On June 8, 2020, the Federal Reserve Bank of Boston, the administrator of the Federal Reserve’s Main Street Lending Program, released updated term sheets for the three types of loans, “New,” “Priority” and “Expanded,” that will be available under Main Street as well as an updated extensive Frequently Asked Questions (FAQ) (https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm). The Main Street Lending Program is a $600 billion loan program to provide support to small and medium-sized businesses established, with the approval of the Treasury Secretary, by the Federal Reserve using its emergency authority under Section 13(3) of the Federal Reserve Act, with $75 billion in equity provided by the Treasury Department under the $454 billion appropriation of Section 4003(b)(4) of Title IV of the Cares Act.
The Boston Fed explained in its accompanying June 8 press release (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200608a.htm) that the thrust of the revisions to the loan programs, updating the terms sheets released on April 30, is to “allow more small and medium-sized businesses to be able to receive support.” Among the key changes are:
- Reduce minimum loan size for “New” and “Priority” loans from $500,000 to $250,000;
- Increase maximum loan size for “New” loans from $25 million to $35 million, for “Priority” loans from $25 million to $50 million and for “Expanded” loans from $200 million to $300 million;
- Extend maturity of all Main Street loans from four years to five years;
- Extend commencement of scheduled principal repayments from the first anniversary of the Main Street loan closing to the second anniversary (interest payments will continue to start on the first anniversary, with interest accrued during the first year capitalized either quarterly or annually in accordance with the Eligible Lender’s “customary practices”); and
- Increase government’s participation in “Priority” loans to 95% (the government, through the Main Street SPV, will now hold an undivided 95% participation interest in all Main Street loans).
The Boston Fed stated that the Federal Reserve “expects the Main Street program to be open for lender registration soon and to be actively buying loans shortly afterwards . . . Once they have successfully registered for the program, lenders are encouraged to begin making Main Street loans immediately,” although no set date for commencing lender registration has been announced. The Boston Fed also noted that the Federal Reserve is working to establish a separate lending program for nonprofit organizations (nonprofits as a whole are not eligible to borrow under the Main Street Lending Program).
The below annotated chart of the three Main Street loan programs summarizes and highlights key aspects of, and compares differences among, the “New,” “Priority” and “Expanded” loan programs, updating and superseding our prior summary of the April 30 term sheets. Sheppard Mullin is actively assisting borrowers and lenders in analyzing and accessing the funds available on the Main Street Lending Program.
As you are aware, things are changing quickly and the aid measures and interpretations described here may change. The summary attached to this post represents our best understanding and interpretation based on where things currently stand as of June 10, 2020.