On June 8, 2020, the U.S. Federal Reserve Board (“Fed”) announced additional changes to the Main Street Lending Program (“MSLP”), with a press release and the posting of updated term sheets for each of the three MSLP facilities, which are available here, and an updated FAQ, which is available here.
While the Fed noted that such changes were made to allow more small and medium-sized businesses to be able to receive support, (a) some of the clarifications and updates were further restricting on certain companies, such as PE-backed companies, and (b) the Fed still failed to address certain areas of the MSLP terms that would need changes in order for MSLP to be available to certain companies, such as negative EBITDA companies. However, the Fed stated that it is working to establish a program for non-profit organizations, but it did not state whether that same program would be available for negative EBITDA companies.
In addition to the other changes and guidance highlighted in the chart linked further below, the primary changes made to MSLP from a borrower’s perspective were to:
- Lower the minimum loan size for the New Loan Facility (“NLF”) and the Priority Loan Facility (“PLF”) from $500,000 to $250,000
- Increase the maximum loan size of (a) NLF from $25,000,000 to $35,000,000, (b) PLF from $25,000,000 to $50,000,000 and (c) the Expanded Loan Facility (“ELF”) from $200,000,000 to $300,000,000
- Remove from the maximum loan size test for ELF the prong of 35% of the borrower’s existing outstanding and undrawn debt that is pari passu in priority with the ELF loan and equivalent in secured status (i.e., secured or unsecured)
- Increase the loan term from four to five years
- Extend the principal repayment deferral from one year to two years (note that the interest deferral remains at one year)
- Change the principal amortization schedule for (a) NLF from 33.33% in years 2-4 to 15%, 15% and 70% in years 3, 4 and 5 respectively, and (b) PLF and ELF from 15%, 15% and 70% in years 2-4 to the same percentages in years 3-5
- Lower the PLF loan risk retention that a lender must retain from 15% to 5% (and accordingly increase the amount that the MSLP SPV is sold participation rights in from 85% to 95%)
- Clarify that if (a) none of borrower’s affiliates borrow (or have a pending application to borrow) under MSLP, the borrower does not need to include such affiliates in the borrower’s debt and EBITDA for the leverage maximum size based test, except potentially the debt and EBITDA of the borrower’s subsidiaries that are included in the consolidated financial statements of the borrower, and (b) if one or more of borrower’s affiliates borrow (or have a pending application to borrow) under MSLP, the borrower has to take into account all of the borrower’s affiliates’ debt and EBITDA in the leverage maximum size based test
- Add an additional carve-out to certain collateral and lien ranking requirements for limited recourse equipment financings secured only by the acquired equipment
The chart linked below also describes the effects of the changes (and non-changes) and guidance on borrowers. For a summary of the changes to MSLP that were made on (a) April 30, 2020, please see Goodwin’s May 2, 2020 client alert here, and (b) May 27, 2020, please see Goodwin’s June 1, 2020 client alert here.
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