The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides emergency economic stimulus to small businesses and certain eligible recipients in response to the economic distress caused by the COVID-19 pandemic. The Coronavirus Economic Stabilization Act of 2020 (CESA) [Title IV, Subtitle A of the CARES Act] authorizes the U.S. Treasury Secretary to, among other things, establish and administer a program of loans, loan guarantees, and other investments to provide liquidity to eligible businesses related to losses incurred as a result of coronavirus.
On April 9, 2020, pursuant to CESA and Section 13(3) of the Federal Reserve Act (12 U.S.C. § 343(3)), together with the Treasury Secretary under the authority of Section 4003(b)(4) of the CARES Act, the Board of Governors of the Federal Reserve System (the “Board”) and the U.S. Treasury Department (the “Treasury”) established the Main Street Business Lending Program (the “Program”) that provides for up to $600 billion of new or expanded credit facilities to small and medium-sized businesses and nonprofit organizations that were in “sound financial condition” before the onset of the COVID-19 pandemic and issued original term sheets for each facility under the Program.
This update summarizes the terms of the Program as it stands today, describes the main terms and requirements under the Program, and outlines certain matters to be analyzed and considered with respect thereto. Please note this article replaces and supersedes our April 13, 2020, and June 18, 2020, articles on the Program.
The Program now offers five different loan facilities (individually, a “Facility,” and collectively, the “Facilities”):
**On Friday, July 17, 2020, the Board authorized the establishment of the NONLF and the NOELF to provide greater access to credit for nonprofit organizations such as educational institutions, hospitals, and social service organizations; however, the Program is not yet accepting submission of NONLF or NOELF Loans for purchase of a participation interest.
Under each of the Facilities, the Federal Reserve Bank of Boston (FRB Boston) will lend to a special purpose vehicle (SPV), and the SPV will provide funding for each of the Facilities. The Treasury, using funds appropriated under Section 4027 of the CARES Act, will make an initial equity investment of $75 billion in the SPV, and the SPV will be able to purchase up to a total of $600 billion of participations from Eligible Lenders in Eligible Loans under the Facilities.
The following table identifies the key terms and features of the Facilities:
To participate in the Program, both Lenders and Borrowers must make certain certifications and covenants which vary by Facility and are available below.
For Eligible Lenders subject to the federal banking agencies’ capital rule, the regulatory capital treatment of the Eligible Loan (and any credit risk mitigation treatment associated with any collateral securing the Eligible Loan) applies only to the 5% interest retained by the Eligible Lender.
Credit unions that participate in the Program are subject to any capital requirements implemented by the National Credit Union Administration.
The Board and Treasury Secretary have reserved the right to make adjustments to the terms and conditions summarized above. JW will continue to monitor developments and any further guidance issued by the Federal Reserve and the Treasury Secretary.
As noted in prior articles, the facts, laws, and regulations regarding COVID-19 are developing rapidly and frequently changing. Since the date of publication, there may be new or additional information not referenced in this update.