This alert provides a detailed summary of the recent developments to the Main Street Lending Program, which include:
The launch of the Main Street Lending Program (the “Program”) is currently underway, including the Federal Reserve’s June 15, 2020 announcement that the Program was open for lender registration. This step allows eligible lenders to submit required information through the “Lender Portal” to become eligible to sell loan participations to the Federal Reserve’s special purpose vehicle (the “Main Street SPV”), an essential feature of the Program. However, the Federal Reserve has not yet opened the “Loan Intake Portal,” through which loan participations will be sold to the Main Street SPV. Federal Reserve officials have stated that they hope to open the Loan Intake Portal “soon,” but that lenders need not wait until the Loan Intake Portal has been opened to start making loans under the Program.
The opening of the Lender Portal coincides with a number of related Program developments. In particular, on June 8, 2020, the Federal Reserve released further revised Term Sheets for the Main Street New Loan Facility (the “New Loan Facility”), the Main Street Priority Loan Facility (the “Priority Loan Facility”), and the Main Street Expanded Loan Facility (the “Expanded Loan Facility”). Shortly thereafter, on June 11, 2020, the Fed provided revised legal forms and agreements for eligible borrowers and eligible lenders to participate in the Program, reflecting changes in the revised Term Sheets (and certain other generally minor changes). The Federal Reserve stated that the revisions were intended “to allow more small and medium-sized business to be able to receive support.” On June 15, 2020, the Federal Reserve announced a proposal to expand the Program to include qualifying nonprofit organizations as eligible borrowers, and provided proposed Term Sheets for a Nonprofit Organization New Loan Facility (“NONLF”) and a Nonprofit Organization Expanded Loan Facility (“NOELF”). Finally, on June 20, 2020, a further revised and expanded Frequently Asked Questions (FAQs) was released, which supersedes prior versions.
These developments are discussed in greater detail below. Additionally, the comprehensive summary of the Program set forth in our previous alert has been updated to reflect all of these latest revisions to the New Loan Facility, Priority Loan Facility, and Expanded Loan Facility.
The revised FAQs released by the Federal Reserve on June 20, 2020provide a systematic overview of the Program, but also include certain clarifications and other information not found in the revised Term Sheets. The FAQs include, among other items, a detailed section of the application process for borrowers, and various operational and regulatory information pertinent to borrowers.
On June 15, 2020, the Federal Reserve announced a proposal to expand its Main Street Lending Program to provide access to credit for “small and medium-sized nonprofits that were in sound financial condition before the coronavirus pandemic.” As part of this effort, the proposed Term Sheets for the NONLF and NOELF were released (the time period for public comment on the proposal ended on June 22, 2020). The proposed terms under the NONLF and NOELF Term Sheets are very similar to those under the New Loan Facility and Expanded Loan Facility Term Sheets, respectively. The main differences relate to eligible borrower criteria and calculation of the maximum loan amount, reflecting terms more appropriate for nonprofit entities. Under the NONLF, maximum loan size is the lesser of (i) $35 million or (ii) the Eligible Borrower’s average 2019 quarterly revenue. Under the NOELF, maximum loan size is the lesser of (i) $300 million or (ii) the Eligible Borrower’s average 2019 quarterly revenue.
The Program Term Sheets that were revised on June 8, 2020 include the following significant changes:
The revisions increase the maximum loan size under each of the three facilities. Specifically:
The revisions increase the principal payment deferment periods and make certain changes to the amortization amounts. Specifically:
Separately, the Federal Reserve has provided various revised legal forms and agreements under the Program, superseding the previous versions dated May 27, 2020. The revisions generally reflect the updates to the Term Sheets described above (and certain other generally minor changes).
The level of interest on both the lender and borrower sides to participate in the Program remains to be seen. The Paycheck Protection Program was in extreme demand when rolled out, but the Main Street Lending Program is substantially different, including the lack of any loan forgiveness feature. Notably, at a recent speech, Federal Reserve Bank of Boston President Eric Rosengren stated that, as of June 18, 2020, more than 200 financial institutions had initiated registration, and that the Fed continued to see “a steady stream of interest.”
 Specifically, the Term Sheets state that a “Nonprofit Organization” is a tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC) or a tax-exempt veterans’ organization described in section 501(c)(19) of the IRC; however, other forms of organization may be considered for inclusion as a Nonprofit Organization under the Facility at the discretion of the Federal Reserve. Under both the NONLF and NOELF, as proposed, an Eligible Borrower is a Nonprofit Organization that:
 As Program loans to for-profit companies are based on a multiple of EBITDA, an inquiry was made during a Federal Reserve webinar held on June 15 whether borrowers with zero or negative EBITDA would automatically be disqualified from participating in the Program. The officials hosting the call advised that although zero or negative EBITDA would pose a significant problem for potential borrowers, because an adjusted EBITDA figure may be used, adjustments that give a better picture of borrower creditworthiness could be used to allow a potential borrower with zero or negative 2019 EBITDA to participate in the Program (for example, adjustments based on one-time, non-recurring changes to revenue or expenses). This adjusted EBITDA criteria requires that such adjustments are consistent with the methodology utilized in the past, whether for that borrower (if an existing borrower) or for similarly situated borrowers (if a new borrower).