On April 9, 2020, the Federal Reserve (the “Fed”) announced that it will provide $2.3 trillion in loans to support the United States economy.  As the central bank of the United States, the Fed is using its authority to promote economic stability both for individuals and businesses through a Main Street Lending Program that was unaffected, but influenced, by the CARES Act.  Here are the key takeaways from the Fed’s action last week:

Additional Funds for Small and Mid-Sized Business

The Fed announced that its Main Street Lending Program will offer four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.

Companies seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain their current workforce.  They must also follow compensation, stock repurchase, and dividend restrictions that apply under the CARES Act.  Importantly, businesses that have taken advantage of the Payroll Protection Program may also take out one of these Main Street loans.

Loan Terms

These loans are divided into two categories: (1) increased loans of an existing credit facility with banks; and (2) loans under new credit facilities with banks.  The loans will have a four-year maturity date, principal and interest payments deferred for one year, an adjustable rate based upon the SOFR + 250-400 basis points; and prepayment permitted without penalty.

Maximum Loan Amount

Borrowers taking out a new loan are eligible for a minimum of $1 million and a maximum of either $25 million or an amount that when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization, whichever is less.

Borrowers seeking loan increases are eligible for the lesser of $150 million, 30% of the Eligible Borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization.

The Main Street Lending Program will likely require a separate application from the Payroll Protection Program, but it will be administered through similar lenders with similar requirements.

We will continue to keep you updated as we receive more information.