Term Sheets Issued for Main Street Loan Facilities: A Summary

April 10, 2020

By Joel Barth and Lisa Knee

UPDATED: 4/13/2020, 4:45 PM

On April 9, 2020, the Federal Reserve (Fed) issued term sheets for various new lending facilities under the CARES Act, including a Paycheck Protection Program (PPP) lending facility to allow originating financial institutions to resell PPP loans, an expanded Term Asset-Backed Securities Loan Facility (TALF), Primary and Secondary Market Corporate Credit Facilities for investment grade issuers and a Municipal Liquidity Facility for state and local governments. Term sheets were also issued for the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF) intended to facilitate lending to small and medium-sized businesses by eligible lenders. The following chart summarizes the limited information provided on these two facilities plus applicable restrictions set forth in the CARES Act.  Borrowers under the Paycheck Protection Program (PPP) may also take out Main Street loans.

  Main Street New Loan Facility Main Street Expanded Loan Facility
Description The Fed will lend to a new Special Purpose Vehicle (SPV) that will purchase 95% participations in eligible loans from eligible lenders (U.S.-insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies). Lenders will retain 5% of each loan. The total size of the New Loan Facility and the Expanded Loan Facility will be up to $600 billion. The Fed will lend to a new SPV that will purchase 95% participations in the upsized tranche of eligible loans from eligible lenders. Lenders will retain 5% of the upsized tranche of each loan. The total size of the New Loan Facility and the Expanded Loan Facility will be up to $600 billion.
Eligible Borrowers



Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenue, Same as MSNLF
Created or organized in the U.S. or under the laws of the U.S.,
Significant operations and a majority of its employees based in the U.S., and
Significant operations and a majority of its employees based in the U.S., and May not also participate in the New Loan Facility or the Primary Market Corporate Credit Facility
Eligible Loan Terms





Originated on or after April 8, 2020 Originated before April 8, 2020
Unsecured Any collateral securing an eligible loan, whether pledged under the original loan terms or at the time of upsizing, will secure the loan participation on a pro rata basis
Four-year maturity with amortization of principal and interest deferred for one year Same as MSNLF
Adjustable rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points. As of April 8, the SOFR was 0.01% (one basis point) Same as MSNLF
Loan size between $1 million and $25 million, but not to exceed an amount that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 4x the borrower’s 2019 EBITDA Loan size between $1 million and $150 million, but not to exceed the lesser of (i) 30% of the borrower’s existing outstanding and committed but undrawn debt or (ii) an amount that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6x the borrower’s 2019 EBITDA
Prepayable without penalty Same as MSNLF
Required Attestations (in addition to certifications required by applicable statutes and regulations)






The lender must attest that the proceeds will not be used to repay or refinance pre-existing loans or lines of credit to the borrower Same as MSNLF
The borrower must refrain from using the proceeds to repay other loan balances and must refrain from repaying other debt of equal or lower priority, except mandatory principal payments, until the eligible loan is repaid in full
The lender must attest that it will not cancel or reduce any existing lines of credit to the borrower and the borrower must attest that it will not seek to cancel or reduce any outstanding lines of credit with any existing lender
The borrower must attest that it requires financing due to the exigent circumstances presented by COVID-19 and that using the proceeds it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan
The borrower must attest that it meets the EBITDA leverage condition summarized above
The borrower must attest that it will follow the compensation, stock repurchase and capital distribution requirements that apply to direct loan programs under Section 4003 of the Act (see below).
The borrower and the lender must each certify that they are eligible to participate in the facility including in light of the conflict of interest provisions in Section 4019 of the Act (applicable to senior federal government officials, members of Congress and their families)
Fees


The lender will pay the SPV a facility fee of 100 basis points of the principal purchased by the SPV. The lender may require the borrower to pay this fee. None
The borrower will pay the lender an origination fee of 100 basis points of the principal amount of the loan. The borrower will pay the lender an upsizing fee of 100 basis points of the upsized tranche of the principal amount of the loan.
The SPV will pay the lender 25 basis points per annum of the principal purchased by the SPV for loan servicing. Same as MSNLF
Termination The SPV will cease purchasing loan participations on September 30, 2020 unless the Fed and the Treasury Department extend the facility. Same as MSNLF
Restrictions under Section 4003


Until 12 months after the loan is no longer outstanding, the borrower and any affiliates may not repurchase any equity securities of the borrower or its parent listed on a national securities exchange except to the extent required under a contractual obligation in effect on March 27, 2020, Same as MSNLF
Until 12 months after the loan is no longer outstanding, the borrower may not pay dividends or other capital distributions with respect to common stock

Until 12 months after the loan is no longer outstanding, the borrower must comply with the limitations on compensation in Section 4004:

§  No officer or employee whose total compensation in calendar 2019 exceeded $425,000 (other than an employee whose compensation is determined through a collective bargaining agreement entered into prior to March 1, 2020) may receive total compensation during any 12 consecutive months in excess of their 2019 compensation or may receive severance pay or other termination benefits which exceeds twice their 2019 compensation.

§  No officer or employee whose total compensation in calendar 2019 exceeded $3,000,000 may receive total compensation during any 12 consecutive months in excess of the sum of (i) $3,000,000 and (ii) 50% of the excess of their 2019 compensation over $3,000,000.

§  For purposes of this section, compensation includes salary, bonuses, stock awards and other financial benefits provided by the borrower to the officer or employee.

It should be noted that Section 4003 of the Act contains a variety of other significant conditions on loans to mid-sized businesses that were not addressed in the Fed term sheets. These provisions contain the following requirements, among other items:

§   The proceeds will be used to retain at least 90% of the borrower’s workforce at full compensation and benefits through September 30, 2020
§   The borrower intends to restore at least 90% of the workforce that existed as of February 1, 2020 and restore all compensation and benefits to workers no later than four months after the termination of the public health emergency declared on January 31, 2020
§   The borrower is not a debtor in possession in a bankruptcy proceeding
§   The borrower will not outsource or offshore jobs for the term of the loan and for two years after completing repayment
§   The borrower will not abrogate existing collective bargaining agreements for the term of the loan and for two years after completing repayment
§   The borrower will remain neutral in any union organizing efforts for the term of the loan
§   The borrower will provide to the Treasury a warrant, equity interest or senior debt instrument to provide to the taxpayers a reasonable participation in equity appreciation or interest rate premium
§  Borrower covenants, representations, warranties and requirements (including requirements for audits) as determined to be appropriate.

It is unclear to what extent any of these items will apply to the Main Street loan facilities.

About Joel Barth

Joel Barth CPA, Principal and a leader in the Corporate Finance Group, has extensive experience with all phases of the mergers and acquisitions process including in-depth due diligence and structuring of transactions.

About Lisa Knee

Lisa Knee is a Tax Partner and Co-Leader of the national Real Estate practice and leader for the national Real Estate Private Equity Group with expertise in the hotel, real estate, financial services, aviation and restaurant sectors and is a member of AICPA, New York State Society of Certified Public Accountants and the New York State Bar Association.

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