Main Street Lending Program Documentation Provides Guidance for Borrowers, Lenders

As previously reported, in response to the coronavirus (COVID-19) pandemic, the Federal Reserve Board and the U.S. Department of the Treasury have unveiled the Main Street Lending Program (MSLP) — consisting of the Main Street New Loan Facility (MSNLF), Main Street Expanded Loan Facility (MSELF) and Main Street Priority Loan Facility (MSPLF) — to provide credit to "main street." (See Holland & Knight's previous alerts, "Federal Reserve Board, Treasury Department Unveil New and Expanded Credit Facilities," April 10, 2020, and "Treasury, Federal Reserve Release Final Main Street Facility Term Sheets," April 30, 2020.)

The information released on May 27, 2020, includes 1) updated Frequently Asked Questions for the MSLP (FAQs), which includes as appendices a loan document checklist defining key terms per facility; the required certifications and covenants and the required financial reporting, 2) instructions for lender required documentation, 3) borrower certifications and covenants as well as lender specific certification and covenants for each of the MSNLF, MSELF and MSPLF, 4) the various participation agreement documents and 5) lender registration documents. (See Holland & Knight's previous alert, "Federal Reserve Releases Updated Main Street Lending Program FAQs, Form Documents," May 28, 2020.)

This Holland & Knight alert provides in-depth analysis on the recently released information and documentation from the Federal Reserve and Treasury Department.

Unchanged Information

The information from Holland & Knight's first two alerts has not changed. For information on the following topics, please refer to our April 30, 2020, alert:

• Eligible Lenders
• Eligible Borrowers
• EBITDA adjustments
• MSNLF, MSELF and MSPLF loan terms

Changes and Clarifications

The updated FAQs together with the new documentation, instructions and guidance provide greater clarity on the following topics as set forth in the linked items below:

• Conflicts of Interest Prohibition

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) requires that each borrower and each lender under the MSLP must certify that a Covered Individual does not own, directly or indirectly, 20 percent or more of such borrower or lender.

• SPV Voting Rights in Participations and Other Related Matters

The Participation Agreement provides the Special Purpose Vehicle (SPV) broader voting rights than what one normally would see in a Participation Agreement; however, in each of the Participation Agreement and the Co-Lender Agreement, the SPV does waive its rights to any claims under Section 507(a)(2) of the Bankruptcy Code.

• Affiliation Issues Under the Main Street Lending Program

Potential borrowers must carefully and properly identify their affiliates and know when to include them (and when not to) for purposes of assessing eligibility for the MSLP; an affiliated group of companies may only participate in one Main Street facility.

• Restrictions on Stock Repurchases, Dividends, Capital Distributions and Compensation

In order to access credit under the MSLP, a borrower is required to certify that it will not engage in certain restricted payments for up to 12 months after repayment of their Main Street loan, including repurchases of public stock, dividends and capital distributions as well as compensation and severance above certain specified levels for individuals receiving total compensation in excess of $425,000.

• Demonstrating Inability to Secure Adequate Credit

In order to access credit under the MSLP, a borrower is required to certify that it is "unable to secure adequate credit accommodations from other banking institutions," and it may make this certification when the "amount, price, or terms of credit available from other sources are inadequate for the borrower's needs during the current and unusual exigent circumstances." 

• Financial Reporting

The Main Street Lending Programs require detailed annual and quarterly financial reporting from borrowers.

• Prohibitions on Early Repayment of Other Indebtedness

Borrowers may retain other indebtedness in their capital structures, but they must not prepay other indebtedness ahead of its scheduled repayment dates. Bank revolving credit lines, credit cards, equipment and inventory financing, and other loans maturing within 90 days are excluded.

Conclusion

For more information or any questions regarding the new MSLP documentation, please contact the authors.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice.