On Thursday, April 9, 2020 the United States Treasury pursuant to Section 13(3) of the Federal Reserve Act approved the establishment of a Main Street Business Lending Program and a Municipal Liquidity Facility to support the flow of credit to American workers, businesses, states, counties, and cities impacted by the coronavirus pandemic.
Using funds appropriated under 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 Business 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. The 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.
Guidance around the stimulus programs may evolve, so please contact us if you have any questions.
Looking for more COVID-19 resources? Visit our resource center for expertise on impacts to expect and how your business can respond.
Copyright © 2020 CBIZ & MHM (Mayer Hoffman McCann P.C.). All rights reserved. CBIZ and MHM are separate and independent legal entities that work together to serve clients. CBIZ is a leading provider of tax and consulting services. MHM is an independent CPA firm providing audit and other attest services. This article is protected by U.S. and international copyright laws and treaties. Use of the material contained herein without the express written consent of the firms is prohibited by law. Material contained in this alert is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their business.