CARES Act: Updated Main Street Lending Program Summary

We previously provided a client alert regarding the Main Street Lending Program here (the Program). The Federal Reserve released additional information regarding the Program on May 27, June 8, June 11, June 15 and June 20. This newly released information includes:

• updated Main Street FAQs (FAQs).
• updated term sheets for the Main Street New Loan Facility (New Facility), the Main Street Priority Loan Facility (Priority Facility) and the Main Street Expanded Loan Facility (the Expanded Facility and together with the New Facility and Priority Facility, collectively, the Current Main Street Facilities).
• agreements and other documents necessary for borrowers and lenders to participate in the Current Main Street Facilities (the Current Main Street Agreements), which agreements and documents can be found here: Federal Reserve Bank of Boston Main Street Program,
• draft term sheets for the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF), which would expand the Program make certain nonprofit businesses eligible borrowers (the Nonprofit Main Street Facilities).

The purpose of this client alert is to assist borrowers and lenders by summarizing changes to the Program, the Current Main Street Agreements and the draft terms of the Nonprofit Main Street Facilities. For a more comprehensive look at these three topics, please view our extended Main Street Lending Program reference guide.

Summary

Program Overview. The Department of the Treasury (Treasury Department) will make a $75 billion equity investment in MS Facilities LLC, a Delaware limited liability company (the SPV), in connection with the Program. The SPV will be operated by the Federal Reserve Bank of Boston (FRB Boston) and will purchase up to $600 billion of participations in eligible loans made by eligible lenders to eligible borrowers. Eligible lenders will retain a 5% portion of each such eligible loan. The SPV will cease purchasing loan participations on September 30, 2020, unless the Program is extended. The Program currently consists of three facilities — the New Facility, the Priority Facility and the Expanded Facility. The Federal Reserve released proposed terms for, and sought comments on, the NONLF and NOELF by June 22.

Current Main Street Facilities and Agreements

The table below provides a summary of the different loan options for the Current Main Street Facilities.

The table below set forth below describes the Main Street Agreements (which are linked to the applicable document or agreement on FRB Boston’s website) and a brief description of such agreement.

Nonprofit Main Street Facilities

 Consistent with prior public statements, the Federal Reserve proposed to expand the Program to include nonprofit businesses as eligible borrowers. As proposed, nonprofit businesses could participate in one of two facilities under the Program — the Nonprofit Organization New Loan Facility or the Nonprofit Organization Expanded Loan Facility. The Federal Reserve has requested feedback on the NONLF and NOELF by June 22. The table below summarizes the initially proposed terms of the NONLF and NOELF, which are substantially similar to the Main Street Facilities in many respects, including with regard to eligible lenders, loan term, amortization, interest rate and lender risk retention. 

CARES Act: Main Street Lending Program Extended Reference Guide

Section 1. Current Main Street Agreements

1. Loan Agreement and other Loan Documents. Each lender can use its own loan documentation in relation to Main Street loans. This documentation should be substantially similar to the loan documentation the lender uses in its ordinary course lending to similarly situated borrowers, adjusted only as appropriate to reflect the requirements of the Program. However, in order for the SPV to participate in a loan, the loan documentation must include the components set forth in the Loan Document Checklist set forth on Appendix A to the FAQs. Lenders may elect to use the model covenants set forth on Appendix B to the FAQs to satisfy the following requirements on the Loan Document Checklist: #8 (Priority/Security Requirement), #12 (Borrower Certifications and Covenants Material Breach Mandatory Prepayment), #13 (Cross-Acceleration Provision) and #15 (Financial Reporting).

   The table below provides a summary of the Loan Document Checklist.

