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Main Street New Loan Facility and Main Street Expanded Loan Facility

Below is a summary of the Main Street New Loan Facility and the Main Street Expanded Loan Facility, details of which were released by the Federal Reserve this morning. Arent Fox will continue to update, and expand on, this summary as more information becomes available.

Aggregate Funds Available

A Federal Reserve Bank will lend up to $600 billion to a Special Purpose Vehicle (SPV), which will in turn purchase participations in either new loans under the Main Street New Loan Facility (MSNLF) or upsized tranches of existing loans under the Main Street Expanded Loan Facility (MSELF).

The SPV will purchase a 95% participation in MSNLF loans and MSELF upsized tranches at par value (the remaining 5% must be maintained by the Lender). The SPV and the Lender will share risk on a MSNLF loan or a MSELF upsized tranche on a pari passu basis.

Eligible Lenders

US insured depository institutions, US bank holding companies, and US savings and loan holding companies.

Eligible Borrowers

Businesses that (i) have up to 10,000 employees or up to $2.5 billion in 2019 annual revenues, (ii) are created or organized in the US or under US law, and (iii) have significant operations in and a majority of their employees based in the US. The Federal Reserve does not define “significant” operations or provide any clarity on how US subsidiaries of foreign enterprises will be treated. Arent Fox will continue to monitor guidance that might clarify these issues.

Businesses are limited to participating in only one of the MSNLF, the MSELF, or the Primary Market Corporate Credit Facility.

Eligible Loans

Main Street New Loan Facility:  provides funding for an unsecured term loan that (i) was originated on or after April 8, 2020, (ii) has a minimum loan size of $1 million and a maximum loan size that is the lesser of (a) $25 million or (b) an amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt, does not exceed 4x EBITDA.

Main Street Expanded Loan Facility:  provides funding for an upsized tranche of an existing term loan that was originated before April 8, 2020.  The upsized tranche must have a minimum loan size of $1 million and a maximum loan size that is the lesser of (a) $150 million, (b) 30% of the Borrower’s existing outstanding and committed but undrawn bank debt, or (c) an amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt, does not exceed 6x EBITDA.

If any collateral secures an upsized tranche (whether that collateral was pledged under the original terms of the underlying loan or at the time the loan was increased by the upsized tranche), the collateral will secure the participation on a pro-rata basis.

Key Loan Terms

The following terms apply to both MSNLF loans and MSELF upsized tranches:

1. Term. Four-year maturity.

2. Interest Rate. Adjustable-rate of Secured Overnight Financing Rate (SOFR) plus 2.50 – 4.00%.

3. Principal and Interest Payment Deferral. Both principal and interest will be deferred for one year.

Certifications

1. Exigent Circumstances/Maintenance of Payroll and Employees. The Borrower must attest that it requires financing due to the exigent circumstances presented by COVID-19, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.

2. No Dividends or Equity Repurchases. The Borrower must certify that it will not pay dividends with respect to its common stock or repurchase equity security of the Borrower or any parent company that is listed on a national securities exchange until the date that is 12 months after which the loan is no longer outstanding, except to the extent contractually committed as of the date of enactment of the CARES Act.

3. Other Certifications.

a. The Lender must attest that it will not allow the loan proceeds to be used to repay or refinance existing loans or lines of credit made by the Lender to the Borrower.

b. The Borrower must attest that it will not use the loan proceeds to repay other loan balances and will not use any funds to repay other debt of equal or lower priority, with the exception of mandatory principal payments, until the MSNLF or MSELF loan is repaid in full.

c. The Lender must attest that it will not cancel or reduce existing lines of credit to the Borrower. The Borrower must attest that it will not seek to cancel or reduce any outstanding lines of credit with any lender.

d. The Borrower must attest that it meets the EBITDA leverage covenants described in the “Eligible Loans” section above.

e. The Borrower must attest that it will meet the Executive Compensation Restrictions described below.

f. The Lender and the Borrower must each attest that it is eligible to participate in this program. The Borrower must attest that the President, Vice President, heads of any Executive department, any Member of Congress, or their respective immediate family members, do not control more than 20% of the equity of the Borrower.

The CARES Act also included certifications as to the outsourcing of jobs, union contracts, and union neutrality, which are not referenced in the details released by the Federal Reserve this morning.  Arent Fox will continue to monitor guidance that might clarify these issues.

Executive Compensation Restrictions

Officers and employees of the Borrower that received total compensation more than $425,000 in 2019 are not eligible for increases in total compensation above the 2019 level until one year after the loan is repaid.

Until one year after the loan is repaid, officers and employees of the Borrower that received total compensation of more than $3,000,000 in 2019 are limited to a salary equal to (i) $3,000,000, plus (ii) 50% of the excess over $3,000,000.

No retirement or severance packages can exceed twice the maximum total compensation during 2019.

Total compensation includes salary, bonus, awards of stock and other financial benefits. 

Facility Fee

The Lender must pay the SPV a facility fee of 100 basis points of the principal amount of the MSNLF loan participation purchased by the SPV, which the Lender may require the Borrower to pay. The Federal Reserve did not specify if the Lender must pay a facility fee for the SPV’s purchase of the MSELF upsize tranche.

Lender Fee

The Borrower will pay the Lender a fee of 100 basis points of the principal amount of the MSNLF loan or the principal amount of the MSELF upsize tranche. The SPV will pay the Lender 25 basis points of this principal amount per annum for loan servicing.

Facility Termination

The SPV will purchase participations until September 30, 2020, unless the MSNLF and MSELF are extended by the Federal Reserve and the Treasury Department. The Federal Reserve will fund the SPV until all underlying loans purchased by the SPV mature or are sold.

Contacts

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