Expansion of the Main Street Lending Program to Nonprofit Organizations
On July 17, the Federal Reserve Bank of Boston announced the expansion of the Main Street Lending Program to extend credit to nonprofit organizations such as hospitals and social service organizations. The expansion includes two new loan options: the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF).
The expanded MSLP is open to nonprofits that are created or organized in the U.S. with significant operations and employees located in the U.S.
The facilities have the following terms:
- 5-year maturity
- An endowment cap of $3 billion
- Principal repayment deferred for two years, and then 15% amortization at the end of the third and fourth years and 70% at the end of the fifth year
- Interest payments deferred for one year
- Adjustable rate of LIBOR plus 3%
- Borrower must have been in operation for at least 5 years
- Minimum loan size of-
- $250,000 for the new facility
- $10 million for the expanded facility
- Maximum loan size of-
- The lesser of (i) $35 million, or (ii) the borrower's average 2019 quarterly revenue for the new facility
- The lesser of (i) $300 million, or (ii) the borrower's average 2019 quarterly revenue for the expanded facility
The eligibility criteria are as follows:
- Minimum of 10 employees
- Total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019
- 2019 operating margin of 2% or more
- Current days cash on hand of at least 60 days
- Current debt repayment capacity-ratio of cash, investments and other resources to outstanding debt and certain other liabilities-of greater than 55%
Additionally, the following covenants and certifications will apply to borrowers:
- Loan proceeds will be unavailable for repayment or refinancing of any other existing debt with the lender or to repay any debt that is pari or subordinate (with the exception of mandatory principal payments).
- The borrower will not seek to cancel or reduce any of its committed lines of credit with the lender or any other lender.
- Borrower has reasonable basis to believe that it has the ability to meet its financial obligations for at least 90 days after the date of origination of the loan and does not expect to file for bankruptcy during that time period.
- The borrower will be required to
comply with compensation restrictions for certain executives or
employees as set forth in Section 4003(c)(3)(A)(ii) of the CARES
Act. The relevant restrictions, summarized below, apply while the
loan is outstanding and for one year thereafter:
- No officer or employee of the
borrower whose total compensation in 2019 exceeded $425,000 (unless
set by a collective bargaining agreement entered into before March
1, 2020) will:
- Receive from the business total compensation that exceeds during any consecutive 12-month period total compensation received by the person from the business in 2019; or
- Receive severance pay or other termination benefits exceeding twice the maximum total compensation received by the person from the business in 2019; and
- No officer or employee of the business whose total compensation exceeded $3 million in 2019 may receive during any consecutive 12-month period total compensation in excess of (1) $3 million plus (2) 50% of the compensation over $3 million of total compensation received from the business in 2019.
- No officer or employee of the borrower whose total compensation in 2019 exceeded $425,000 (unless set by a collective bargaining agreement entered into before March 1, 2020) will:
- The borrower will be required to certify that no conflicts of interest exist under Section 4019(b) of the CARES Act.
Below are the links to the term sheets for each facility. Forms and other documents are forthcoming.
The MSLP has been fully operational as of July 6. A state-by-state list of registered lenders that are accepting new customers and opted to be listed is available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.