   Term	New Facility	Priority Facility	Expanded Facility
   Maturity	5 years	5 years	5 years
   Principal and Interest Deferral	Principal = 2 years Interest = 1 year	Principal = 2 years Interest = 1 year	Principal = 2 years Interest = 1 year
   Capitalization of Unpaid Interest	Yes	Yes	Yes
   Interest Rate	LIBOR (1 or 3 month) + 3%	LIBOR (1 or 3 month) + 3%	LIBOR (1 or 3 month) + 3%
   Principal Amortization Schedule (principal payments deferred years 1 and 2)	Year 3 = 15% Year 4 = 15% Year 5 = 70% Interest payments deferred Year 1 and unpaid interest is capitalized	Year 3 = 15% Year 4 = 15% Year 5 = 70% Interest payments deferred Year 1 and unpaid interest is capitalized	Year 3 = 15% Year 4 = 15% Year 5 = 70% Interest payments deferred Year 1 and unpaid interest is capitalized
   Minimum Loan Size	$250,000	$250,000	$10,000,000
   Maximum Loan Size	lesser of $35M or 4x 2019 adjusted EBITDA less outstanding and undrawn available debt	lesser of $50M or 6x 2019 adjusted EBITDA less outstanding and undrawn available debt	lesser of $300M or 6x 2019 adjusted EBITDA less outstanding and undrawn available debt
   Priority/Security Requirement	must not be contractually subordinated to any other debt	must not be contractually subordinated to other debt must include a standard lien covenant or negative pledge that is of the type that is of the type and that contains the exceptions, limitations, carve-outs, baskets, materiality thresholds, and qualifiers that are consisted with those used by the lender in its ordinary course lending to similarly situated borrowers (model provision in Appendix B to the FAQs)	must not be contractually subordinated to other debt must include a standard lien covenant or negative pledge that is of the type that is of the type and that contains the exceptions, limitations, carve-outs, baskets, materiality thresholds, and qualifiers that are consisted with those used by the lender in its ordinary course lending to similarly situated borrowers (model provision in Appendix B to the FAQs); provided, however, if the upsized tranche is part of a multi-lender facility, any lien covenant or negative pledge that was negotiated in good faith prior to April 24, 2020 as part of the underlying loan is deemed sufficient
   Prepayment	permitted without penalty	permitted without penalty	permitted without penalty
   Type of Loan	term	term	term (though underlying loan can be term or revolving credit facility)
   Origination Date	after April 24, 2020	after April 24, 2020	after April 24, 2020, though underlying loan must have been originated on or before April 24, 2020
   Borrower Certifications and Covenants Material Breach Mandatory Prepayment Provision	must include a Borrower Certifications and Covenants material breach mandatory prepayment provision (model provision in Appendix B to the FAQs)	must include a Borrower Certifications and Covenants material breach mandatory prepayment provision (model provision in Appendix B to the FAQs)	must include a Borrower Certifications and Covenants material breach mandatory prepayment provision (model provision in Appendix B to the FAQs)
   Cross-Acceleration Provision	must include a cross acceleration provision (model provision in Appendix B to the FAQs)	must include a cross acceleration provision (model provision in Appendix B to the FAQs)	must include a cross acceleration provision (model provision in Appendix B to the FAQs); provided, however, if upsized tranches where the underlying loan is part of a multi-lender facility, any cross-default or cross-acceleration provision that was negotiated in good faith prior to April 24, 2020, as part of the underlying loan will be deemed sufficient
   Collateral	secured or unsecured	secured or unsecured	secured or unsecured (same as original loan)
   Financial Reporting	must include a quarterly financial reporting covenant requiring the financial reporting set forth in Appendix C to the FAQs (model provision in Appendix B to the FAQs)	must include a quarterly financial reporting covenant requiring the financial reporting set forth in Appendix C to the FAQs (model provision in Appendix B to the FAQs)	Must include a quarterly financial reporting covenant requiring the financial reporting set forth in Appendix C to the FAQs (model provision in Appendix B to the FAQs); provided, however, for any upsized tranche where the underlying loan is part of a multi-lender facility, any financial reporting provision that was negotiated in good faith prior to April 24, 2020, as part of the underlying loan shall be deemed sufficient

   1. Priority and Security Covenants.
      1. All Main Street Loans — No Contractual Subordination. Each Current Main Street Facility must include covenants regarding the priority and/or security of the Main Street loan. No Main Street Loan may be contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments. However, the prohibitions on contractual subordination do not prevent the incurrence of obligations that have mandatory priority under the Bankruptcy Code or other insolvency laws, or other relevant law or regulation, that apply to entities generally.
      2. Priority Facility — Senior or Pari Passu Requirement. Priority Facility loans must be, at the time of origination and at all times thereafter, senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than (i) debt secured by real property at the time of the Main Street loan origination and (ii) limited recourse equipment financings secured only by the acquired equipment ((i) and (ii), collectively, Mortgage Debt). New FAQs C.6 provides additional information on how to interpret these terms. In C.6 of the FAQs the Federal Reserve explains that in order to satisfy the senior or pari passu requirement if the Priority Facility loan is secured, then the “Collateral Coverage Ratio” for the Priority Facility loan at the time of origination must be either (i) at least 200% or (ii) not less than the aggregate Collateral Coverage Ratio for all of the borrower’s other secured loans or debt instruments (other than Mortgage Debt).

         The “Collateral Coverage Ratio” is defined as (i) the aggregate value of any relevant collateral security, including the pro rata value of any shared collateral, divided by (ii) the outstanding aggregate principal amount of the relevant debt.

         If the Priority Facility loan is secured by the same collateral as any of the Eligible Borrower’s other loans or debt instruments, the lien upon such collateral securing the Priority Facility loan must be and remain senior to or pari passu with the lien(s) of the other creditor(s) upon such collateral. The Priority Facility loan need not share in all of collateral that secures the Eligible Borrower’s other loans or debt instruments.

         A Priority Facility loan can be unsecured only if the Eligible Borrower does not have, as of the date of origination, any secured loans or debt instruments (other than Mortgage Debt that does not secure any other tranche of the underlying facility).

