Revised Term Sheets: U.S. Federal Reserve Provides Implementing Guidelines for Small- and Medium-Sized Business Lending Programs

On April 30, 2020, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued detailed term sheets for three lending facilities, each of which is intended to facilitate the provision of credit to small- and medium-sized businesses. The three facilities (collectively, the “Main Street Facilities”) constitute a central piece of the U.S. federal government’s response to the economic impact of the Coronavirus Disease 2019 pandemic (“COVID-19”), and will be implemented under the authority of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Federal Reserve Act. The new materials provided by the Federal Reserve provide significant clarity to companies exploring possible credit opportunities in light of the COVID-19 pandemic. Certain restrictions added to the facilities, however, will limit their usefulness in helping to bolster the U.S. economy.

The Main Street Facilities include the Main Street New Loan Facility (the “New Loan Facility”) and the Main Street Priority Loan Facility (the “Priority Loan Facility”), under which banks will originate new loans to borrowers, and the Main Street Expanded Loan Facility (the “Expanded Loan Facility”), under which banks will “upsize” existing loans to borrowers.  Under each facility, the lending bank may sell significant portions of loans that meet certain criteria (“Eligible Loans”) to a special purpose vehicle established by the Federal Reserve (the “Main Street SPV”), which will be financed by loans from the Federal Reserve Bank of Boston. The Federal Reserve had previously announced and provided preliminary term sheets for the New and Expanded Loan Facilities (the “Preliminary Term Sheets”), but the term sheets released on April 30 (the “Revised Term Sheets”) reflect significant changes to those terms. The Priority Loan Facility is new as of April 30, though its terms mirror those of the New and Expanded Loan Facilities in most respects.

This Note summarizes the key aspects of the Main Street Facilities. We have also attached a chart comparing those three facilities’ most important features.

 Read the full note here