants
In this document, the Eligible Lender provides certain certifications and agrees to certain covenants relating to its eligibility to participate in the NONLF or the NOELF, as applicable, including matters relating to solvency and conflicts of interest, as required by Section 13(3) of the Federal Reserve Act, the CARES Act and the Federal Reserve’s Regulation A.
Lender Wire Instructions Direction
In this document, the Eligible Lender provides its wire instructions to the SPV for the payment of the purchase price of the SPV’s participation interest and any other required fees associated with the participation of the Eligible Loan.
Transaction-Specific Required Documentation
Participation Agreement
The Participation Agreement provides for the SPV’s purchase of its participation interest in the Eligible Loan from the Eligible Lender. It is comprised of two documents, the Transaction-Specific Terms and the Standard Terms and Conditions. The Eligible Lender signs the Transaction-Specific Terms, which incorporate by reference the Standard Terms and Conditions.
The Transaction-Specific Terms provide the details of the applicable Eligible Loan and the SPV’s participation interest. In contrast, the Standard Terms and Conditions provide contract terms for the SPV’s purchase of participation interests in Eligible Loans generally, including, but not limited to: (i) conditions precedent; (ii) the Eligible Lender’s and SPV’s representations and warranties; (iii) indemnification provisions; (iv) required costs and expenses; (v) payment mechanics; (vi) notice requirements; (vii) the SPV’s elevation and transfer rights with respect to the participation interest; (viii) voting rights; and (ix) the exercise of rights and remedies.
The date of the Participation Agreement is left blank at the time the Eligible Lender signs the Transaction-Specific Terms. The SPV will fill in the date of the Participation Agreement when it countersigns the document.
Borrower Certifications and Covenants
In this document, the Eligible Borrower provides certain certifications and agrees to certain covenants relating to its eligibility to participate in the NONLF or the NOELF, as applicable, as required by Section 13(3) of the Federal Reserve Act, the CARES Act, the Federal Reserve’s Regulation A and the term sheets for the NONLF or the NOELF, as applicable. The certifications and covenants vary (and a different form document is provided) depending on whether the Eligible Loan is a part of the NONLF or the NOELF.
The Eligible Borrower signs the Borrower Certifications and Covenants outside of the Portal and the Eligible Lender uploads it to the Portal with the remaining Transaction-Specific Required Documents as part of its Participation Request. Modifications and deletions to the Borrower Certifications and Covenants are not permitted.
Lender Transaction-Specific Certifications and Covenants
In this document, the Eligible Lender certifies that the Eligible Borrower and the Eligible Loan satisfy the requirements for the NONLF or the NOELF, as applicable, and agrees to certain covenants derived from the term sheet requirements for the NONLF and NOELF, as applicable. The certifications and covenants vary (and a different form document is provided) depending on whether the Eligible Loan is a part of the NONLF or the NOELF.
Assignment and Assumption Agreement (a.k.a Assignment Executed in Blank)
Subject to the conditions of the Participation Agreement, the Assignment and Assumption Agreement permits the SPV to elevate its interest in the Eligible Loan from a participation interest to a full assignment of legal title from the Eligible Lender, as assignor, to the SPV or a third party transferee, as assignee. Upon such elevation, the SPV (or the third party transferee) would be considered an additional lender with respect to the Eligible Loan.
The Eligible Lender completes the Assignment and Assumption Agreement by filling in certain data fields in the form document. The Eligible Lender and the Eligible Borrower sign the Assignment and Assumption Agreement with blanks for the SPV to fill in the name of the assignee, the amount of the assigned interest and the effective date of the assignment, in the event the SPV exercises its right to elevate its participation interest into an assignment. As such, the Assignment and Assumption Agreement serves as an advance consent by the Eligible Lender and the Eligible Borrower to such elevation or elevation and transfer.
The body of the Assignment and Assumption Agreement provides the details of the applicable Eligible Loan and the SPV’s participation interest therein and assignment thereof. In contrast, Appendix I to the Assignment and Assumption Agreement provides Standard Terms and Conditions (which are incorporated by reference in the Assignment and Assumption Agreement) governing assignments generally, including representations and warranties of the assignor and assignee and payment terms.
The SPV requires the Eligible Lender to deliver the Assignment and Assumption Agreement and the Co-Lender Agreement (discussed below) in connection with an Eligible Loan that is a Bilateral Facility. As noted above, upon an elevation, the SPV (or the third party transferee), would be considered an additional lender with respect to the Eligible Loan. Such an elevation would effectively transform a Bilateral Facility into a Syndicated Facility. However, Credit Agreements for Bilateral Facilities typically lack customary syndicated loan provisions, including agency, assignment, voting, sharing and other multi-lender provisions (the “Multi-Lender Mechanics”) found in Syndicated Facilities. The Assignment and Assumption Agreement and Co-Lender Agreement supplement those Credit Agreements by adding the missing Multi-Lender Mechanics.
