This article was updated on April 13.
The Federal Reserve recently released additional information about funding solutions for medium-sized organizations affected by the coronavirus. The Federal Reserve approved the Main Street Business Lending Program on Thursday, April 9, 2020, which will support lending to organizations with up to 10,000 employees or with revenue of less than $2.5 billion. Also approved was the Municipal Liquidity Facility, which supports lending to states, counties, and cities.
All together, the Main Street Lending Program and the Municipal Liquidity Facility will provide up to $2.3 trillion in loans, programs supported by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The U.S. Treasury will make a $75 billion equity investment in a special purpose vehicle established to implement the Main Street Lending Program. This investment will enable up to $600 billion in new financing for businesses with up to 10,000 employees or $2.5 billion in 2019 annual revenues.
Loans will be unsecured term loan with four-year maturities. Under the program, the minimum amount is $1 million, and the maximum amount is the lesser of:
- $25 million or
- 4x EBITDA less outstanding and committed but undrawn debt
The interest rate is Federal Reserve’s Secured Overnight Financing Rate (SOFR) plus 250-400 basis points. Principal and interest payments will be deferred for one year and prepayment is permitted without penalty.
Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Banks will retain a 5% share, selling the remaining 95% to the Main Street facility, which will purchase up to $600 billion of loans.
Organizations seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.
Entities that have taken advantage of the Small Business Administration's Paycheck Protection Program (PPP) may also take out Main Street loans.
Additionally, Treasury will make a $35 billion equity investment in the Municipal Liquidity Facility (MLF), which will provide up to $500 billion in direct financing to states, counties, and cities to help ensure they have the funds necessary to provide essential services to citizens and respond to the coronavirus pandemic. The MLF will provide funds to help offset the delay in state and local tax receipts caused by the deferral of the tax filing deadline, and to help offset any short-term losses in tax revenues resulting from reduced business and consumer activity due to the coronavirus pandemic.
U.S. Treasury Secretary Steven Mnuchin as per the CARES Act also approved a $75 billion equity investment in a special purpose vehicle established to implement the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), which will be used to purchase eligible corporate debt. In combination, the PMCCF and SMCCF will provide $750 billion in additional liquidity.
Secretary Mnuchin also approved the expansion of the Term Asset-Backed Securities Loan Facility (TALF). Established to help meet the credit needs of American consumers and businesses by facilitating the issuance of asset-backed securities, the TALF will now also include highly rated newly issued collateralized loan obligations and legacy commercial mortgage-backed securities as eligible collateral. As previously announced, Treasury will make an equity investment of $10 billion in a special purpose vehicle established to implement TALF, which is expected to provide up to $100 billion of loans. The revised terms and focus on highly rated asset-backed securities will promote price discovery and liquidity, helping stabilize and re-open key lending markets for American consumers and businesses, while minimizing the risk to U.S. taxpayers.
Navigating the changes to liquidity may be complex, and our team is here to help you access available relief through the Main Street Lending Programs, the SBA’s Paycheck Protection Program, and the Economic Injury Disaster Loan Program. Contact us directly to learn more and stay tuned for additional guidance around the stimulus programs by visiting our COVID-19 Resource Center.
Copyright © 2020, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).