Update:
For information on the most recent developments in the Main Street
Lending Program (MSLP), see our
November 25, 2020, alert.
The Federal Reserve recently adjusted the terms of the Main Street Lending
Program (MSLP) to better target support to smaller businesses.
McGuireWoods’ previous client alerts (from
May 1,
May 29,
June 12,
June 18,
July 6,
July 17,
July 31 and
Sept. 22) summarize the term sheets, guidance and form documents issued and revised
by the Federal Reserve for the MSLP. As noted in those previous client
alerts, the Federal Reserve established the MSLP to support lending to
small and medium-sized businesses and nonprofit organizations that were in
sound financial condition before the onset of the COVID-19 pandemic. Under
the MSLP, the Federal Reserve Bank of Boston (FRB Boston) formed MS
Facilities LLC as a special purpose vehicle (Main Street SPV) to purchase
up to $600 billion of participations in eligible loans. The MSLP currently
consists of five facilities: the Main Street New Loan Facility (MSNLF), the
Main Street Priority Loan Facility (MSPLF), the Main Street Expanded Loan
Facility (MSELF), the Nonprofit Organization New Loan Facility (NONLF) and
the Nonprofit Organization Expanded Loan Facility.
Program Terms Adjusted
On Oct. 30, 2020, FRB Boston
announced two important changes to the terms of the MSLP, each intended to help
smaller businesses access loans under the program.
- Minimum loan sizes reduced for certain facilities. The
minimum loan size for each of the MSNLF, the MSPLF and the NONLF was
reduced from $250,000 to $100,000. To encourage provision of those smaller
loans, the Federal Reserve adjusted fees as follows:
- If the initial principal amount of the eligible loan is less than
$250,000, no transaction fee is payable by the eligible lender to the Main
Street SPV. (For other loans under the applicable MSLP facilities, a
transaction fee of 1 percent applies and may be passed on to the eligible
borrower.)
- If the initial principal amount of the eligible loan is less than
$250,000, the eligible lender may charge the eligible borrower an
origination fee of up to 2 percent. (For other loans under the applicable
MSLP facilities, an origination fee of up to 1 percent applies.)
- If the initial principal amount of the eligible loan is less than
$250,000, the Main Street SPV will pay the eligible lender an annual
servicing fee of 0.50 percent. (For other loans under the applicable MSLP
facilities, an annual servicing fee of 0.25 percent applies.)
In updated guidance regarding these changes, the Federal Reserve also
clarified that while an eligible borrower may receive more than one loan
from a single MSLP facility, the Main Street SPV will not accept more than
one loan made to an eligible borrower by the same eligible lender with an
initial principal amount of less than $250,000 within 60 days. This
restriction is intended to prevent an eligible lender from originating
multiple loans with an initial principal amount of less than $250,000 to
the same eligible borrower in order to benefit from the adjusted fee
structure.
- Paycheck Protection Program (PPP) loans can be excluded in determining
maximum loan size. The updated guidance also provides a framework for eligible lenders and
eligible borrowers to exclude certain outstanding PPP loans when computing
“existing outstanding and undrawn available debt” for purposes of
determining the maximum loan size under the applicable MSLP facility. The
exclusion applies only as follows with respect to an eligible borrower
that, together with its affiliates, received PPP loans with original
principal amounts totaling less than $2 million:
- If the eligible borrower has applied for forgiveness of its PPP loan, the
“Forgiveness Amount,” as reported by the eligible borrower to the U.S.
Small Business Administration (SBA), may be excluded, except to the extent
that the eligible borrower’s PPP lender or the SBA has determined that such
amount is ineligible for forgiveness.
- If the eligible borrower has not yet applied for forgiveness of its PPP
loan, the amount of its PPP loan that its principal executive officer has a
reasonable, good-faith basis to believe will be forgiven in accordance with
applicable PPP requirements may be excluded.
This framework for exclusion reflects the Federal Reserve’s intention to
support lending to PPP borrowers that are otherwise eligible to borrow
under the MSLP but might not have received the SBA’s PPP loan forgiveness
decisions by the time of their MSLP loans.
An eligible borrower seeking to exclude PPP debt under this framework must
provide applicable documentation to the eligible lender during the
underwriting process.
The updated guidance further provides (1) that an eligible borrower that,
together with its affiliates, received PPP loans with original principal
amounts totaling $2 million or more may not exclude any of the outstanding
portion of such loans except to the extent that the SBA has actually
determined that such loans are eligible for forgiveness; and (2) that
eligible lenders and eligible borrowers may exclude 100 percent of the
amount of any PPP loan that the SBA has determined is eligible for
forgiveness.
MSLP Uptake Is Growing but Remains Modest
FRB Boston fully opened the MSLP to for-profit businesses on July 6, 2020,
and to nonprofit organizations on Sept. 4, 2020. As of Nov. 4, 2020, the
Main Street SPV held approximately $4.140 billion of participations in
eligible loans, or approximately 0.69 percent of the current maximum size
of the MSLP.
On Nov. 9, 2020, the Federal Reserve released
transaction-specific details for MSLP loans settled with the Main Street SPV through Oct. 31, 2020. Of
note, those disclosures reflect the following:
- One hundred twenty-nine lenders made and settled 420 eligible loans in an
aggregate principal amount of approximately $4.162 billion (for
approximately $3.954 billion in purchased participations). Of those, 168
eligible loans in an aggregate principal amount of approximately $1.851
billion (for approximately $1.759 billion in purchased participations)
settled in October 2020.
- Approximately one-third of all settled MSLP loans (139 of 420) were made
by a single lender. The aggregate principal amount of those settled loans
was approximately $678.6 million.
- Settled MSLP loans were made to eligible borrowers in 47 different U.S.
states.
- Settled MSLP loans were concentrated in the MSNLF (183 settled loans, in
an aggregate principal amount of approximately $962.0 million) and the
MSPLF (226 settled loans, in an aggregate principal amount of approximately
$2.590 billion). Ten loans under the MSELF settled, in an aggregate
principal amount of $605.4 million. The first loan under the NONLF (in an
original principal amount of $4.4 million) settled in October 2020.
- The average and median principal amounts of all settled MSLP loans were
approximately $9.91 million and $4.04 million, respectively. The average
and median principal amounts of all settled MSNLF loans were approximately
$5.26 million and $2.25 million, respectively, through the full range of
the facility ($250,000 to $35 million). The average and median principal
amounts of all settled MSPLF loans were approximately $11.46 million and
$5.39 million, respectively, with a range of $460,000 to $50 million. The
average and median principal amounts of all settled MSELF loans were
approximately $60.54 million and $30.95 million, respectively, with a range
of $10 million to $250 million.
-
On average, the Main Street SPV purchased participations in eligible loans
within 12 days after origination, with a range of two to 47 days and a
median of nine days.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.