The SPV also requires the Eligible Lender to deliver an assignment document executed in blank in connection with an Eligible Loan that is a Syndicated Facility. Rather than the Assignment and Assumption Agreement, however, the form of the assignment document would follow the Multi-Lender Mechanics included in the Credit Agreement for the Syndicated Facility, subject to the addition of certain provisions required by the SPV.
The Eligible Lender and the Eligible Borrower sign the Assignment and Assumption Agreement outside of the Portal and the Eligible Lender uploads it to the Portal as part of its Participation Request. The signature of the assignee is left blank until the SPV elevates its participation interest in the Eligible Loan to an assignment. Modifications and deletions to the Assignment and Assumption Agreement are not permitted.
Co-Lender Agreement
Similar to an intercreditor agreement, the Co-Lender Agreement adds Multi-Lender Mechanics to an Eligible Loan that was formerly a Bilateral Facility but has become a Syndicated Facility through the SPV’s execution and delivery of the Assignment and Assumption Agreement. The Co-Lender Agreement is not required for an Eligible Loan that is a Syndicated Facility with Multi-Lender Mechanics.
Like the Participation Agreement, the Co-Lender Agreement is comprised of two documents, the Transaction-Specific Terms and the Standard Terms and Conditions. The Eligible Lender and the Eligible Borrower sign the Transaction-Specific Terms, which incorporate by reference the Standard Terms and Conditions. The Transaction-Specific Terms provide the details of the applicable Eligible Loan and contact information for the lenders and the Standard Terms and Conditions provide the Multi-Lender Mechanics.
The Co-Lender Agreement provides for the appointment of the Eligible Lender as the Administrative Agent, acting on behalf of all of the lenders in respect of the Eligible Loan. The appointment is effective in the event the SPV elevates its participation interest into an assignment, such that there will be more than one lender for the Eligible Loan.
The Eligible Lender completes the Transaction-Specific Terms by filling in certain data fields with information of the type described under “Main Street Lender Portal” above. Additionally, the Eligible Lender must add its contact information and wire instructions in its capacity as Administrative Agent for the Eligible Loan.
The Eligible Lender, in its respective capacities as Eligible Lender and Administrative Agent, and the Eligible Borrower sign the Transaction-Specific Terms outside of the Portal and the Eligible Lender uploads it to the Portal as part of its Participation Request. Blanks are left for the SPV to fill in the agreement date and the details of the new lender, and space is reserved for the new lender to sign the document, in the event the SPV exercises its right to elevate its participation interest into an assignment. Modifications and deletions to the Co-Lender Agreement are not permitted.
Servicing Agreement
Under the Servicing Agreement, the Eligible Lender administers the Eligible Loan, performs the duties of Administrative Agent (if applicable) and provides ongoing reporting with respect to the Eligible Borrower for the benefit of the SPV. In exchange for these services, the SPV pays the Eligible Lender an annual servicing fee equal to 25 basis points of the principal amount of the SPV’s participation interest in the Eligible Loan. The Servicing Agreement includes, among other terms, the representations and warranties of the Eligible Lender and the SPV, payment provisions, termination rights (including termination by the SPV for cause) and a schedule of the Eligible Lender’s reporting obligations. The Eligible Lender completes the Servicing Agreement by filling in certain data fields in the form document.
Concluding Thoughts
The Form Documents are posted on the Reserve Bank’s website: https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program/information-for-lenders/docs.aspx. Eligible Lenders and Eligible Borrowers should consult with their legal counsel in reviewing the Form Documents. We will continue to monitor developments with respect to the Nonprofit Facilities and provide further updates as warranted. Since a comprehensive analysis of the requirements of each Form Document is beyond the scope of this blog, readers are encouraged to contact Neal Pandozzi at npandozzi@apslaw.com with any questions.
[1] Applying the SPV’s 95% participation percentage to this amount, the Portal will auto-populate the Participation Agreement with the purchase price of the SPV’s participation interest in the Eligible Loan.
[2] For an Eligible Loan that is a Bilateral Facility, the Elevation Transfer fee is $3,500. For an Eligible Loan that is a Syndicated Facility, the Elevation Transfer Fee is the fee set forth in the applicable Credit Agreement (but not in excess of $5,000).
