On June 8, 2020, the Federal Reserve Board (“Board”) announced changes to its Main Street Lending Program (“MSLP”) intended to allow more small and medium-sized businesses to participate in the MSLP. The Board also published updated term sheets for each of the MSLP facilities reflecting these changes; to illustrate how these changes affect the term sheets, we have prepared a blackline of the updated Main Street New Loan Facility (“MSNLF”) term sheet against the most recent prior version released on April 30, 2020. The Board notes that these changes are based on extensive feedback received from potential participants in the MSLP. The announcement does not provide further specifics on the timing of the MSLP launch, but does state that the MSLP will be open for lender registration “soon” and that it will be actively buying loans “shortly afterwards.”
Specifically, the Board has made the following changes to the MSLP:
- Loan term. The term of each MSLP facility has been increased to five years (rather than four years).
- Minimum loan size. The minimum loan size for the MSNLF and Main Street Priority Loan Facility (“MSPLF”) has been lowered to $250,000 (from $500,000). The Main Street Expanded Loan Facility (“MSELF”) minimum loan size remains at $10 million.
- Maximum loan size. The maximum loan size has been increased to the lesser of (i) an adjusted EBITDA multiple or (ii) $35 million for the MSNLF or $50 million for the MSPLF (from $25 million for each facility), or $300 million for the MSELF (from $200 million).
- Importantly, the adjusted EBITDA multiple remains unchanged for each MSLP facility: it is four times for the MSNLF and six times for the MSPLF and MSELF.
- Principal payments and principal amortization. The repayment period for loans under each MSLP facility has been extended by delaying principal payments for two years, rather than one; principal amortization for all three MSLP facilities therefore occurs in years 3-5 (rather than years 2-4).
- MSNLF principal amortization. The principal amortization schedule for the MSNLF has been changed to match that of the other facilities: 15%, 15%, and 70% in years 3, 4, and 5 of the loan, respectively (rather than 33.33% in each of the last three years of the loan).
- MSPLF participations. The amount of the MSPLF loan participation purchased by the Main Street special purpose vehicle (“SPV”) has been increased to 95% (from 85%). Eligible lenders therefore would retain 5% of loan participations for each of the three MSLP facilities.
The Board did not change the one-year deferral of interest payments, and the rate on all loans remains at LIBOR plus 3%.
The announcement comes as the Board makes final preparations to operate the MSLP. On May 27, 2020, the Board published a number of key MSLP documents, including updated FAQs, new required agreements and forms, and new lender and borrower guides (see our alert on this announcement). Lenders first will register with the MSLP SPV, and then the SPV will begin purchasing participations in eligible loans. The announcement also notes that the MSLP will accept loans that were originated under the previously announced terms, if the eligible loan was funded before June 10, 2020.