On April 9, 2020, the U.S. Federal Reserve announced the creation of the Main Street New Loan Facility (Facility), to facilitate lending to small and medium-sized businesses by eligible lenders. A copy of the announcement is available here.
Under the Facility and the Main Street Expanded Loan Facility (MSELF), a Federal Reserve Bank (Reserve Bank) will commit to lend to a single common special purpose vehicle (SPV) on a recourse basis.
The U.S. Department of Treasury will make a $75 billion equity investment in the SPV in connection with the Facility and the MSELF. The combined size of the Facility and the MSELF will be up to $600 billion.
Attorneys at Tarter Krinsky and Drogin have analyzed the U.S. Federal Reserve’s announcement in its entirety and are happy to assist with any inquiries. Please contact your relationship attorney or CV19team@tarterkrinsky.com if you have questions on how this may impact your business.
Below is an FAQ we’ve prepared highlighting key aspects of the announcement.
What Lenders are Eligible to Participate in the Facility?
U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies will be eligible to participate.
What Borrowers are Eligible to Participate in the Facility?
Eligible borrowers are:
To be eligible a business must have been created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States. Given the loan size requirements listed below, the business must have been in existence in 2019.
Eligible borrowers that participate in the Facility are prohibited from also participating in the MSELF or the Primary Market Corporate Credit Facility.
NOTE: Initial guidance had indicated that loans under the Facility will be available to businesses with more than 500 employees and fewer than 10,000 employees, but the new guidance states that the Facility is available for small businesses(i.e. businesses with fewer than 500 employees.) Based on the new guidance eligible borrowers may participate in both the Facility and the Paycheck Protection Program.
What Loans are Eligible to be Made Under the Facility?
An eligible loan is an unsecured term loan made by an eligible lender to an eligible borrower that was originated on or after April 8, 2020, provided that the loan has the following features:
Are there any Specific Attestations Required to be Made by Lenders or Borrowers?
In addition to certifications required by applicable statutes and regulations, eligible borrowers and/or eligible lenders will be required to make the following attestations with respect to each eligible loan:
Are There Any Fees Associated with the Facility?
An eligible lender will pay the SPV a facility fee of 100 basis points (1%) of the principal amount of the loan participation purchased by the SPV. The eligible lender may require the eligible borrower to pay this fee.
An eligible borrower will pay an eligible lender an origination fee of 100 basis points of the principal amount of the eligible loan. The SPV will pay an eligible lender 25 basis points of the principal amount of its participation in the eligible loan per annum for loan servicing.
When Will the Facility End?
The SPV will cease purchasing participations in eligible loans on September 30, 2020, unless the Federal Reserve System and the U.S. Department of Treasury extend the Facility. The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.
Is This Guidance Final?
No, the Board of Governors of the Federal Reserve System and Secretary of the Treasury will likely make adjustments to the terms and conditions described above and have asked for comments through April 16.
What Should Interested Borrowers Do?
Those interested in the Facility should:
|Chu, Justin Y.K. General Counsel and Partner||General Counsel and Partner||212.216.1160|
|Lydell, Sherri D. Partner||Partner||212.216.1151|
|Malinowski, Simon I. Associate||Associate||212.216.1133|
|Molinari, Guy Partner and Chair of Corporate and Securities Group||Partner and Chair of Corporate and Securities Group||212.216.1188|
|Rudolph, Elishama A. Associate||Associate||212.216.1145|