         During the term of the Priority Facility loan, the loan documentation for the Priority Facility loan must (i) ensure that such loan does not become contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments; and (ii) contain a lien covenant or negative pledge that is of the type — and contains exceptions, limitations, carve-outs, baskets, materiality thresholds and qualifiers — that are consistent with those used by the Eligible Lender in its ordinary course lending to similarly situated borrowers. A model provision of this negative covenant is set forth on page 48 of the FAQs.

      3. Expanded Facility — Senior or Pari Passu Requirement. Expanded Facility upsized tranches (each an Upsized Tranche) must be, at the time of origination and at all times thereafter, senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments (other than Mortgage Debt). New FAQs D.12 provides additional information on how to interpret these terms. The Upsized Tranche must be secured if, at the time of origination, the Eligible Borrower has any other secured Loans or debt instruments, other than Mortgage Debt. With respect to an underlying credit facility that includes a term loan tranche and a revolving loan tranche, the Upsized Tranche must share collateral only with the term loan tranche on a pari passu basis. If any of the other term loan tranches constitute Mortgage Debt, the Upsized Tranche must also be secured by the collateral securing such Mortgage Debt on a pari passu basis. The Eligible Lenders and Eligible Borrowers may add new collateral to secure the loan (including the Upsized Tranche on a pari passu basis) at the time of upsizing. If the underlying credit facility includes both term loan tranche(s) and revolver tranche(s), the Upsized Tranche needs to share collateral on a pari passu basis with the term loan tranche(s) only. Secured Upsized Tranches must not be contractually subordinated in terms of priority to any of the Eligible Borrower’s other Loans or debt instruments.

         The Upsized Tranche can be unsecured only if the Eligible Borrower does not have, as of the date of origination, any secured loans or debt instruments (other than Mortgage Debt). Unsecured Upsized Tranches must not be contractually subordinated in terms of priority to the Eligible Borrower’s other unsecured Loans or debt instruments.

         In order to comply with the Expanded Facility Priority and Security Requirement during the term of the Upsized Tranche after the date of origination, the loan documentation for the Upsized Tranche must: (i) ensure that the Upsized Tranche does not become contractually subordinated in terms of priority to any of the Eligible Borrower’s other Loans or debt instruments; (ii) ensure that the Upsized Tranche remains secured on a pari passu basis by the collateral securing the underlying credit facility, as described above; and (iii) contain a lien covenant or negative pledge that is of the type — and contains exceptions, limitations, carve-outs, baskets, materiality thresholds, and qualifiers — that are consistent with those used by the Eligible Lender in its ordinary course lending to similarly situated borrowers. A model provision of this negative covenant is set forth on page 58 of the FAQs. Note that for Upsized Tranches that are part of a multi-lender facility, the facility must include a provision like the one set forth on page 58 of the FAQs unless the loan documentation has a lien covenant that was negotiated in good faith prior to April 24, 2020. 

   2. Borrower Certifications and Covenants Material Breach Mandatory Prepayment Provision. If the Board of Governors of the Federal Reserve System (the Board) determines that the borrower made a material misstatement in its certifications, or materially breached covenants, relating to the CARES Act, the Federal Reserve Act, or the Board’s Regulation A, then the Board will notify the lender to trigger a mandatory repayment requirement under the Main Street loan.
      1. New Facility Loans, Priority Facility Loans and Upsized Tranches (Bilateral Facilities). For all Main Street loans, other than Upsized Tranches that are part of a multi-lender facility, the loan documents must contain a mandatory prepayment provision related to a material breach of the borrower’s certifications in Section 2 (CARES Act Borrower Eligibility Certifications and Covenants) and Section 3 (FRA and Regulation A Borrower Eligibility Certifications and Covenants). A model provision is set forth on page 59 of the FAQs.
      2. Upsized Tranches (Multi-Lender Facilities). For Upsized Tranches that are part of a multi-lender facility, a mandatory prepayment provision substantially similar to that set forth on page 60 of the FAQs must be included if the percentage (or number) of lenders required to consent to a new mandatory prepayment provision under the existing agreements consents to any other changes to the loan documents in the process of upsizing the loan or selling the participation to the SPV. In addition, if 100% of the lenders agree to any other changes to the loan documents in the process of upsizing the loan or selling the participation to the SPV, this mandatory prepayment provision must be inserted into the loan documents and require 100% lender consent for any amendment, waiver or modification thereto.¹
   3. Cross-Acceleration Provision.
      1. New Facility Loans, Priority Facility Loans and Upsized Tranches (Bilateral Facilities). For all Main Street loans, other than Upsized Tranches that are part of a multi-lender facility, the loan documents must contain a cross-acceleration provision that would be triggered if other debt owed by the Eligible Borrower to the Eligible Lender, or any commonly controlled affiliate of the Eligible Lender, is accelerated. A model provision is set forth on page 60 of the FAQs.
      2. Upsized Tranches (Multi-Lender Facilities). For Upsized Tranches that are part of a multi-lender facility, the facility must include a provision like the one set forth on page 61 of the FAQs unless the loan documentation has a cross-default or cross-acceleration provision that was negotiated in good faith prior to April 24, 2020.
   4. Financial Reporting Covenant.
      1. New Facility Loans, Priority Facility Loans and Upsized Tranches (Bilateral Facilities). For all Main Street loans, other than Upsized Tranches that are part of a multi-lender facility, the loan documents must contain a financial reporting covenant requiring the quarterly delivery of borrower financial information and calculations set forth in Appendix C to the FAQs. A model provision is set forth on page 61 of the FAQs.
      2. Upsized Tranches (Multi-Lender Facilities). For Upsized Tranches that are part of a multi-lender facility, the facility must include a provision like the one set forth on page 61 of the FAQs unless the loan documentation has a financial reporting covenant that that was negotiated in good faith prior to April 24, 2020.²
2. Participation Framework and Participation Agreement. The Participation Agreement, together with the Servicing Agreement, Assignment-In-Blank and Co-Lender Agreement are the group of documents that provide the framework for (i) the SPV to acquire the Participation, which is described below, (ii) the Eligible Lender to act as the “Servicer” and perform administrative agent type of functions for the SPV, such as delivery of distributions on the Main Street loan and financial reporting information, and (iii) for the SPV to elevate its status from a more passive participant to a potentially more active lender. A short summary of these agreements is set forth in the table below:

