May 4, 2020 |
On April 30, 2020, the Federal Reserve announced details of its $600 billion Main Street Lending Program established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The purpose of the Main Street Lending Program is to facilitate lending to businesses that were in sound financial condition prior to the COVID-19 pandemic and have either fewer than 15,000 employees or had less than $5 billion of revenue in 2019. The loans will be provided through Eligible Lenders described below and prospective borrowers should consult with Eligible Lenders as to the appropriateness of the program for their financial situation and whether there are alternative private lending facilities available that do not have the restrictions and burdens of a government-backed loan. A borrower that has received a loan under the Paycheck Protection Program may also receive a loan under the Main Street Lending Program. All of the loans provided under this program will be full recourse and will not be forgivable.
The program will operate through three different facilities:
• Main Street New Loan Facility (MSNLF) for new loans up to $25 million;
• Main Street Priority Loan Facility (MSPLF) for new loans up to $25 million for more highly leveraged borrowers; and
• Main Street Expanded Loan Facility (MSELF) for expansions of existing loan facilities up to $200 million.
The Federal Reserve Bank of Boston will create a special purpose vehicle (SPV) that will purchase, on a recourse basis, 95 percent participations in qualifying loans made under the MSNLF and the MSELF and 85 percent participations in qualifying loans made under the MSPLF. The SPV may purchase participations in eligible loans on or prior to September 30, 2020, unless the program is extended.
Eligible Borrowers: To be eligible for the program, a borrower must be an entity that is organized for profit as a partnership, limited liability company, corporation, or certain other business forms, and must meet the following criteria:
• established prior to March 13, 2020;
• cannot be a type of business that the Small Business Administration (SBA) has designated as an ineligible business in its rules;
• either 1) has 15,000 or fewer employees or 2) had annual revenues for 2019 of $5 billion or less;
• created or organized in the United States or under the laws of the United States with significant operations in and a majority of its and its affiliates employees based in the United States;
• participates in only one of the MSPLF, the MSELF, or the MSNLF, or the Primary Market Corporate Credit Facility; and
• has not received loans or financial support that was made available under the CARES Act to certain air carriers and businesses critical to national security.
How is the number of employees calculated? In accordance with SBA regulations, count all individual employees, whether full- or part-time, using the average of the number of employees for each pay period for the prior 12 months. It is not a “full-time equivalent” calculation. Count all employees of affiliates, which includes parent companies and subsidiaries, and employees from temporary agencies. Do not count volunteers or independent contractors. More detail is available here.
In determining the number of employees of the borrower and its affiliates, do the same SBA affiliation rules apply as were applicable to the Paycheck Protection Program Loans? Yes. These SBA affiliation rules generally do not impact public companies, but private companies with private equity or venture capital investors, in certain circumstances, may need to aggregate their employees with the employees of portfolio companies of some of their investors which have certain types of control over the companies. The SBA affiliation rules can be found here.
How is annual revenue calculated? The borrower would calculate 2019 annual revenues by either its consolidated revenue set forth in GAAP audited financial statements or its annual receipts for fiscal year 2019 as reported to the IRS. If the borrower does not yet have audited financial statements or annual receipts for 2019, the borrower should use its most recent audited financial statements or annual receipts.
Eligible Lenders: U.S. insured depository institutions (including a bank, savings association, or credit union), a U.S. branch or agency of a foreign bank, U.S. bank holding companies, U.S. savings and loan holding companies, U.S. intermediate holding companies of a foreign banking organization, or any U.S. subsidiary of the foregoing.
Loan Terms: The following chart sets forth the terms of the loans under the various facilities under the program. In all instances, the loan must be originated after April 24, 2020, and in the case of loans under the MSELF must have a remaining maturity of at least 18 months (taking into account any adjustments made to the maturity of the loan after April 24, 2020, including at the time of upsizing).
Compliments of Wilson Sonsini Goodrich & Rosati – a member of the EACCNY.