On April 30, the Federal Reserve released additional guidance on the expanding scope and eligibility for Main Street Lending Program.
The Federal Reserve added the Main Street Priority Loan Facility, which implies that the Treasury and Fed are willing to take riskier types of loans.
Much to the credit of firms that submitted comments to the Federal Reserve, the Main Street Lending Program is now eligible for those firms with $5 billion in annual revenue and up to 15,000 employees, an increase from $2.5 billion in revenue and 10,000 employees. In addition, the minimum loan size was lowered to $500,000 from $1 million.
In addition to the Main Street New Loan Facility and the Main Street Expanded Loan Facility, the Federal Reserve added the Main Street Priority Loan Facility, which implies that the Treasury and Fed are willing to take riskier types of loans onto the central bank’s balance sheet because it allows debt to EBITDA of six times as opposed to four times in the Main Street New Loan Facility.
The Fed added language around what it means to make a reasonable effort to keep workers:
“Eligible Borrowers should make commercially reasonable efforts to retain employees during the term of the MSNLF Loan, MSPLF Loan, or MSELF upsized tranche. Specifically, an Eligible Borrower should undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor. Borrowers that have already laid off or furloughed workers as a result of the disruptions from COVID-19 are eligible to apply for Main Street loans.“
Each facility requires lender and borrower certifications and covenants. A full list of each can be accessed by reviewing each facility’s respective term sheets. It will be important for eligible lenders and eligible borrowers to understand the certifications and covenants as part of making a determination if accessing liquidity under the Main Street Lending Program makes sense.
In addition to the release of updated term sheets, the Federal Reserve also released a frequently asked questions document that provides clarity surrounding the information released on April 30.
Next steps for lenders:
- Review each facility’s terms. Determine which program may be appropriate for borrowers based on the expanded terms and eligibility.
- Identify potential borrowers. Connect with and identify those firms that will need the Main Street Lending Program funds.
- Continue to monitor updates . Continue to monitor the program’s site to know when the program will launch and what further updates may be made to terms and rules.
Although taking the appropriate time on the front end to understand and plan will not eliminate the pain felt when the program rolls out, it will certainly help alleviate it.
The takeaway
Although the launch date of the Main Street Lending Program is still not known, the release of additional guidance and answers to common questions are a strong step forward for middle market businesses to gain bridge financing through an eligible lending institution.
Lending institutions should take the time afforded before the program launch to communicate with and educate prospective borrowers on the program. Simply put, this program can provide comfort to middle market businesses in an uncomfortable time.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
Source: Federal Reserve
