Federal Reserve To Expand Main Street Lending Program To Nonprofits

Troutman Pepper

Pepper Hamilton LLP

[co-authors: Matthew Roberts, Lindsay Austin, Hazen Dempster, James Stevens]*

On June 15, the Federal Reserve Board released proposed term sheets to expand the Main Street Lending Program to nonprofit entities in sound financial condition before the onset of the COVID-19 pandemic. The announcement seeks public comment on the new proposal which grants small and medium-sized nonprofits access to additional liquidity.

The Main Street Lending Program was established by the Federal Reserve Board with the Secretary of the Treasury under the CARES Act. The Federal Reserve Bank of Boston will lend to a special purpose vehicle (SPV) on a recourse basis. The SPV in turn will purchase participations in loans made by eligible lenders under two proposed nonprofit facilities – Nonprofit Organization New Loan Facility (Nonprofit New Loans) and Nonprofit Organization Expanded Loan Facility (Nonprofit Expanded Loans).

Nonprofit New Loans start at $250,000 and are capped at the lesser of $35 million or the nonprofit’s average 2019 quarterly revenue. Nonprofit Expanded Loans start at $10 million and are capped at the lesser of $300 million or the nonprofit’s average 2019 quarterly revenue. Under both facilities, the loans have a term of five years with principal payments deferred for the first two years and interest payments deferred for the first year of the loan. The interest rate under both facilities is LIBOR plus three percent. To be eligible for participation in the program, nonprofits must meet the following criteria:

  • Tax-exempt organization under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code

  • Operational history of at least five years

  • At least one of the following: 15,000 employees or fewer, or 2019 revenues of less than $5 billion

  • 2019 revenues from donations of less than 30% of total 2019 revenues

  • At least 50 employees

  • Created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employed based in the U.S.

  • Endowment of less than $3 billion

  • Ratio of adjusted 2019 EBIDA to unrestricted 2019 operating revenue, greater than or equal to 5%

  • Ratio of (i) liquid assets at the time of loan origination to (ii) average daily expenses over the previous year, equal to or greater than 90 days, and

  • At the time of loan origination, a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 65%.

Public comments are open until Monday, June 22 and can be submitted here.

* Troutman Sanders

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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