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Federal Reserve Board Releases Term Sheets for Nonprofit Organization Loan Facilities Under Main Street Lending Program

On Friday, July 17, 2020, the Federal Reserve Board released term sheets for the nonprofit loan facilities (the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF) (each a Facility, and together with the Facilities)), that were created as part of the Main Street Lending Program (MSLP), which we originally detailed in our April 9 client alert, and updated in our May 4 and June 19 client alerts.

As noted in these alerts, the MSLP is an effort by the Board to direct credit towards small and medium-sized businesses harmed by the COVID-19 pandemic. The term sheets that were released on Friday modified the previously proposed terms for the Facilities by providing greater access to credit for nonprofit organizations such as educational institutions, hospitals, and social service organizations. Consistent with the proposed draft terms for the Facilities that were previously circulated, the minimum loan size is $250,000 for NONLF loans, $10 million for NOELF loans, and the maximum loan size is $35 million for NONLF loans or $300 million for NOELF loans.

The economic terms of the loans under these Facilities (interest rate, deferral of principal and interest payments, and five-year term) mirror those for MSLP business loans and are summarized in the chart that follows. However, the Facilities fundamentally differ from the other MSLP facilities in how the loan sizing metrics are determined. A summary of the terms for the Facilities is set forth below.

Eligible Borrowers

Under the NOELF and the NONLF, Eligible Borrowers are defined to include a nonprofit organization under Internal Revenue Code Section 501(c)(3) or a nonprofit veteran’s organization under Internal Revenue Code Section 501(c)(19), provided the nonprofit has been in continuous operation since January 1, 2015. Significantly, the Federal Reserve has noted via footnote in the term sheets that it may use discretion in including other types of nonprofits organizations not included in Sections 501(c)(3) and 501(c)(19) within the definition of Eligible Borrower. We suspect that many nonprofit organizations defined in other sections of the Internal Revenue Code will request that this definition be broadened.

In addition, the nonprofit must meet the following requirement to be an Eligible Borrower:

  1. It is not an Ineligible Business (a type of business listed in 13 CFR 120.110(b)-(j) and (m)-(s), as modified by regulations implementing the Paycheck Protection Program established by section 1102 of the CARES Act on or before April 24, 2020);
  2. It has 15,000 employees or fewer, or it had 2019 annual revenues of $5 billion or less;
  3. It has at least 10 employees;
  4. It has an endowment of less than $3 billion;
  5. It has non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019;
  6. It has a ratio of adjusted 2019 earnings before interest, depreciation, amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 2%;
  7. It has a ratio (expressed as a number of days) of (i) liquid assets at the time of loan origination [of the upsized tranche, for the NOELF] to (ii) average daily expenses over the previous year, equal to or greater than 60 days;
  8. At the time of loan origination [of the upsized tranche, for NOELF] has 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 55%;
  9. It is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States;
  10. Does not also participate in the other nonprofit organization loan Facility, the MSNLF, the MSPLF, the MSELF, the Primary Market Corporate Credit Facility, or the Municipal Liquidity Facility; and
  11. It has not received specific support pursuant to the CARES Act.[1]

Links to the term sheets for the NONLF and NOELF can be found here (NONLF) and here (NOELF).

Main Street Lending Program Nonprofit Loan Options Nonprofit New Loans Nonprofit Expanded Loans
Term 5 years 5 years
Minimum Loan Size $250,000 $10M
Endowment Cap $3 billion $3 billion
Years in Operation At least 5 years At least 5 years
Eligibility Criteria (See Term Sheets for More Detail)
  • Minimum employees 10 (previously 50)
  • Total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019 (previously 70% of revenues)
  • 2019 operating margin of 2% or more (previously 5%)
  • Current days cash on hand 60 days (previously 90 days)
  • Current debt repayment capacity—ratio of cash, investments, and other resources to outstanding debt and certain other liabilities—of greater than 55% (previously 65%)
  • Minimum employees 10 (previously 50)
  • Total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019 (previously 70% of revenues)
  • 2019 operating margin of 2% or more (previously 5%)
  • Current days cash on hand 60 days (previously 90 days)
  • Current debt repayment capacity—ratio of cash, investments, and other resources to outstanding debt and certain other liabilities—of greater than 55% (previously 65%)
Maximum Loan Size The lesser of $35M, or the borrower's average 2019 quarterly revenue The lesser of $300M, or the borrower's average 2019 quarterly revenue
Risk Retention 5% 5%
Principal Repayment Principal deferred for two years; years 3-5: 15%, 15%, 70% Principal deferred for two years; years 3-5: 15%, 15%, 70%
Interest Payments Deferred for one year Deferred for one year
Rate LIBOR + 3% LIBOR + 3%

[1] For the avoidance of doubt, Nonprofit Organizations that have received PPP loans are permitted to borrow under the Facilities, provided that they are Eligible Borrowers.

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