Lenders may either (i) fund the Main Street loan and provide to the SPV the required documentation for the SPV to purchase its participation within 14 days of such funding, or (ii) condition funding of the Main Street loan on the receipt of a binding commitment letter from the SPV.  If the lender elects to utilize the commitment letter condition precedent, then the lender must fund the Main Street loan within three business days following the date of the commitment letter and the SPV will purchase the participation in the Main Street Loan within three business days after such funding. Page 56of the FAQs sets forth a model “Condition to All Borrowings” provision for lenders that wish to condition funding of the Main Street loan on the receipt of a commitment letter. The Board has stated that it is targeting same-day turnaround for requests for binding commitment letters from the SPV.

The Participation Agreement is the agreement pursuant to which the SPV purchases the Participation. Each Participation Agreement has two components — the Standard Terms and Conditions and the Transaction Specific Terms. Material terms set in the Participation Agreement include, among others, the following: 

1. Section 2 (Participation).
   1. Pursuant to Section 2.1(a), the Eligible Lender, as the “Seller” sells to the SPV, as the “Buyer,” a 100% participation interest in the applicable loans specified in the Transaction Specific Terms together with the “Transferred Rights” (the Participation). The term Transferred Rights includes, among other things, all of Seller’s rights in its capacity as a Lender under the applicable credit agreement and other loan documents (the Credit Documents) and, if permitted by applicable law, all claims, suits, causes of action and any other right of Seller in its capacity as a Lender.
   2. Pursuant to Section 2.1(b), the Seller continues to remain responsible for and perform the “Retained Obligations,” which is defined to include all obligations and liabilities of the Seller relating to the Transferred Rights (i) arising or occurring prior to the “Agreement Date,” which is the date specified as the Agreement Date in the Transaction Summary, (ii) that result from Seller’s breach of its representations, warranties, covenants or agreements under the Participation Agreement or the “Credit Documents” (which is generally defined as the credit agreement and related agreements, documents), (iii) that result from Seller’s bad faith, gross negligence or willful misconduct or (iv) that are attributable to Seller’s actions or obligations in any capacity other than as a Lender under the Credit Documents. This an effort by the SPV to shift risk of liability away from the SPV and to the Eligible Lender. 
2. Section 3 (Conditions Precedent). All required documentation must have been completed and signed. All representations and warranties must be true and correct (there is no “materiality qualifier”).
3. Section 4 (Seller’s Representations and Warranties). The representations and warranties to be made by Seller to Buyer are fairly standard (e.g., organization, due authorization, non-contravention, title), though without materiality qualifiers. The representations and warranties in 4(h) are less common, where Seller acknowledges it may now have, or may later receive, material information not provided to the Buyer (the “Seller Excluded Information”). The Seller waives any claims that it may have against Buyer with respect to such Excluded Information and the Seller represents and warrants that this Excluded Information “does not affect the truth or accuracy of Buyer’s representations and warranties.” The Buyer’s representations and warranties in Section 5 are substantially similar.
4. Section 5 (Buyer’s Representations and Warranties). The representations and warranties to be made by Buyer to Seller are generally reciprocal to those set forth in Section 4. Of note, in Section 5.3 Buyer acknowledges that the sale of the Participation is irrevocable and Buyer has no recourse to Seller, except for (i) Seller’s breaches of its representations, warranties or covenants and (ii) Seller’s indemnities set forth in the Participation Agreement.
5. Section 6 (Indemnification). Seller must indemnify, defend and hold Buyer and its officers, directors, agents, partners, members, controlling Entities and employees (the Buyer Indemnitees) harmless from and against any liability, claim, cost, loss, judgment, damage or expense that any Buyer Indemnitee incurs as a result of, or arising out of a breach of any of Seller’s representations, warranties, covenants or agreements. The Buyer provides similar indemnification in favor of the Seller, though with limitations.
6. Section 8 (Distributions; Interest and Fees; Payments). When Seller receives a Distribution (any payment or other distribution in respect of the Transferred Rights), it must deliver such Distribution to the Buyer within two business days after the date on which Seller receives such Distribution. For example, if Seller received a $50,000 payment of interest on a Main Street loan, then 95% of such Distribution ($42,750) must be paid to Buyer within two business days. If Seller fails to pay a Distribution to Buyer within such two day period, then Seller must pay to Buyer interest on such Distribution from the day on which payment is received to the day such payment is actually paid to Buyer.
7. Section 9 (Notices; Records).
   1. Section 9.2. Prior to the “Elevation Date,” which is defined in general terms as the date Buyer or its permitted transferee becomes a lender for purposes of the credit agreement governing the Main Street loan (Credit Agreement), thereby having all the rights and obligations of a lender thereunder, the Seller must use its commercially reasonable efforts to provide to Buyer all written information and documents received by Seller in its capacity as a lender under the Credit Agreement and other loan documents applicable to the Main Street loan (together with the Credit Agreement, the Credit Documents) within three business days of such receipt. However, if such information relates to any matter in respect of a “Core Rights Act” to be taken, Seller must furnish such information to Buyer or Buyer’s designee as soon as practicable and, in any event, prior to such time when such Core Rights Act is to be taken if received with reasonably sufficient time for Seller to furnish or convey such information or documents.

