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Federal Reserve Adds Nonprofit Lending Facilities and Other Updates to Main Street Lending Program | Man’s pepper with trout

MSLP installations for for-profit companies

Since mid-July, the Boston Fed has updated the MSLP Business FAQs twice (posts July 15 and 31) with additional details and clarifications. Significant changes and additions to the existing FAQs for MSLP facilities for eligible for-profit borrowers include:

  • A new FAQ has been added confirming that when a borrower is acquired or merged into another business, the acquiring or resulting entity must also comply with the certifications and commitments applicable to that borrower’s loan on Main Street. Since commitments on compensation limits and restrictions on dividends and distributions continue for a year after the Main Street loan is repaid, this new FAQ confirms that the Main Street program can have a poison pill-like effect. by making the borrower unattractive to a potential buyer.
  • Specific guidelines for determining when an eligible borrower that is an intermediary entity, such as a partnership or limited liability company, would be in compliance with the CARES Act restrictions on remuneration and distributions of capital. Notably, question H.16 provides examples of how stock-based compensation may be permitted, but any distribution made to an officer on such shares would be a prohibited distribution. In addition, the value of such stock-based compensation is considered within the framework of the maximum compensation requirements of the CARES Act.
  • Guidance regarding employee share ownership plans (ESOPs) that hold ordinary shares of an eligible borrower and potential issues with the CARES law restrictions on capital redemptions, redemptions and distributions with respect to ESOPs. Generally, the restrictions on redemptions and redemptions do not apply to redemptions or redemptions required under a contractual obligation in effect on March 27, 2020. In addition, an ESOP would not be prohibited from redeeming shares of an eligible non-public borrower. Dividends or distributions in respect of participations held by an ESOP with an eligible borrower would be subject to the restrictions of the CARES Act, unless the participations and the obligation to pay such dividends or distributions existed on March 27, 2020.
  • Clarification on the length of time an eligible lender is required to maintain its entire position in the credit facility underlying an increased tranche of the Extended Main Street Credit Facility (MSELF), which is the earlier of the dates the following: (i) until the maturity of the underlying credit facility; (ii) the MSELF Oversized Tranche reaches maturity; or (iii) neither Main Street SPV nor any government assignee holds an interest in the MSELF Oversized Tranche in any capacity. As explained in more detail in the updated FAQ, this requirement applies to the position (s) of the Eligible Lender that it holds in the Underlying Credit Facility for investment purposes, and not for the purpose of market making.
  • Clarification that an eligible lender in an expanded tranche of MSELF can be a lender who purchased the original loan from another eligible lender or from a non-qualifying lender.

Other updates to the FAQ include clarifications on the following:

  • Eligible Borrowers may submit MSLP requests with more than one Eligible Lender as long as the Eligible Borrower discloses other pending or accepted requests to the potential lender when submitting a new request.
  • If an eligible borrower has no other secured debt (other than mortgage debt), the collateral coverage ratio and pari passu the requirements do not apply to the collateral securing the Main Street Senior Loan Facility (MSPLF).
  • Subject to certain criteria being met, Tribal Economic Enterprises that are separate from the related Tribal Government, even if not a separate business entity, may be a Qualifying Enterprise.
  • The Boston Fed adjusts the MSLP portal to accommodate co-borrower agreements. More instructions and advice will be forthcoming.

MSLP facilities for non-profit companies

Nonprofit MSLP Installations are Now Live, and Updated Terms Sheets, Form Agreements, and a set of FAQs (last updated July 31, 2020) for Nonprofit Installations are now available. on the Boston Fed website. website.

Below is a summary of the terms and conditions for these facilities and any changes made since the original facility conditions were announced.

Characteristics of the Types of Loans to Main Street Nonprofits

New nonprofit loans

Extended non-profit loans

term of the loan

5 years

Minimum loan size

$ 250,000

10 million dollars

Endowment limit

$ 3 billion

Years of operation

At least 5 years

Eligibility criteria (see Term Sheets for more details)

  • Minimum employees – 10 (previously 50)
  • Total income excluding donations equal to or greater than 60% of expenses for the period 2107 to 2019 (previously 70% of income)
  • 2019 operating margin of 2% or more (previously 5%)
  • Current days at checkout 60 days (previously 90 days)
  • Current debt repayment capacity (ratio of cash, investments and other resources to outstanding debt and certain other liabilities) greater than 55% (previously 65%)

Maximum loan size

The lesser of $ 35 million or the borrower’s average quarterly income in 2019

The lesser of $ 300 million or the borrower’s average quarterly income in 2019

Risk retention

5%

Principal reimbursement

Principal postponed for two years; years 3-5: 15%, 15%, 70%

Interest repayments

Deferred for one year

Interest rate

LIBOR + 3%

This alert does not replace full reading of the FAQs and other MSLP terms and conditions.