A second look required for the Main Street Lending Facilities

While the Main Street Lending Program (MSLP) has yet to be launched with the registration of lenders or the acceptance of loan applications, the Federal Reserve released changes on June 8, 2020, to expand the three lending facilities, which are:

• Main Street New Loan Facility (MSNLF): A secured or unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower originating after April 24, 2020. The loans cannot be subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt.
• Main Street Expanded Loan Facility (MSELF): A secured or unsecured term loan or revolving credit facility made by an Eligible Lender(s) to an Eligible Borrower that was originated on or before April 24, 2020, and that has a remaining maturity of at least 18 months (accounting for any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing), provided that the upsized tranche of the loan is a term loan.
• Main Street Priority Loan Facility (MSPLF): A secured or unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated after April 24, 2020; the leverage allowed on these loans is higher than on the other two facilities. An MSPLF loan can be used to refinance existing loans owed to other lenders.

While many of the terms make the size and repayment structure more attractive to a wider range of borrowers, the certifications and covenants related to executive compensation, dividend payments, and other restrictions remain.

Depending on your situation, these changes may require a second look at the MSLP. Companies may find these loan programs advantageous to build near-term cash reserves, free up working capital, and restructure balance sheets. By doing so, companies may support production ramp-up and sub-tier suppliers, expand current product lines and customer bases, and take advantage of distressed merger and acquisition targets.

MSLP changes to note

Companies investigating the MSLP will see these major differences from the original term sheets:

• Maximum term: 5 years (previously, 4 years; there’s no penalty for early payment)
• Minimum loan size: MSNLF and SMPLF reduced to $250,000 (previously, $500,000); MSELF remains at $10 million
• Maximum loan size: The calculation is now the lesser amount of leverage calculations (which remained the same) and now, these new maximums for the MSNLF $35 million (vs. $25 million); MSPLF $50 million (vs. $25 million); and MSELF $300 million (vs. $200 million)
• Principal deferral: 2 years for all facilities (previously 1 year)
• Interest deferral: 1 year for all facilities (no change)
• Principal payment schedule: MSNLF 15%, 15%, 70% in Years 3 through 5, vs. previously equal 33% payments each year; MSELF and MSPLF 15%, 15%, 70% in Years 3 through 5, vs. previously 15%, 15%, and 70% in Years 2 through 4
• Interest rate: LIBOR +3%, no change
• Risk retention by the lender: MSPLF reduced to 5% from 15%; the other two facilities remain at 5%

Next steps

The Federal Reserve hasn’t provided a launch date. The first step is registering the eligible lenders and issuing the application forms. Plante Moran will closely monitor the Federal Reserve and the U.S. Treasury announcements.