      “Core Rights Act”⁴ has a long definition in the Participation Agreement. Core Rights Acts include, among others, any action or inaction to the extent such action or inaction would result in:

      • any extension, increase or reinstatement of any commitment with respect to the Transferred Rights or “Assumed Obligations” (defined as all obligations and liabilities of Seller with respect to, or in connection with, the Transferred Rights arising or occurring after the Agreement Date, but excluding Retained Obligations).
      • any reduction in the principal, the rate of interest or any fees or other amounts payable with respect to the Transferred Rights or Assumed Obligations (including any loan forgiveness).
      • any delay or postponement of any date scheduled for payment of principal, interest, fees or other amounts or any reduction in the amount of, waiver or excuse of such payment.
      • any change of the pro rata sharing provisions or application of proceeds provisions in the Credit Documents.
      • release of all or substantially all of the collateral for the Transferred Rights or Assumed Obligations or all or substantially all of the value of the Guaranties (a “Guaranty” is defined as a guaranty of Borrower’s obligations under the Documents).⁵
      • the waiver of any condition precedent to closing, effectiveness or funding under the Credit Agreement.
      • any amendment to, modification of, waiver or consent to any departure from any provision in any Credit Document (including the required mandatory prepayment provisions) relating to Borrower’s certifications and covenants in Section 2 (CARES Act Borrower Eligibility Certifications and Covenants) or Section 3 (FRA and Regulation A for Borrower Eligibility Certifications) of the Borrower Certifications and Covenants.
      • any amendment to, modification of, waiver or consent to any departure from any provision in any Credit Document requiring the periodic financial reporting by Borrower or any other obligor, other than certain permitted temporary delays.
      • the express subordination of the loans or any “Encumbrance” in or over all or substantially all of the collateral that has been granted to or for the benefit of the lenders under the Credit Documents.⁶
      • any greater restriction on the ability of, or any additional consent necessary for, any lender to assign, participate or pledge its rights or obligations under any Credit Document.
      • an adverse effect on the Transferred Rights that would be disproportionate to the effect on any other class of obligations under a Credit Document.
      • any amendment to, modification of, waiver of or consent to any departure with respect to any provision in any Credit Document that provides a default or event of default upon the acceleration of any other indebtedness owed by Borrower to Seller or a Commonly Controlled Affiliate of Seller⁷ (a Seller Debt Cross-Acceleration).
      • the declaration, or failure to declare, any obligations of Borrower due and payable upon the occurrence and during the continuance of a Seller Debt Cross-Acceleration.
      • the exercise, or failure to exercise, of any rights or remedies with respect to any collateral at any time that Seller or any Commonly Controlled Affiliate of Seller, is exercising rights or remedies with respect to any collateral securing any indebtedness owed by Borrower to Seller or any Commonly Controlled Affiliate of Seller the default under which has resulted in a Seller Debt Cross-Acceleration.
      • any change to any lender voting approval level under or pursuant to any Credit Document with respect to any of the other items set forth above.
   2. Section 9.3. From the Elevation Date through the 45th day thereafter, if Seller receives any notices, correspondence or other documents in respect of the Transferred Rights or any Credit Document that, to the best of Seller’s knowledge, were not sent to the lenders generally, then Seller must promptly forward them to Buyer. 
8. Section 10 (Further Transfers).
   1. 10.1. The provisions of Section 10.1 apply to any sale, assignment and any other transfer of a Participation or any of Buyer’s rights under the Participation Agreement before the occurrence of an elevation (an Elevation) of the Buyer to a lender under the Credit Agreement (such sale, assignment or transfer, a Pre-Elevation Transfer).

