Who Benefits from the Fed’s $600 Billion Direct-Lending Program?
April 10, 2020
On April 9, 2020, the Federal Reserve announced the creation of a new lending program to help mid-sized businesses access capital due to disruptions caused by the coronavirus pandemic. The Fed will make up to $600 billion in loans available through the Main Street Lending Program (MSLP), which consists of two different emergency-lending facilities, the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF).
Join Aprio on Friday, April 17 at 1:00 p.m. for a webinar as we unpack the central bank’s direct-lending program for mid-market companies. Register here.
To break down what we know so far, we spoke with Bill Dupee, Aprio’s SBA and CARES Act expert.
Who is the program designed to assist?
The program is designed for businesses with as many as 10,000 employees or as much as $2.5 billion in 2019 revenues.
Do businesses apply directly to the government for loans?
No, similar to the Paycheck Protection Program (PPP), businesses will work through banks to obtain loans. Please note this program is not yet operational as the Fed is accepting comments on the program through April 16. We will provide more information on the program as available.
How is this program different from the Paycheck Protection Program?
The PPP provides forgivable loans for businesses with fewer than 500 employees. The MSLP was created to provide assistance to mid-sized businesses up to 10,000 employees.
If you qualify for PPP, can you also qualify for MSLP?
Yes. Based on current guidance from the Fed as of April 9, 2020, you may be able to qualify for both the MSLP and the PPP.
What are the specifics of the loan facilities?
The MSLP provides two facilities that offer four-year, unsecured, amortizing loans, limited up to 4-6x 2019 EBITDA (based on applicable facility). Unlike the PPP, the loans are not available for forgiveness. Loans will be priced using the adjustable Secured Overnight Financing Rate (SOFR) plus 2.5 to 4 percentage points, and there is also an upfront origination fee of 1 percentage point. Loans can be paid off early without a penalty.
|Main Street New Loan Facility||Main Street Expanded Loan Facility|
|Origination||On or after April 8, 2020||Before April 8, 2020|
|Interest rate||Adjustable rate of SOFR + 250–400 basis points||Adjustable rate of SOFR + 250–400 basis points|
|Term||4 years with 3-year amortization||4 years with 3-year amortization|
|Security||Unsecured||Pari passu basis with original loan.|
|Minimum loan size||$1 million||$1 million|
|Maximum loan size||The lesser of $25 million or 4x 2019 EBITDA and subject to amount of current credit facilities||The lesser of $150 million or 6x 2019 EBITDA and subject to amount of current credit facilities|
|Prepayment||Permitted without penalty||Permitted without penalty|
When will we know more details about this program?
The Fed has an open comment period through April 16 at which time we will have more details.
We will provide current guidance during our webinar on Friday April 17 at 1 p.m. EST.