Main Street Lending Programs Principle Terms Summary

Supplement to Main Street Lending Programs (Barack Ferrazzano Client Alert, May 2020)

Overview

On April 30, 2020, the Federal Reserve released updated term sheets for the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF) and introduced the Main Street Priority Loan Facility (MSPLF). These programs are intended to facilitate lending to small and medium sized businesses. MSNLF and MSPLF loans are term loans originated after April 24, 2020, while MSELF loans are provided as upsized term loan tranches of existing term loans or revolving credit facilities originated on or before April 24, 2020 with a remaining maturity of at least 18 months. The combined size of the program will be up to $600 billion.

On May 27, 2020, the Federal Reserve released additional guidance along with detailed instructions regarding the borrower covenants and certifications under the three loan facilities. On June 8, 2020, the Federal Reserve adjusted certain terms of all three programs to make the facilities more attractive to prospective borrowers, including adjusting the minimum and maximum loan sizes, respectively. Below is a summary of the principal terms of the programs, reflecting guidance available as of June 8, 2020, but these terms are subject to additional guidance and change.

Summary of Principal Terms

Updated June 8, 2020
Category	Main Street New Loan Facility (MSNLF)	Main Street Priority Loan Facility (MSPLF)	Main Street Expanded Loan Facility (MSELF)
Loan Size	Minimum loan size is $250,000 Maximum loan size is the lesser of (i) $35 million or (ii) an amount that, when added to Borrower’s outstanding and undrawn available debt, does not exceed *four* times Borrower’s *adjusted* 2019 EBITDA¹	Minimum loan size is $250,000 Maximum loan size is the lesser of (i) $50 million or (ii) an amount that, when added to Borrower’s outstanding and undrawn available debt, does not exceed *six* times Borrower’s *adjusted* 2019 EBITDA¹	Minimum loan size is $10 million Maximum loan size is the lesser of (i) $300 million, (ii) an amount that, when added to Borrower’s outstanding and undrawn available debt, does not exceed *six* times Borrower’s adjusted 2019 EBITDA¹
Payment Deferral	Principal payments are deferred for two years (unpaid interest is capitalized) Interest payments are deferred for one year
Repayment Schedule	Principal amortization (including capitalized interest) of 15% at end of the third year, 15% at the end of the fourth year, and 70% at maturity at the end of the fifth year
Additional Loan Terms	5-year maturity Adjustable rate of LIBOR (1 or 3 month) + 300 basis points Prepayment permitted without penalty Loan must at all times be senior to or pari passu with Borrower’s other loans or debt instruments²
Eligible Borrowers³	Borrower must: be formed prior to March 13, 2020 (i) be created or organized in the United States⁴ and (ii) have significant operations in, and a majority of its employees based in,⁵ the United States, and (iii) if a joint venture, have not more than 49% foreign ownership⁶ either (i) employ no more than 15,000 employees or (ii) have revenues of less than $5B (there is no minimum size)⁷ have not received specific support under section 4003(b)(1)-(3) of the CARES Act,⁸ or previously taken advantage of the MSELF, MSNLF, MSPLF, or the Primary Corporate Credit Facility; however, Borrowers which have taken advantage of the Paycheck Protection Program are not* excluded* if Borrower has other loans with the lender, maintain with the lender an internal risk rating equivalent to a “pass” in the Federal Financial Institutions Examination Counsel’s supervisory rating system on that date not be an Ineligible Business⁹
Collateral	Loan may be secured or unsecured, subject to certain limitations: MSPLF loans must be secured if Borrower has other existing debt that is secured at the time of the MSPLF loan’s origination, though the collateral need not be the same as that which secures the existing debt For MSELF loans, any collateral securing the existing loan, either pledged at the time of origination or upsizing, will secure the MSELF loan participation on a pro rata basis
Additional Borrower Certifications and Covenants	Borrower certify/covenant that, among other matters: It will refrain from repaying other debt¹⁰ (except mandatory principal and interest payments) unless the loan is repaid in full¹¹ It is not in any federal or state solvency proceeding and has not, for reasons unrelated to the COVID-19 pandemic, generally failed to pay its undisputed debts as they came due during the 90 days preceding the date of borrowing It will not seek to cancel or reduce any of its outstanding lines of credit It is eligible to participate in the lending program and does not violate section 4019(b) of the CARES Act¹² It will not use the proceeds of the loan for the benefit of any foreign parents, affiliates, or subsidiaries It is unable to secure adequate credit accommodations from other sources to meet its needs during the current unusual circumstances¹³ It will use commercially reasonable efforts to maintain its payroll and retain its employees during the time that the loan is outstanding
Stock Repurchase and Capital Distribution Restrictions	Borrower must agree that during the duration of the loan and for one year after, it will not (i) repurchase any equity securities of Borrower or any parent company of Borrower if such securities are listed on national exchanges or (ii) pay dividends or make other capital distributions related to Borrower’s common stock¹⁴
Borrower Employee Compensation Limits	Borrower must agree to the following employee compensation limits for the duration of the loan and for one year after for individuals who earned more than $425,000 in 2019: Total compensation during any 12 consecutive months cannot exceed the lesser of (i) total compensation received by the individual in 2019, and (ii) the sum of (a) $3,000,000, and (b) 50% of the amount that the individual’s compensation exceeded $3,000,000 in 2019 Severance pay or any other benefits upon termination of employment cannot exceed two times the maximum total compensation received by the individual in 2019
Eligible Lenders	U.S. insured depository institutions, bank holding companies, or savings and loan holding companies U.S. branches or agencies of foreign banks and U.S. intermediate holding companies of a foreign bank U.S. subsidiary of any of the above
Origination Fee	Borrower will pay lender an origination fee of up to (i) 100 basis points for MSNLF or MSPLF loans, and (ii) 75 basis points for MSELF loans, each based upon the amount of the loan at the time of origination
Facility Fee	Lender may require Borrower to pay a facility fee of up to (i) 100 basis points for MSNLF or MSPLF loans, and (ii) 75 basis points for MSELF loans to offset fees owed by lender to the Federal Reserve in connection with its purchase of a participation in the loan
Termination of Program	September 30, 2020, unless extended

