Main Street Lending Program Opens to Nonprofits, Multiborrower Loans

Federal Reserve Issues Updated Guidance; Program Uptake Is Growing but Modest

November 12, 2020

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.

  1. 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:

  2. 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.)

  3. 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.)

  4. 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.)

  5. 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:

  6. 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.

  7. 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.

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.

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