Troutman Pepper | Federal Reserve Adds Nonprofit Loan Facilities and Other Updates to the Main Street Lending Program

MSLP Facilities for For-Profit Businesses

Since mid-July, the Boston Fed has updated the business MSLP FAQs twice (releases on July 15 and July 31) with additional details and clarifications. Significant changes and additions to the existing FAQs for MSLP facilities to for-profit Eligible Borrowers include:

• A new FAQ was added confirming that when a Borrower is acquired or merged into another business, the acquiring or resulting entity must also comply with the certifications and covenants applicable to such Borrower’s Main Street loan. Since the covenants relating to limitations on compensation and restrictions on dividends and distributions continue for a year after the Main Street loan is repaid, this new FAQ confirms that the Main Street program may have an effect akin to a poison pill by making the Borrower unattractive to a potential acquiror.
• Specific guidance on determining when an Eligible Borrower that is a pass-through entity, such as a partnership or limited liability company, would be in compliance with the CARES Act restrictions on compensation and capital distributions. Notably, question H.16 provides examples of how stock-based compensation may be permissible, but any distributions made to an officer on such stock would be a prohibited distribution. Moreover, the value of any such stock-based compensation is considered under the maximum compensation requirements of the CARES Act.
• Guidance with respect to Employee Stock Ownership Plans (ESOP) that hold shares of common stock of an Eligible Borrower and potential issues with the CARES Act restrictions on repurchases, redemptions and capital distributions as it relates to ESOPs. Generally, the restrictions on repurchases and redemptions do not apply to repurchases or redemptions required under a contractual obligation in effect as of March 27, 2020. Also, an ESOP would not be prohibited from repurchasing shares of a non-public Eligible Borrower. Dividends or distributions with respect to equity interests held by an ESOP from an Eligible Borrower would be subject to CARES Act restrictions unless both the equity interests and the obligation to pay such dividend or distribution existed as of March 27, 2020.
• Clarification on how long an Eligible Lender is required to hold all of its position in the credit facility underlying a Main Street Expanded Loan Facility (MSELF) Upsized Tranche, which is the earlier of: (i) until the underlying credit facility matures; (ii) the MSELF Upsized Tranche matures; or (iii) neither the Main Street SPV nor a governmental assignee holds an interest in the MSELF Upsized Tranche in any capacity. As further explained in the updated FAQs, this requirement applies to the Eligible Lender’s position(s) it holds in the underlying credit facility for investment purposes, not market-making purposes.
• Clarification that an Eligible Lender in a MSELF Upsized Tranche may be a lender that purchased the original loan from another Eligible Lender or a non-eligible lender.

Other updates to the FAQs include clarification on the following:

• Eligible Borrowers may submit MSLP applications with more than one Eligible Lender so long as the Eligible Borrower discloses other pending or accepted applications to the potential lender when it submits a new application.
• If an Eligible Borrower does not have any other secured debt (other than mortgage debt), the collateral coverage ratio and pari passu requirements do not apply to the collateral that secures the Main Street Priority Loan Facility (MSPLF).
• Subject to meeting certain criteria, tribal economic enterprises that are separate from the related tribal government, even if not a separate business entity, may be an eligible business.
• Boston Fed is adjusting the MSLP Portal to accommodate co-borrower arrangements. Further instructions and guidance will be forthcoming.

MSLP Facilities for Nonprofit Businesses

The Nonprofit MSLP Facilities are now live, and term sheets, form agreements and a set of updated FAQs (last revised July 31, 2020) for the nonprofit facilities are now available on the Boston Fed’s website.

Below is a summary of the general terms of those facilities and the changes made since the initial announcement of the facilities’ terms.

This alert is not a substitute for reading the FAQs and other terms and conditions of the MSLP in full. Readers are encouraged to review the materials on the Boston Fed’s website in its entirety or to contact a Troutman Pepper attorney for additional information.

AUTHORS:

• Loren A. Flath, Associate | loren.flath[at]troutman.com
• Frank Montes de Oca, Associate | frank.montesdeoca[at]troutman.com
• J. Bradley Boericke, Partner | bradley.boericke[at]troutman.com
• Hazen H. Dempster, Partner | hazen.dempster[at]troutman.com

Compliments of Troutman Pepper – a member of the EACCNY.