Fed to Provide Up to $2.3 Trillion in ‘Main Street’ Loans
April 9, 2020
Mid-sized and larger companies will be able to secure four-year loans that they won’t have to begin to repay for 12 months under a new COVID-19 relief program announced by the Federal Reserve Board.
Unlike a previously announced Small Business Administration loan program, the Main Street Lending Program is aimed at companies that employ up to 10,000 workers or have revenues of less than $2.5 billion.
Banks will be able to originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. The central bank said it was boosting its Main Street Lending Program with an additional $600 billion in loans as well as $75 billion in funding from the Treasury Department via the Coronavirus Aid, Relief, and Economic Security Act (CARES) fiscal stimulus. The Fed is also expanding three other loan facilities it had already set up for consumers and businesses with $850 billion more in credit backed by $85 billion in credit protection from the Treasury Department.
Main Street loans issued under this program will have the following features:
- A maturity of 4 years.
- Prepayment without penalty.
- Adjustable rate of the Secured Overnight Financing Rate + 250-400 basis points.
- Amortization of principal and interest deferred for one year.
- Minimum loan size of $1 million.
- Maximum loan sizes:
For new loans: The lessor of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed undrawn debt, does not exceed four times the borrower’s 2019 EBITDA.
For expanded loans: The lessor of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding and committed undrawn debt, does not exceed six times the borrower’s 2019 EBITDA.
Commitments and Attestations
Borrowers using the Main Street program will need commit to refrain from using the proceeds of the loan to repay other loan balances, and from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the loan in full.
A borrower also will need to attest that it:
- Will not seek to cancel or reduce any of its outstanding lines of credit with any lender.
- Requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
- Meets the EBITDA leverage condition above.
- Will follow certain restrictions on compensation, stock repurchase, and capital distribution:- Borrowers are subject to two tiers of executive compensation (including salary, stock, and bonuses) restrictions for a period of time that extends one year beyond the term of the loan. Officers or employees who received more than $425,000 in total compensation in 2019 cannot receive a pay raise in 2020, and cannot receive severance pay or other benefits that are more than twice the 2019 compensation amount. Officers or employees who received more than $3 million in total compensation in 2019 cannot receive total compensation in 2020 in excess of (i) $3 million plus (ii) 50% of the excess over $3 million.- Borrowers must agree to not buy back stock or pay dividends for a period of time that extends one year beyond the term of the loan.
- Is not an entity in which the (U.S.) President, Vice President, the head of an Executive department, or a Member of Congress (or a family member of any of them) directly or indirectly holds a controlling interest.
The program will continue through Sept. 30, unless the Federal Reserve and the Treasury Department decide to extend it.
Spencer Mahoney is CCIG’s Executive Vice President. Reach him at Spencer.Mahoney@thinkccig.com or 720-212-2051.
CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.
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