Footnotes

The methodology used by the lender to calculate adjusted 2019 EBITDA must be the same methodology used by that lender on or before April 24, 2020, for adjusting EBITDA when extending credit to the prospective Borrower or to other similarly situated borrowers (provided that, in the case of a loan under the MSELF, the methodology used for calculating adjusted EBITDA must be the same as that applied in the underlying existing loan). If the lender has multiple applicable methods, it must use the most conservative method. In addition, if Borrower is a member of an affiliated group of companies, the maximum loan size is determined on an aggregate basis with that affiliated group. Finally, the Federal Reserve is currently evaluating whether to apply alternatives to adjusted EBITDA for underwriting of asset-based borrowers.
MSELF and MSPLF loans must be senior or pari passu in terms of seniority and collateral other than mortgage debt; however, MSNLF loans need only be senior or pari passu in terms of seniority, but not collateral (i.e., there could be a secured loan outstanding).
Guidance states that the Federal Reserve will publicly disclose the names of Borrowers and loan amounts, among other items.
A subsidiary of a foreign company may be an eligible Borrower, but it may not use the loan proceeds for the benefit of any foreign parents, affiliates, or subsidiaries.
To determine whether the majority of Borrower’s employees are in the United States, Borrower’s operations are consolidated with its subsidiaries, but not its parent companies or sister affiliates.
It is not clear how this requirement should be interpreted in light of other guidance that states that a subsidiary of a foreign company can be an eligible Borrower.
Employee and revenue calculations will include employees and revenues of affiliated companies, using the SBA’s broad affiliation rules.
Section 4003(b)(1)-(3) of the CARES Act authorizes financial support for air carriers and businesses critical to maintaining national security.
Ineligible Businesses are listed in 13 CFR 120.110(b)-(j) and (m)-(s), and include lenders and other businesses primarily engaged in investment or speculation, businesses engaged in illegal activity or that present live performances of a prurient sexual nature, political lobbying firms, and pyramid sales operations. Note that the SBA position that private equity funds engage in investment and speculation has been adopted for the purposes of this requirement and such funds are therefore disqualified.
If Borrower has existing debt that, upon issuance of new debt, requires prepayment of more than a de minimis amount of the existing debt, then Borrower is ineligible for MSNLF or MSELF unless the lender of the existing debt waives the requirement or reduces the prepayment to a de minimis amount.
Borrowers under MSPLF may, at the time of origination, refinance existing debt owed to a lender besides the MSPLF lender.
Section 4019(b) of the CARES Act generally prohibits a business from receiving any relief funds if the President, senior executive branch officials, or members of Congress (including certain immediate family members) directly or indirectly hold at least a 20% equity interest in Borrower.
Borrowers are not required to demonstrate that its credit applications have been denied or that credit available elsewhere is inadequate.
Borrowers that are S corporations or other tax pass-through entities may make distributions to the extent reasonably necessary to cover its owners’ tax obligations arising out of the entity’s earnings.