Fed Main Street’s $ 600 billion loan program begins raising lenders

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The Federal Reserve has announced that lenders can now sign up to participate in its Main Street loan program, and some bodybuilders may wish to encourage their banks to join.

The program is much broader and open to larger businesses than the Small Business Administration’s Paycheck Protection Program.

“The Federal Reserve designed Main Street to support small and medium-sized businesses that were unable to access PPP or need additional financial support after receiving a PPP loan,” the Boston Fed wrote in a statement. FAQ. “Main Street loans are not forgivable.”

Any business with fewer than 15,000 employees or making less than $ 5 billion in 2019 is eligible, meaning even the largest multi-store operators could potentially participate. The 2018 Caliber-ABRA merger was to create a company with around 19,000 employees but only $ 3.5 billion in revenue, which would make it eligible if revenues did not exceed $ 5 billion in the past year. . Boyd Group Services raised nearly $ 2.3 billion last year, much of which came from the Gerber No.2 collision.

“The Main Street Lending Program is designed to support American small and medium-sized businesses and their employees during this time of financial difficulty by giving them access to additional credit,” the Boston Fed wrote in introducing a webinar for borrowers. “The program aims to help businesses that were in good financial health before the start of the COVID-19 pandemic to maintain operations and payroll until conditions normalize. Small and medium-sized businesses are an integral part of the US economy and create jobs for much of the US workforce.

Body shops and other businesses would contact an eligible lender enrolled in the program, and the lender would decide whether or not to accommodate the borrower with a loan. Lenders can increase existing debt or create a new loan.

The minimum loan on Main Street is $ 250,000 ($ 10 million for “Upsized Tranche” loans), and businesses can take out more than one loan for a total maximum of $ 35 million to $ 300 million. The Federal Reserve will buy 95% of all loans and the lender will keep the remaining 5%. With the Fed taking on most of the risk, banks may be interested in participating.

The Fed will buy up to $ 600 billion in loan debt and stop such purchases on September 30.

The guarantee is not even necessarily required.

“MSNLF loans, MSPLF loans, and MSELF oversized tranches can be secured or unsecured,” the Boston Fed wrote in its FAQ.

“An MSELF Upsized tranche must be secured if the underlying loan is secured. In such a case, any collateral securing the underlying loan (at the time of resizing or at any later date) must secure the resized MSELF tranche on a pari passu basis. Under such an arrangement, if the borrower defaults, the SPV and the lender (s) would share equally any collateral available to support the loan against their proportional interest in the loan (including the MSELF Upsized slice). Eligible lenders may require eligible borrowers to pledge additional collateral to secure an expanded tranche of MSELF as a condition of approval.

While some restrictions exist, Main Street loan funds appear to offer businesses more flexibility than P3 loans, which can only be spent on certain expenses like payroll, rent, and utilities. Main Street Loans cannot be used to repay existing debt (with the exception of mandatory principal and interest bills) until the Main Street loan itself is paid off. However, the business can pay off a line of credit, refinance debt that would fall due in 90 days or less, and incur new debt as long as it is not secured by existing assets and does not have priority over the debt. close to the main street. The borrower also cannot cancel or reduce an existing credit with the Main Street lender until they have paid off the Main Street loan.

Borrowers are also required to “make commercially reasonable efforts to retain employees during the term of the MSNLF loan, MSPLF loan, or MSELF Upsized tranche,” according to the FAQs for borrowers.

“More specifically, an eligible borrower must undertake good faith efforts to maintain the payroll and retain employees, in light of their capabilities, the economic environment, their available resources and labor needs. of the company, “the Fed continued. “Borrowers who have already laid off or put workers on leave due to disruption due to COVID-19 are eligible to apply for loans on Main Street.”

Borrowers do not have to pay principal in years 1 and 2 of the five-year loans. They will need to find 15 percent of the principal at the end of each of years 3-4. The remaining 70 percent will be due at the end of year 5.

“Prepayment of principal is permitted without penalty and will reduce future payments as specified in the underlying loan documents,” the Fed wrote.

Interest must be 300 basis points above 1-month LIBOR or 3-month LIBOR. According to Bankrate on Wednesday afternoon, 1-month LIBOR this week stood at 0.19% and 3-month LIBOR at 0.31%. (So ​​you will owe 3.19% or 3.31% interest.)

Treasury Secretary Steven Mnuchin on Monday urged banks to support borrowers.

“This morning, the Boston Federal Reserve announced that the Main Street loan program lender portal is now open,” Mnuchin said in a statement. “The program, which will operate through three facilities – the New Main Street Lending Facility, the Main Street Senior Lending Facility and the Main Street Extended Lending Facility – is designed to help ensure that small and medium-sized businesses have access to credit. they have to go through this difficult period. As announced last week, the share of loans retained by the original bank has been lowered to five percent for all eligible loans submitted to the program, creating additional balance sheet capacity for participating lenders. I encourage all eligible lenders to register in order to provide loans to eligible borrowers as soon as possible.

The program will run until at least September 30, when the Fed’s special vehicle will stop buying loans.

More information:

Federal Reserve Main Street Loan Program Webpage

Boston Federal Reserve Main Street Loan Program Webpage

Federal Reserve Main Street FAQs

Federal Reserve, June 8, 2020

Fed Main Street for borrowers webpage

Pictures:

Boston Federal Reserve is shown. (drnadig / iStock)

Federal Reserve Chairman Jerome Powell is shown. (Provided by the Federal Reserve)

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