      The Buyer may make a Pre-Elevation Transfer (x) constituting a “Specified Permitted Transfer” without the prior written consent of Seller and (y) otherwise, only with the prior written consent of Seller, subject to certain conditions — including that the transferee of the Pre-Elevation Transfer (the Transferee) make certain representations, warranties and covenants.  The Buyer may also grant one or more subparticipations in the Participation on substantially similar conditions.

      A “Specified Permitted Transfer” includes the following:

      • an Elevation and any Pre-Elevation Transfer or subparticipation made by Buyer at any time that Borrower or any other Obligor (defined as any entity that is obligated under the Credit Documents) has failed to make any payment under any Credit Document when due beyond the applicable grace period, if any.
      • any Elevation and any Pre-Elevation Transfer or subparticipation made by Buyer at any time that Borrower is subject to any bankruptcy proceedings or similar debtor relief laws, has appointed a receiver for the benefit of creditors or has admitted in writing its inability or failed to pay its debts as they become due.
      • any Elevation to Buyer that is requested or “deemed requested” in connection with the Seller taking, or refraining from taking, any Core Rights Act (as discussed above) that the Buyer reasonably determines would result in “Loan Forgiveness”⁸ in the reasonable determination of Buyer.
      • any Pre-Elevation Transfer or subparticipation made or to be made by Buyer if required to do so by statute or court.
      • any Elevation, Pre-Elevation Transfer or subparticipation made or to be made by Buyer at any time either or a direct or indirect parent company of Seller has become the subject of any bankruptcy proceedings or similar debtor relief laws or had appointed a receiver for the benefit of creditors or similar entity charged with the reorganization of liquidation of its business or assets.
   2. Section 10.2. After an Elevation, Buyer may sell, assign, grant a participation or otherwise transfer all or any portion of the Transferred Rights under the Participation Agreement without the consent of or notice to Seller (each a Post-Elevation Transfer); provided, however, unless Seller consents in writing, Seller will continue to deal solely with Buyer in connection with the Buyer’s obligations under the Participation Agreement.
   3. Section 10.3. Seller may not assign its rights or delegate its obligations under the Participation Agreement without the consent of Buyer.
9. Section 11 (Voting). Seller continues to have sole authority to exercise all votes, whether pursuant to amendments, consent or waivers, and otherwise to exercise all other rights and remedies with respect to the Transferred Rights and Assumed Obligations, except with respect to Core Rights Acts, which require the prior written consent of Buyer. In addition, Seller must follow the instructions of Buyer with respect to the Core Rights Act, subject to certain limited exceptions where the Core Rights Act involved is divisible in respect of the Participation. To the extent any Core Rights Act would result in any Loan Forgiveness, Buyer is automatically deemed to have requested an Elevation.
10. Section 12 (Standard of Care). Seller is not held to the standard of care of a fiduciary, but must exercise the same duty of care in the administration and enforcement of the Participation and Transferred Rights it would exercise if it held the Transferred rights solely for its own account. Except for losses that result from Seller’s bad faith, gross negligence or willful misconduct or breach of any of the express terms and provisions of the Participation Agreement, Seller is not liable for any error in judgment or for any action taken or omitted to be taken by it.
11. Section 15 (Elevation). If an Elevation is consented to by Seller or would constitute a Specified Permitted Transfer (no consent needed), then Buyer and Seller will use their commercially reasonable efforts to cause Buyer or its assignee to become a lender under the Credit Agreement as soon as reasonably practicable. As discussed above in Section 11, if any Core Rights Act would result in any Loan Forgiveness, Buyer is automatically deemed to have requested an Elevation. On the date of any such Elevation (an Elevation Date), Buyer becomes a lender under the Credit Agreement and assumes all of the Assumed Obligations and the Participation Agreement terminates, subject to certain obligations that survive such termination such as indemnification obligations.
12. Section 31 (Bankruptcy Code Section 507(a)(2) Waiver. The Buyer agrees that in any proceeding under the Bankruptcy Code, Buyer will not file or assert any claim pursuant to Section 507(a)(2) of the Bankruptcy Code arising from the Credit Documents⁹.

1. Servicing Agreement. The Servicing Agreement pursuant to which the SPV agrees to pay to the Eligible Lender a servicing fee of .25% for the “Services.” The Services include the following:
   1. “Participation Services,” which is defined as the collective services of the Servicer in compliance with its obligations as seller under the Participation Agreement.
   2. “Co-Lender Agency Services,” which is defined as the collective services of the Servicer in compliance with its obligations as Co-Lender Agreement Administrative Agent under the Co-Lender Agreement.
   3. “Enhanced Reporting Services,” which is defined as the reporting services specified on Schedule 1 to the Servicing Agreement.¹⁰
   As compensation for the Services the SPV or its assignee will pay to the Servicer an annual servicing fee equal to the “Servicing Fee Rate” of .25% of the loans subject to the Participation Agreement.
2. Form of Assignment and Assumption (Assignment-in-Blank). The Form of Assignment and Assumption (the “Assignment-in-Blank”) is to be used by the SPV to elevate its Participation, or to elevate and transfer its Participation. The Assignment-in-Blank together with the Co-Lender Agreement enable the SPV to become a lender with respect to the Main Street loan.
1. Bilateral Facilities. The form Assignment and Assumption is to be used in connection with the closing of a Participation Agreement between an Eligible Lender and an Eligible Borrower to the extent the credit agreement does not contain customary syndicated loan facility provisions (a Bilateral Facility), including agency, assignment, voting, sharing and other multi-lender provisions.
2. Syndicated Facilities. For any Participation Agreement for an Eligible Loan that is not a Bilateral Facility (a Syndicated Facility), an Assignment and Assumption will still need to be executed in blank and delivered to the SPV, but the form of assignment and assumption agreement specified in the applicable credit agreement can be used, modified only to match the substance of items #6 (Participation Date), #7 (Participated Interest as of the Participation Date), #8 (Assigned Interest as of the Effective Date), #9 (Effective Date) and #10 (Signatures) in the Form of Assignment and Assumption. For a Syndicated Facility, the Assignment and Assumption will not be required to be executed by the Administrative Agent on the Participation Date, and such signature shall be obtained at a later date when such consent is needed in connection with the elevation (or elevation and transfer) of the Eligible Loan.
3. Co-Lender Agreement. The purpose of the Co-Lender Agreement is to transform a bilateral facility (Eligible Borrower and Eligible Lender) into a multi-lender facility (Eligible Borrower, Eligible Lender and SPV or its assignee) if the SPV elevates its status from a participant to a lender under the Credit Agreement and other Credit Documents. Certain material terms of the Co-Lender Agreement include, among others, the following:
   1. Section 3 (Administration of Loans; Payments; Application of Payments).
      1. Section 3.01 (Administrative Agent; Lenders). Pursuant to Section 3.01 of the Co-Lender Agreement, the parties agree that the New Lender (the entity specified in the Co-Lender Transaction Specific Terms – i.e. the SPV or its assignee) is joined as a lender under the Credit Agreement with all rights and obligations of lender thereunder. The New Lender agrees to be bound by all of the provision of the Credit Agreement applicable to the Main Street loan, thus if there are provisions solely applicable to another tranche of loan (an Other Tranche), such as a revolving loan or letter of credit, such provisions are not applicable to the New Lender as Main Street loans may only be term loans. The entity specified in the Transaction Specific Terms as the Administrative Agent (the Eligible Lender) must provide all material notices and information received from a “Loan Party”¹¹ in connection with the Co-Lender Agreement.
      2. Section 3.04 (Application of Payments Following an Event of Default). Following the occurrence and during the continuance of an event or condition that constitutes an event of default under the Credit Agreement (an Event of Default) and notice thereof to the Administrative Agent by the Borrower of the Required Lenders,[2] all payments received on account of the Obligations must be applied by the Administrative Agent as follows:
         1. first, to the payment of that portion of the Obligations¹³constituting fees, indemnities, expenses and other amounts payable to the Administrative Agent in its capacity as such.
         2. second, to the payment of that portion of the Obligations constituting fees, indemnities, and other amounts (other than principal, interest, reimbursement obligations in respect of any letter of credit disbursements, and letter of credit fees).
         3. third, to the payment of that portion of the Obligations constituting accrued and unpaid charges and interest on the loans and unreimbursed letter of credit disbursements, ratably among the lenders.
         4. fourth, to the payment of that portion of the Obligations constituting (A) unpaid principal of the Loans and unreimbursed letter of credit disbursements and (B) any required cash collateralization of undrawn letters of credit and other credit support accommodations, ratably among the lenders.
         5. fifth, to the payment in full of all other Obligations, in each case ratably among the Administrative Agent and the lenders based upon the respective aggregate amount of all such Obligations owing to them in accordance with the respect amounts thereof then due and payable.
         6. finally, the balance, if any, after all Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by applicable law.
      3. Section 3.05 (Remedies). Upon an Event of Default and at any time thereafter during the continuance of such event, the Administrative Agent must, at the request of the Required Lenders (which will typically be the SPV and/or its assignees), by notice to the Borrower, take any or all of the following actions (a) terminate the commitments then outstanding, (b) declare the loans then outstanding to be due and payable in whole or in part, (c) require that the Borrower cash collateralize any letter of credit obligations and (d) foreclose on any collateral and exercise on behalf of itself and the lenders all rights and remedies available to it under the Credit Agreement and other loan documents.
