The Fed Announces New Facilities Which Will Provide Up to $2.3 Trillion in Liquidity with $600 Billion Directed at Main Street
Today the Federal Reserve Banks have announced the formation of two facilities aimed to assist banks, their holding companies and credit unions (“Entities”) in preserving Main Street businesses. The two facilities, the Main Street New Lending Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF) will provide opportunities for entities to sell loans to the Federal Reserve Banks. MSNLF is for qualifying loans originated after April 8, 2020 and MSELF is for qualifying loans originated April 8, 2020 and prior.
The facilities with provide for the FRB to purchase 95% of the qualifying loans through a newly formed special purpose vehicle. The terms of the qualifying loans are as follows:
- A 4-year maturity
- Unsecured if the loan is under the MSNLF
- Deferral of amortization of principal and interest for one year
- An adjustable rate equal to the Federal Reserve’s Secured Overnight Financing Rate (“SOFR”) plus 250 to 400 basis points
- A minimum loan size of $1 million and a maximum loan size of:
- For MSNLF loans, the lesser of (i) $25 million or (ii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- For MSELF loans, the lesser of (i) $150 million, (ii) 30% of the Eligible Borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- Prepayment without penalty
Lastly, there are Lender and Borrower attestations as well as facility fees and loan origination and servicing fees. The facilities are expected to terminate their purchases on September 30, 2020, unless the Board and the Treasury Department decide to extend the MSLPF.
For more information on the Fed’s new action see the link below: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm
Additionally, the Fed also announced the Paycheck Protection Program Lending Facility. This facility is intended to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program. All depository institutions that originate PPP Loan are eligible to borrow under this facility.
Borrowers will participate in the Facility through the Reserve Bank in whose District the eligible borrower is located with the collateral being the PPP loans guaranteed by the Small Business Administration. The rate on these extensions of credit will be 35 basis points and there are no fees with the facility. Lastly, the PPP loans will carry a 0% risk-weighting.
Neil is a principal in our banking practice. He has more than 25 years of experience in the banking industry, which includes nine years in the private sector. His private industry experiences range from cashier to chief financial officer; however, his strengths are in both the operations and lending areas of community banks. Neil has led some of the firm’s largest bank external and internal audit and FDICIA engagements. Neil also assists clients with other projects such as merger and acquisition transactions and capital planning.
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