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04.10.2020 | Legal Advisory

On April 9, the Treasury Department and the Federal Reserve announced two new lending facilities to provide capital to small- and medium-sized businesses. The Main Street New Loan Facility (the “New Loan Facility”) will finance loans originated on or after April 8 and the Main Street Expanded Loan Facility (the “Expanded Loan Facility,” together with the New Loan Facility, the “Facilities”) will finance additional credit (the “Upsized Tranche”) on loans originated before April 8. Borrowers can only participate in one of the Facilities.

While economic terms of the Facilities are less generous than loans under the Paycheck Protection Program (“PPP”), the Facilities do not contain the same onerous affiliation rules that prevent participation by many businesses with PE/VC investors. As such, portfolio companies of PE/VC investors should strongly consider seeking loans under the Facilities as one avenue to secure additional liquidity in the face of COVID-19.

Considerations for PE/VC-backed companies:

Eligibility: U.S. companies with up to (i) 10,000 employees or (ii) $2.5 billion in 2019 annual revenues.

• Borrowers must be created or organized in the U.S. and have significant operations and majority of employees based in the U.S.
• No eligibility requirement that affiliates under common control must be included in calculating size limits.

Loan Terms: (Downloadable Loan Terms Chart)

	New Loan Facility	Expanded Loan Facility (solely with respect to the Upsized Tranche)
Origination	On or after April 8	Before April 8
Security	Unsecured	If original loan is secured, extension secured on a pari passu basis with original loan. If original loan is unsecured, extension is unsecured.
Maturity	4 years	4 years
Amortization	Amortization of principal and interest deferred for 1 year.	Amortization of principal and interest deferred for 1 year.
Interest Rate	Adjustable rate of SOFR1 + 2.5 – 4%	Adjustable rate of SOFR + 2.5 – 4%
Minimum Loan Size	$1 million	$1 million
Maximum Loan Size	The lesser of (i) $25 million or (ii) an amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Borrower’s 2019 EBITDA	The lesser of (i) $150 million, (ii) 30% of the Borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Borrower’s 2019 EBITDA
Prepayment	Prepayment permitted without penalty	Prepayment permitted without penalty

¹ “SOFR” is the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York. The current SOFR can be found here. As of April 8, 2020, the SOFR is 0.01%.

Required Attestations:

By Lender:

• Proceeds will not be used to repay/refinance pre-existing "loans or lines of credit" by Lender to Borrower, including, for extension loans, pre-existing portions.
• Will not cancel/reduce any existing lines of credit available to Borrower.

By Borrower:

• Refrain from using proceeds of eligible loans to repay other loans.
• Refrain from repaying other debt of equal/lower priority, except for mandatory principal payments, unless Borrower has first fully repaid eligible loan.
• Attest that it will not seek to cancel/reduce any outstanding credit lines.
• Attest it requires financing due to exigent circumstances caused by COVID-19, and, using proceeds of a New Loan Facility loan or an Expanded Loan Facility loan, as applicable, it will make reasonable efforts to maintain payroll/retain employees during loan term.

• Attest that it meets required EBITDA leverage condition described above.
• Attest that it will follow the CARES Act one-year post repayment restrictions on compensation, share repurchases, and capital distributions.

Fees:

Lender may require Borrower to pay a facility fee equal to 0.95% of principal. In addition, Lender will be entitled to a 1% origination fee from Borrower.

This advisory was prepared by Joshua French, Kate Henry, Meghan Kelly, and Shannon Zollo in Nutter’s Private Equity practice group. For more information, please contact any of the above individuals; or your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.