Following the launch of the program, the Fed released further updates to the program’s terms and announced that it will be adding two new lending facilities that will be made available to non-profit entities.
On April 9, the Fed provided initial details on the Main Street Lending Program, which will utilize $75 billion from the Treasury Department’s appropriations under the CARES Act for a lending facility that will purchase up to $600 billion of newly issued and existing loans from eligible lenders who issue program loans. The loans will be directly administered through private banking institutions who will sell majority participations in the loans to a special purpose vehicle created by the Fed and administered by the Federal Reserve Bank (FRB) of Boston, with lenders retaining a small portion of the loans. For for-profit businesses, this is to be accomplished through three lending facilities:
The loans authorized under the program are low-interest (adjustable rate of LIBOR (1 or 3 month) + 300 basis points), non-forgivable loans with 5-year repayment terms. Principal payments under the loans are deferred for the first two years of the loan term and interest payments are deferred for the first year of the loan term. To be eligible for these loans, borrowers are required to make certain certifications that they will follow compensation and equity repurchase and distribution restrictions referenced in the CARES Act. Borrowers who received a loan under the Paycheck Protection Program may also qualify to receive a loan under the Main Street Lending Program.
Rollout and Updates to Program Terms
Earlier this month, eligible lenders under the program began accepting applications from potential for-profit borrowers for loans under the MSNLF, MSELF and MSPLF. The FRB Boston’s website provides a list of eligible lenders who are accepting new customers, and is available here.
Following the launch of the program, the Fed has issued updated guidance on program terms. Of note, the guidance now allows for permitted fees charged by lenders in connection with the loans to be included in the principal amount of the loans. In addition, the Fed has clarified that the loans shall feature a fully adjustable rate of interest, and no LIBOR floors are permitted.
Announcement of New Non-Profit Facilities
On July 17, the Fed announced two new lending facilities under the program for eligible borrowers that are non-profit entities (Eligible Non-Profits). Eligible Non-Profits are tax-exempt organizations described under Section 501(c)(3) of the Internal Revenue Code (code) (or tax-exempt veterans’ organizations under Section 501(c)(19) of the code) that:
The two new lending facilities for Eligible Non-Profits are the:
The Fed has prepared Term Sheets detailing the loan terms under the NONLF and NOELF facilities, both of which are available here.
We will continue to monitor any changes to the NONLF and NOELF and the rollout of these new facilities, and we will advise of additional information when it becomes available.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Justin Csik is an associate in the Corporate & Securities Department at Klehr Harrison.