United States: Main Street Lending Program – Profit And Nonprofit Organizations – Updates August 2020

A lot has happened since we last wrote our alert on the Federal Reserve's Main Street Lending Program (MSLP). Most importantly, the program has officially launched and borrowers have been submitting applications for Main Street Lending Program Loans from eligible lenders.

Listing of Eligible Lenders

The Federal Reserve Bank of Boston published a state-by-state listing of lenders participating in MSLP who are currently accepting applications from new business customers which can be accessed by clicking this link and entering the State where the lender is located, although many lenders are accepting applications from borrowers located outside their immediate geographic area. As noted in our previous alerts, meeting the MSLP criteria and having sufficient EBITDA, does not guarantee a borrower a MSLP loan. Indeed, as permitted by the MSLP, lenders can assess a borrower based on the lenders' own underwriting standards, in addition to the terms of the MSLP, as part of evaluating financial condition and creditworthiness. Lenders' assessment of their own underwriting standards may mean many applicants are not approved for their MSLP loans, and borrowers are advised to seek professional help in preparing and submitting their applications to eligible lenders to make sure their applications highlight their creditworthiness and financial performance.

Extension of SPV Participations through December 31, 2020

Also, on July 28, 2020, the Federal Reserve Board announced an extension through December 31, 2020 of its lending facilities that were scheduled to expire on or around September 30, 2020. The three-month extension will facilitate planning by borrowers and lenders, since without such extension the Fed's SPV 95% participations would have ended on September 30, 2020, effectively ending new loan issuances as of that date.

On July 31, 2020, the Main Street Lending Program's FAQs were updated to provide guidance regarding a number of issues – including:

• Upcoming functionality to accommodate co-borrower transactions (FAQ L.12);
• The collateral coverage ratio requirements for the Main Street Priority Loan Facility (FAQ C.5);
• Restrictions on compensation and capital distributions for pass-through entities (FAQ H.16); and
• The applicability of direct loan restrictions to a borrower's successors (FAQ H.18).

You can see the new FAQs here For-Profit Frequently Asked Questions (July 31, 2020) (PDF).

The updated FAQs include new guidance noting eligible borrowers may submit applications for a Main Street loan to more than one eligible lender. However, an eligible borrower is required to notify each eligible lender to which it submits an application of any other pending or accepted applications. If an eligible borrower's application for a Main Street loan is declined by an eligible lender, the eligible borrower may apply through a different eligible lender.

Main Street for Nonprofit Organizations

In other developments since our last alert, the Fed has proposed the creation of two facilities, the Nonprofit Organization New Loan Facility (NONLF) and Nonprofit Organization Expanded Loan Facility (NOELF), specifically designed for nonprofit organizations. Nonprofit organizations were previously left out of the Main Street Lending Program because borrower eligibility was dependent on borrowers having earnings or EBITDA in 2019, something nonprofits do not have. These programs are still in their proposal phases, with drafts having been first posted on June 15 for public review and comment. Since the Fed's initial proposals for nonprofits there have been several rounds of modifications to the nonprofit facilities, with the most recent amendments being adopted on July 31, 2020. The modifications have been designed to increase nonprofit eligibility with current requirements giving access to nonprofits with non-donation revenues equal to or greater than 60% of expenses in the two years through 2019. The Main Street SPV is not yet accepting NONLF or NOELF, but will announce when such loans can be submitted and processed.

The NONLF and the NOELF as proposed will operate similarly to the three for-profit MSLP facilities discussed in our prior articles. The NONLF is largely a nonprofit analog to the for-profit Main Street New Loan Facility and the NOELF is similarly a nonprofit analog to the for-profit Main Street Expanded Loan Facility.

Eligible Borrowers:

A borrower under the NONLF or the NOELF must be a nonprofit organization, tax exempt under either 501(c)(3) or 591(c)(19) of the Internal Revenue Code, and must meet the following minimum eligibility requirements:

1. Be established prior to, and in continuous operation since, January 1, 2015;
2. Has either 15,000 or fewer employees, or 2019 annual revenues of $5 billion or less;
3. Has at least 50 employees and an endowment of less than $3 billion;
4. Has 2019 revenues from donations that are less than 30% of total 2019 revenues;
5. Have a ratio of adjusted 2019 EBIDA to unrestricted 2019 operating revenue, greater than or equal to 5%;
6. Have a ratio (expressed as a number of days) of (i) liquid assets at the time of the origination of the loan or up-sized tranche to (ii) average daily expenses over the previous year, equal to or greater than 90 days;
7. Have, at the time of the origination of the loan or up-sized tranche, a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the Facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 65%;
8. Be a US business with significant operations in and a majority of its employees based in the United States;
9. Have not also participated in the NONLF, the MSNLF, the MSPLF, the MSELF, the Primary Market Corporate Credit Facility, or the Municipal Liquidity Facility; and
10. Have not received specific support pursuant to Title IV of the CARES Act (i.e., air travel, air cargo carriers, and businesses critical to national security).

Just as under the MSLP, Borrowers must certify that they have a reasonable basis to believe that, as of the date of origination of the loan, and after giving effect to the loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that period. Borrowers must also comply with applicable restrictions in the CARES Act on compensation, stock repurchase, and capital contributions.

Terms of the Loans

The Federal Reserve's term sheets for the NONLF and the NOELF facilities are summarized in the chart below. Do not hesitate to contact us for more information on the Main Street Lending Program.

Originally published by Smith Gambrell, August 2020

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.