On April 9, the U.S. Department of Treasury released details on another financing facility that is primarily focused on businesses with up to 10,000 employees that have revenues that don’t exceed $2.5 billion. Once again, the nation’s banks will be the primary conduit for issuing these new loans. The Federal Reserve Bank will purchase 95% of the total loans with the banks remaining responsible for the other 5%. Unlike the Paycheck Protection Program loans, the expanded “Main Street” loans will not have any forgiveness provisions, and include other limitations noted below. The total size of the loan facility will be $600 billion.
The Main Street expanded loans will be structured as follows:
The loans will have a 4-year maturity.
The amortization of principal and interest will be deferred for one year.
The interest rate will be the adjustable rate of Secured Overnight Financing Rate (SOFR) + 250-400 basis points.
The minimum loan size is $1 million
The maximum loan size is the lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
The loans will not have any prepayment penalties.
There will be a fee of 100 basis points of the principal amount of the upsized tranche of the eligible loan at the time of upsizing.
The participating lenders will have the discretion to originate new loans under the Main Street Program or use the Main Street Program to increase the size of existing loans to their eligible customers.
As part of the application process, prospective borrowers will need to make certain attestations, including:
You must attest that the proceeds of the upsized tranche of the loan will not be used to repay or refinance pre-existing loans or lines of credit made by the lender you are seeking the financing from, including the pre-existing portion of the loans.
You must attest that while the loan remains outstanding, you are not permitted to repay any other debt of equal or lower priority, with the exception of mandatory principal payments.
You must attest that you will not seek to cancel or reduce any of your outstanding lines of credit with the lender you are seeking the loan from or any other lender.
You must attest that your business requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the upsized tranche of the eligible loan, your business will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
You must attest that your business meets the EBITDA leverage condition stated in the maximum loan paragraph above specifying required features of eligible loans.
You must attest that your business will follow the limitations on compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
You will be required to certify that the entity is eligible to participate in the program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
If you are interested in applying for one of these loans, in addition to gathering the required documentation to demonstrate the need, you should contact your lender to understand when and how they will begin to take applications. Potential applicants should be mindful of existing debt agreements and covenants, as well as provisions within their by-laws or other contracts that may restrict their ability to borrow these funds. Since the lender you select will be retaining a portion of the loan, there may be additional underwriting conditions imposed by them that did not exist under the Paycheck Protection Program.
If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal ([email protected]) or Steve Thimons ([email protected]) directly.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.