Key Points of the Federal Reserve Main Street Lending Program

April 10, 2020

Based on the Term Sheet released by the Federal Reserve on April 9, 2020

On Thursday, April 9, 2020, the Federal Reserve took action to provide up to $2.3 trillion in loans (Main Street Lending Program) to support the economy during the coronavirus pandemic. Below are the key points regarding the program.

  • 4-year, unsecured loans, to companies from zero to 10,000 employees or up to $2.5 billion in 2019 revenue
  • Conventional loan, not an SBA loan
  • Eligible Lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies
  • Eligible borrower must be a business that is created or organized in the U.S. or under laws of the U.S. with significant operations in and a majority of its employees based in the U.S.
  • Businesses must commit to make reasonable efforts to maintain payroll and workers throughout duration of the loan
  • Businesses must also follow compensation, stock repurchase, and dividend restrictions (see below)
  • Interest rate – adjustable SOFR = + 250 to 400 basis points (SOFR is the Secured Overnight Financing Rate: a broad measure of cost of borrowing cash overnight collateralized by Treasury Securities. Current SOFR rate is 0.01%; prior to the COVD-19 crisis, the SOFR rate was about 1.5%.)
  • “Small” businesses that have taken out Paycheck Protection Program Loans can also participate
  • Borrower will pay Lender an origination fee of 100 basis points of the principal amount of the loan
  • Minimum loan – $1 million
  • Maximum loan – Lesser of i) $25 million, ii) 6 times 2019 EBITDA, and iii) 30% of committed but undrawn bank debt
  • Deferral of principal and interest for 1 year
  • No Prepayment Penalty
  • Loan amount is not forgivable
  • Borrower agrees to refrain from using loan proceeds to repay or refinance pre-existing debt or lines of credit, with the exception of mandatory principal repayments
  • Borrower agrees to not cancel or reduce any existing lines of credit
  • Borrower attests it satisfied the 6 times EBITDA leverage condition
  • Note: It is not clear whether, and to what extent, the Federal reserve program will incorporate the statutory requirements under the Section 4003(c)(3)(D) – “Assistance for Mid-Sized Businesses” – of the Coronavirus Economic Stabilization Act of 2020 including that:
    • The recipient will not outsource or offshore jobs for the term of the loans and 2 years after completing repayment of the loan;
    • The recipient will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan; and
    • The recipient will remain neutral in any union organizing effort for the term of the loan.

Stock Repurchase Restrictions

  • Until the date 12 months after the date on which the direct loan is no longer outstanding, borrower will not repurchase an equity security that is listed on a national securities exchange of the eligible business or any parent company of the eligible business while the direct loan is outstanding, except to the extent required under a contractual obligation that is in effect as of the date of enactment of this Act.

Dividend Restrictions

  • Until the date 12 months after the date on which the direct loan is no longer outstanding, borrower will not pay dividends or make other capital distributions with respect to the common stock of the eligible business.

Compensation Restrictions

  • Borrower will be also prohibited from increasing the compensation of any employee whose compensation exceeds $425,000 or from offering them significant severance or termination benefits until one year after the termination of the applicable loan or loan guaranty, and
  • Borrower’s officers and employees whose total compensation exceeded $3 million in 2019 cannot receive compensation greater than $3 million, plus 50% of the amount over $3 million that the individual received in 2019. It is unclear how these compensation provisions will apply to newly hired employees who had no 2019 compensation from the applicable borrower.

For this purpose, the term “total compensation” includes salary, bonuses, awards of stock, and other financial benefits provided by an eligible business to an officer or employee of the eligible business.


Click here for a PDF version.

For current Main Street Lending Program information, please visit Federal Reserve COVID-19.

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