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COVID-19: What are These Main Street Lending Loans?

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Much emphasis has been placed on the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) Loan programs available under the CARES Act to date.
April 24, 2020

To date, so much emphasis has been placed on the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) Loan programs available under the CARES Act. However, if your organization did not receive, or was not eligible to apply for loans under those programs, the Main Street Loans may be worth considering. The Main Street Loans, comprised of the Main Street New Loan Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF) offer some organizations an alternative to help keep their organizations afloat during this pandemic.

These loan programs are a continuation of the CARES Act and administered by the Federal Reserve. While they are not as beneficial as the PPP loans or the EIDLs, they can offer a much larger borrowing capacity for some. The loan programs offer a minimum loan of $1 million. The loan size caps out at the lesser of $25 million or an amount that when added with the borrower’s existing outstanding and committed, but undrawn debt does not exceed four times the borrowers 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA).

So what does that mean? Let us assume you have an existing line of credit agreement for $5 million and you currently have borrowed $2 million of that amount. In addition, let us also assume that your 2019 EBITDA calculation for 2019 was $6,250,000. Based on these factors, your total loan amount would be $22,000,000, see the following summarized calculation:

 

 Summary of Calculations

 

 

  2019 EBITDA Calculation

$6,250,000

 

  Multiple Factor

4

 

  Sum

$25,000,000

 

  Less the Available Borrowing Capacity on Your Line of Credit

$3,000,000

 

  Total Amount from Main Street Loan

$22,000,000

 

The Main Street Expanded Loans are offered to those who previously had a Main Street Loan prior to March 27, 2020 and provide a maximum loan equal to the lesser of $150 million or 30% of the borrowers existing outstanding and committed, but undrawn debt plus six times EBIDTA.

The key terms of the Main Street Loans are summarized below:

  • The loans have a 4-year maturity with 1-year deferral of principal and interest.
  • The loans will carry an adjustable interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 250 (2.5%) to 400 (4.0%) basis points.
  • These loans will not offer any forgiveness.

In addition to the loan terms mentioned above, the borrower must certify and meet a number of additional requirements, including:

  • The uncertainty of economic conditions as of the date of the application makes necessary the loan request to support the ongoing operations of the recipient.
  • The borrower will refrain from using the proceeds of the loan to repay other loan balances. In addition, the borrower, will refrain from repaying other debt of equal or lower priority, with the exception of required principal payments, unless this loan is first repaid in full.
  • The funds received will be used to retain at least 90% of the recipient's workforce, at full compensation and benefits until September 30, 2020.
  • The borrower intends to restore not less than 90% of the workforce of the recipient that existed as of February 1, 2020 and to restore all compensation and benefits to the workers of the borrower no later than 4 months after the termination date of the public health emergency.
  • The borrower is an entity or business that is domiciled in the United States with significant operations and employees located in the United States.
  • The eligible borrower will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act (see below).
  • The borrower is not a debtor in a bankruptcy proceeding.
  • The borrower is created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States.
  • The borrower will not pay dividends with respect to the common stock of the eligible business, or repurchase an equity security that is listed on a national securities exchange of the recipient or any parent company while the loan is outstanding, except for a contractual obligation that was in effect prior to March 27, 2020.
  • The borrower will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan.
  • The borrower will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan.
  • The borrower will remain neutral in any union organizing efforts for the term of the loan.

The terms mentioned under section 4003(c)(3)(A)(ii) of the CARES Act require that the borrower must agree to the following items:

  • Not to repurchase an equity security that is listed on a national securities exchange of the eligible business or parent company until 12 months after the loan is no longer outstanding.
    • Except for obligations entered into prior to March 27, 2020.
  • Not to pay dividends or make other capital distributions with respect to common stock of the eligible business until 12 months after the loan is no longer outstanding.
  • Comply with limitations on compensation set forth in section 4004 of the CARES Act, as summarized below. Beginning on the date of the loan and ending 1 year after the date on which the loan is no longer outstanding:
    • No officer or employee of the eligible business whose total compensation exceeded $425,000 in 2019:
        • Will receive total compensation which exceeds, during any 12 consecutive months, the total compensation received by the office or employee from 2019 or
        • Will receive severance pay or other benefits upon termination of employment which exceeds twice the maximum total compensation received by the officer or employee during 2019 and;
    • No officer or employee whose total compensation exceeded $3,000,000 in 2019 may receive during any 12 consecutive months, total compensation in the excess sum of:
        • $3,000,000 and
        • 50% of the excess over $3,000,000 of total compensation by the offices or employee from 2019
    • Total compensation includes, salary, bonuses, awards of stock, and other financial benefits provided to an officer or employee of the company.

 

Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 


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