U.S. Main Street Loan Program Update – Finance and Banking

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Torys previously posted advice and updates on the three United States Federal Reserve loan programs created under the Main Street Lending Program (MSLP) established by the Coronavirus Aid, Relief, and Economic Security Act ( CARES Act). These programs, the Main Street New Loan Facility Program (MSNLF), the Main Street Expanded Loan Facility (MSELF) and the Main Street Priority Loan Program (MSPLF), will provide up to $ 600 billion in term loans to small and medium-sized businesses. companies. Mid-sized American companies impacted by the COVID-19 pandemic.

The MSNLF offers eligible borrowers access to new loans up to the lesser of $ 35 million, the amount of which, added to the outstanding and unused available debt, does not exceed four times the 2019 Adjusted EBITDA of the ‘borrower. MSELF will support larger tranches of existing term loans or revolving credit facilities up to the lesser of $ 300 million and the amount which, when added to outstanding and unused available debt, does not exceed six times the borrower’s adjusted EBITDA in 2019. The MSPLF makes new loans available to eligible borrowers up to a maximum of $ 50 million and an amount that, added to the outstanding available debt and not used, does not exceed six times the borrower’s adjusted EBITDA in 2019. MSPLF loans must at all times have priority or pari passu with the borrower’s other debts.

In this bulletin, we highlight critical aspects of the recently published guidance and documentation provided by the Federal Reserve regarding the MSLP, which include documentation of forms, revised certifications, restrictive covenants and reporting requirements, as well as a updated Frequently Asked Questions (FAQs).

Priority and guarantee

The updated FAQ provides more clarity on the priority and security requirements for MSPLF and MSELF loans. Previous Federal Reserve guidelines stated that MSPLF and MSELF loans must be “greater than or equal, in terms of priority and security, to other loans or debt obligations of the eligible borrower, other than mortgage debt.”

The updated guidelines specify that MSPLF and MSELF Upsized Tranche loans must be secured if, at the time of origination, the borrower has other secured loans or debt instruments except mortgage debt. The MSPLF or MSELF Upsized Tranche loan can only be unsecured if the borrower does not have, at the date of origin, such other secured debt. In addition, the loan documentation must i) ensure that the loan from the resized tranche of the MSPLF or MSELF does not become contractually subordinated in terms of priority to any of the other debts of the eligible borrower and ii) contain a clause privilege or a negative pledge guaranteeing the same. Appendix B of the FAQ contains a sample lien clause, among other examples of contractual clauses for MSLP loans.


For MSNLF and MSPLF loans, eligible lenders will pay Main Street SPV at the time of origination a transaction fee of 100 basis points of the MSNLF or MSPLF loan, and the eligible borrower will pay an equivalent fee to the lender, who retains the discretion to decide whether to charge these fees. Regarding MSELF loans, the mechanism is the same, but the fees to be paid to the SPV and to the Eligible Lender are 75bp of the MSELF Upsized Tranche.

In return, for loan management purposes, the SPV will pay eligible lenders a commission of 25 basis points per year.


The Federal Reserve has provided more details in the FAQ on the methodology for calculating Adjusted EBITDA. Eligible lenders who extend loans to existing borrowers should use the methodology the lender previously required for EBITDA adjustments. For new borrowers, the eligible lender must use the same methodology it used for borrowers in a similar situation on or before April 24, 2020. “Borrowers in a similar situation” are borrowers in similar industries with comparable risk and size characteristics. If an eligible lender has used more than one EBITDA adjustment method with respect to an existing borrower or borrowers in a similar situation, the lender should choose the most conservative method it has used previously.


While previous Federal Reserve guidelines predictably indicated that certain information would be collected on borrowers and lenders participating in the MSLP, Annex C of the FAQ published on May 27, 2020 provides for specific and extensive financial reporting requirements, notably :

  • Adjusted and unadjusted EBITDA as well as descriptions of EBITDA adjustments (quarterly and annual)
  • Accounts receivable and payable, operating income and expenses, inventories and other related balances (quarterly and annually)
  • Details of various expenses, expenses and fixed charges (quarterly and annual)
  • Short-term and long-term debt (quarterly and annually)
  • Engagement Status: A pass / fail indication of whether the facility has passed engagement tests and reports on the details of any failure to engage (quarterly and annually)

Loan and program documentation

Since our previous updates, the Federal Reserve has released more than a dozen documents that establish the legal framework for the MSLP, which apply either to the entire program or to specific transactions, including:

  • Participation agreement: includes transaction-specific conditions that must be fulfilled by the eligible lender as well as separate standard general conditions of participation, which include customary representations and warranties and mutual indemnities.
  • Maintenance contract: sets out the rights of the SPV as manager and lender and must be signed by the eligible lender and submitted at the time of the sale of the participation in the SPV.
  • Blank assignment: standard document by which the SPV would raise or transfer its participation if necessary, also to be signed by the borrower.
  • Co-lender agreement: like the Participation Agreement, the Co-Lender Agreement includes transaction-specific conditions as well as standard conditions. This document sets out the legal framework in the event that the SPV subsequently chooses to increase its participation in a bilateral facility to provide a multi-lender facility.
  • Standard Lender and Borrower Certifications and Commitments: Includes extended required certifications regarding mechanisms such as program eligibility, EBITDA requirements, priority, percentage of participation and use of proceeds.

Although the terms of the Main Street programs are subject to review and further guidance, the Federal Reserve indicated in its June 3 webinar that the launch of the MSLP is imminent.

Originally published June 29, 2020

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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