Insights
Publications

Fed Announces New Main Street Lending Program

April 10, 2020 Articles

Loans Will Provide Additional Support for Small and Mid-sized Businesses

On April 9, 2020, the Federal Reserve released the terms of its Main Street Lending Program, a $600 billion loan fund for U.S. companies. We’ve summarized these terms below.

What companies should consider participating in the Main Street Lending Program?

The Main Street Lending Program will be available to U.S. companies with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.

If your company is ineligible for participation in the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loans (EIDL) due to size limitations, you may consider participating in the Main Street Lending Program. Alternatively, if your company requires significantly more liquidity than can be provided by the PPP or the EIDL, you may also consider participating. 

However, keep in mind that loans issued under Main Street Lending Program are not forgivable, are subject to higher interest rates, and include restrictions on the company’s debt, stock repurchases, distributions and compensation, as described in more detail below. Also, the Federal Reserve has not confirmed which affiliation rules, if any, will apply to the 10,000-employee threshold.

How will the program work?

The Main Street Lending Program has two components: (i) the “Main Street New Loan Facility” for new loans; and (ii) the “Main Street Expanded Loan Facility” to increase the size of existing loans (loans that originated before April 8, 2020). Companies may participate in the Main Street New Loan Facility or the Main Street Expanded Loan Facility, but not both. However, companies that participate in either facility under the Main Street Lending Program may also participate in the PPP and EIDL. 

Lenders will retain a 5% share of the new loan or upsized tranche of an existing loan, selling the remaining 95% to the Federal Reserve’s Main Street New Loan Facility or Main Street Expanded Loan Facility, as applicable. Companies will pay lenders under the Main Street Lending Program a fee equal to 100 basis points of the principal amount of the new loan or upsized tranche of an existing loan to be sold to the Main Street New Loan Facility or Main Street Expanded Loan Facility, as applicable (i.e., 95% of the principal amount of new loan or the upsized tranche of an existing loan).

What are the terms of the new loans and upsized loans to be issued under the program?

  • 4-year maturity;
  • Principal and interest payments deferred for one year;
  • Adjustable interest rate based on the Secured Overnight Financing Rate (currently 0.01%) plus 250-400 basis points;
  • Prepayment without penalty;
  • Minimum loan size of $1 million;
  • For new loans issued under the Main Street New Loan Facility, a maximum loan size equal to the lesser of: (i) $25 million, or (ii) an amount that, when added to the borrower’s existing outstanding but undrawn debt, does not exceed 4x the borrower’s 2019 EBITDA;
  • For upsized loans under the Main Street Expanded Loan Facility, a maximum loan size equal to the lesser of: (i) $150 million, (ii) 30% of the borrower’s existing outstanding but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding but undrawn debt, does not exceed 6x the borrower’s 2019 EBITDA; and
  • New loans issued under the Main Street New Loan Facility will be unsecured.

What restrictions will apply to companies that participate in the program?

  • Borrowers must certify that they require financing due to the pandemic and that they will make efforts to maintain payroll and retain employees during the term of the loan. 
  • Borrowers may not use the proceeds of the new loan or upsized loan to repay or refinance pre-existing loans or lines of credit outstanding with lenders under the Main Street Lending Program, including in the case of upsized loans, the pre-existing portion of the original loan.
  • Borrowers may not cancel or reduce existing lines of credit outstanding with lenders under the Main Street Lending Program.
  • Borrowers may not use the proceeds of the new loan or upsized loan to repay other loan balances or debt of equal or lower priority, with the exception of mandatory principal payments.
  • Borrowers must comply with the following restrictions set forth in Section 4003(c)(3)(A)(ii) of the CARES Act for the duration of the loan plus one year:
    • Borrowers may not repurchase equity securities listed on a national securities exchange, except to the extent required under a contractual obligation in place as of March 27, 2020;
    • Borrowers may not pay dividends or make other capital distributions; and
    • Borrowers must comply with the following restrictions on compensation set forth in Section 4004 of the CARES Act:
  • Officers or employees whose total compensation exceeded $425,000 in 2019 may not receive: (i) total compensation for any 12-month period that exceeds the total compensation received in 2019, or (ii) severance pay or other benefits upon termination that exceed 2x the compensation received in 2019.
  • Officers or employees whose total compensation exceeded $3 million in 2019 may not receive total compensation for any 12-month period that exceeds the sum of: (i) $3 million and (ii) 50% of the excess over $3 million of total compensation received in 2019.

Note that the Federal Reserve has not confirmed whether the restrictions set forth in Section 4003(c)(3)(B) of the CARES Act will also apply to companies that participate in the Main Street Lending Program.[1]

When will companies be able to apply for a loan under the program?

The Federal Reserve has not released guidance on how companies can apply for loans through the new Main Street Lending Program. The Federal Reserve is taking comments on the terms of the program until April 16, 2020. 

Where can I find additional information?

Below are links to the term sheets for each facility under the Main Street Lending Program:

Main Street New Loan Facility Term Sheet

Main Street Expanded Loan Facility Term Sheet

You can stay up-to-date as the procedures for obtaining loans under the Main Street Lending Program are updated by visiting Farella Braun + Martel’s Coronavirus (COVID-19) Insights and Resources page.


[1] Section 4003(c)(3)(B) of the CARES Act requires that: (i) the loan be used to retain at least 90 percent of the company’s workforce at full compensation and benefits until September 30, 2020, (ii) the company intend to restore not less than 90% of its workforce in place on February 1, 2020, and all compensation and benefits to its workers not later than four months after the end of the pandemic , (iii) the company not outsource or offshore jobs until 2 years after the loan is repaid, (iv) the company not abrogate collective bargaining agreements during the term of the loan and for a period of 2 years thereafter, and (v) the company remain neutral in any union organizing effort during the term of the loan.

Firm Highlights

Publication

Navigating Cannabis in the Workplace: A Guide for California Corporations

The landscape surrounding cannabis in the workplace is rapidly evolving, posing challenges for California corporations and businesses to establish effective policies and procedures. As the use of cannabis, both medical and recreational, becomes more...

Read More
Publication

A Summary of New Laws Coming for California Employers in 2024

In 2023, California has adopted several new employment laws either introducing new employee protections or codifying existing practices into state law. With these changes, employers will need to examine and adjust some of their...

Read More
News

Farella 2024 Partner Elevations: Cynthia Castillo and Greg LeSaint

Northern California legal powerhouse Farella Braun + Martel is pleased to announce the election of two lawyers to partnership effective Jan. 1: Cynthia Castillo and Greg LeSaint. “We are thrilled to elevate Cynthia and...

Read More
Publication

Corporate Transparency Act: State of the Law and Beneficial Ownership Reporting Requirements

Key Points: Despite ongoing legal challenges, the Corporate Transparency Act (CTA) generally remains in effect and enforceable. Clients should continue to abide by its regulations. Initial reports for entities formed in 2024 are due within...

Read More
Publication

Life Is Too Short for Bad Wine Distribution Agreements: 10 Key Considerations

If you are like most wine brands, DTC through your tasting room, club, and website can only take you so far. Success usually means accessing the general on- and off-premise markets, and accessing those...

Read More
Publication

Corporate Transparency Act: A Guide on Beneficial Ownership for Nonprofit Executives

The Corporate Transparency Act, enacted as part of the National Defense Authorization Act for Fiscal Year 2021, represents a significant shift in regulatory requirements for entities across the United States. This act, set to...

Read More
News

Farella Braun + Martel Earns 2024 Best Law FirmsĀ® Rankings

Read More
Publication

Corporate Transparency Act Imposes New Disclosure Obligations on Business Entities Effective January 1, 2024

Corporate Transparency Act Guide - PDF If you own an interest of 25% or more in any business entity or have any substantial control over any business entity (including as a manager or senior...

Read More
News

North Coast Industry Insiders Weigh In on Why California Cannabis Tax Revenue Slipped in 2023

Jeff Hamilton spoke to Susan Wood with the North Bay Business Journal for the article "North Coast Industry Insiders Weigh In on Why California Cannabis Tax Revenue Slipped in 2023." Read the article with Jeff's...

Read More
Publication

What Nonprofit Leaders Need To Know About the Corporate Transparency Act

Welcome to  EO Radio Show – Your Nonprofit Legal Resource. I'm Cynthia Rowland, and today on EO Radio Show , we are discussing a new law that will have implications for many nonprofit organizations...

Read More