Following the implementation of the Paycheck Protection Loan Program for certain small businesses by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), on April 9, 2020 the Board of Governors of the Federal Reserve System announced the terms of two new Main Street Lending Program credit facilities aimed at larger entities (using funds appropriated to the Exchange Stabilization Fund under Section 4027 of the CARES Act).
The Main Street Lending Program has been established to enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. The Main Street Lending Program consists of (1) new loans under the Main Street New Loan Facility (“NLF”); and (2) upsized tranches of existing loans under the Main Street Expanded Loan Facility (“ELF”).
Eligible banks may originate NLF loans or use ELF to increase the size of existing loans to businesses.
Who is eligible?
Businesses with (i) up to 10,000 employees or (ii) up to $2.5 billion in 2019 annual revenues that are (i) created or organized in the United States or under the laws of the United States, and (ii) have “significant operations” (which is undefined) and a majority of its employees based in the United States. Borrowers must require financing due to the exigent circumstances presented by the COVID-19 pandemic and attest that they will make reasonable efforts to maintain their payroll and retain employees during the term of the loan.
How much can we get approved for?
The loans will have a minimum loan size of $1 million.
For new loans under the NLF, the maximum loan size will be the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the eligible borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
For upsized tranches under the ELF, the maximum loan size is the lesser of (i) $150 million, (ii) 30% of the eligible borrower’s existing outstanding and committed but undrawn bank debt or, (iii) an amount that, when added to the existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrowers’ 2019 EBITDA.
Are there origination fees?
Yes. The borrower will have to pay a fee of 1% of the principal amount of the NLF or the principal amount of the upsized tranche of the ELF at the time of upsizing, as applicable. Additional fees may apply.
Are loans made under this program forgivable?
No, but the amortization of principal and interest is deferred for 1-year.
What are the terms of the loan?
Loans made under the NLF or ELF will have an adjustable rate equal to the 4-year maturity Secured Overnight Financing Rate (“SOFR”) plus 250 to 400 basis points. There will be no prepayment penalty.
Loans under the NLF will be unsecured while the upsized tranche of the ELF will be collateralized on a pro rata basis utilizing the collateral pledged under the terms of the existing loan.
Can I apply for a Payroll Protection Loan and Main Street Loan?
Yes. However, borrowers may participate in only the NLF or ELF, but not both.
Are there limits on executive compensation?
Yes, until one year after the applicable loan is repaid. Any employee whose total compensation exceeded $425,000 for the calendar year of 2019 may not receive total compensation during any twelve consecutive months in excess of that amount or be offered severance or termination benefits that would exceed twice their 2019 total compensation. For employees making over $3 million in 2019 total compensation, they may not receive total compensation during any twelve consecutive months in excess of $3 million plus 50 percent of the amount of 2019 compensation that exceeded $3 million.
What are the other requirements?
- Borrowers are prohibited from paying dividends or making other capital distributions with respect to its common stock;
- Borrowers may not repurchase an equity security that is listed on a national securities exchange while the loan is outstanding;
- Loan proceeds may not be used to repay or refinance preexisting loans or lines of credit; and
- Borrower cannot repay any other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Main Street Loan is first repaid in full.
The attorneys at DarrowEverett LLP are ready to assist you as you navigate these challenging times brought upon us all by the COVID-19 crisis, including guidance on relief and loans available under various federal, state, and local COVID-19 related programs.