   2. Section 4 (The Administrative Agent). The terms and provisions set forth in Section 4 of the Co-Lender Agreement are fairly standard. The Administrative Agent (i) is not subject to any fiduciary or other implied duties, regardless of whether any default has occurred and is continuing, (ii) is not liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence, willful misconduct or material breach of the Co-Lender Agreement, (iii) is entitled to rely on notices, requests, certifications, or other writings believed by it to be genuine, and (iv) may delegate its duties to one or more sub-agents. Of note is the requirement set forth in Section 4.09 that, upon the request by the Administrative Agent, “the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types of property, or to release any guarantor from its obligations under its guaranty.”¹⁴
   3. Section 6 (Expenses; Indemnity; Damage Waiver). The Borrower must pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, negotiation, execution, delivery and administration of the Co-Lender Agreement, the Credit Agreement and other loan documents and all out of pocket-expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of its rights in connection with any such document. The Borrower must indemnify the Administrative Agent, each lender and their respective related parties incurred in connection with, or as a result of, the execution and performance by such parties of their respective obligations under the Credit Agreement or any other document, the extension of credit and under certain other circumstances. If Borrower fails to pay any such expenses or fails to satisfy the indemnification obligations, each Lender agrees to pay to the Administrative Agent such Lender’s pro rata share of such unreimbursed expenses or indemnity payment.
   4. Section 7 (Waivers; Amendments). No waiver or amendment to the Co-Lender Agreement, Credit Agreement or any other loan document is effective unless in writing executed by the Borrower, the other applicable Loan Parties and the Required Lenders (again, which will typically include the SPV and/or assignee(s)). However, under certain circumstances the written consent of each Lender is required (e.g., increase any commitment of any Lender, postpone or delay any date scheduled for payment of principal, interest or any fees, or release all or substantially all of the collateral).
4. Lender Certifications and Covenants. Lenders under the Current Main Street Facilities are required to make certain certifications and covenants to the SPV, FRB Boston, the Board and the Secretary of the Treasury (the Secretary) in connection with each Main Street loan. The certifications and covenants are divided into different categories summarized below.
   1. Borrower Certifications and Covenants. Lenders must certify that, following due inquiry, the lender has no knowledge or reason to believe that the certifications made by the borrower with respect to its status as a for-profit “business” or the borrower’s formation prior to March 13, 2020 are incorrect in any material respect. While lenders generally are able to rely on information provided by borrowers in connection with the certifications that lenders make under Program, these formation-related matters require a level of due inquiry that the instructions to the certifications and covenants define to consist of the lender receiving government-certified documentation from the borrower evidencing legal formation and taking steps to verify that information as is required by the lender’s ordinary underwriting policies and procedures. Lenders also must certify that the borrower has delivered the signed borrower certifications and covenants summarized below. The instructions clarify that the lender is not responsible for verifying the accuracy of the borrower’s certifications or monitoring the borrower’s compliance with the covenants therein, although the lender is expected to promptly notify the SPV and FRB Boston if the lender becomes aware of a borrower’s material breach of any covenant as a result of the borrower self-reporting any such breach as required by the Program’s documentation.
   2. Eligible Loan Certifications and Covenants. Lenders must certify that the applicable loan’s terms comply with various requirements of the Program, which are summarized above, including with respect to the interest rate, amortization schedule and maximum size. These certifications include a certification that the methodology the borrower is required to use to calculate its 2019 adjusted EBITDA for purposes of the leverage ratio utilized to calculate the maximum loan size (1) is a methodology the lender previously has required for EBITDA adjustments when extending credit to the borrower or similarly situated borrowers on or before April 24, 2020 (in the case of the New Facility and the Priority Facility) or (2) is the methodology the lender previously has required for EBITDA adjustments when originating or amending the applicable underlying credit facility on or before April 24, 2020 (for the Expanded Facility). The instructions also make clear that lenders may charge a default interest rate that is greater than the Program’s generally required rate of LIBOR plus 300 basis points.
   3. Lien Certifications and Covenant. For loans under the Expanded Facility and the Priority Facility, lenders must make certifications relating to the senior or pari passu requirements summarized above. In addition to the lender certification described above regarding borrower formation, these certifications also require lenders to conduct certain due diligence. For unsecured loans under the Expanded and Priority Facilities, lenders must complete lien searches and conduct other customary diligence with respect to the borrower’s assets that are consistent with the lender’s ordinary course diligence procedures. For secured Priority Facility loans, lenders must (1) inquire with their employees managing the lender’s relationship with the borrower and (2) conduct a good faith, reasonable search of their records to determine if the borrower has accurately reported the outstanding debt it has with the lender in connection with certifying that the collateral coverage ratio requirement summarized above is satisfied. Lenders may, however, rely on borrowers’ reporting with respect to the value of collateral in connection with the collateral coverage ratio calculation. For secured Priority Facility loans, lenders also must conduct the same due diligence with respect to liens described above for unsecured loans in connection with a certification that the lender does not have knowledge or a reason to believe that the lien the lender has in any shared collateral is not senior to or pari passu with the lien on the shared collateral securing the borrower’s other debt (other than Mortgage Debt).
   4. Loan Participation Certifications and Covenants. Lenders must certify that the participation sold to the SPV is 95% of the principal amount of the loan and must agree to hold their risk retention in the loan until the earlier of the date that (1) the loan matures or (2) neither the SPV nor (i) another Federal Reserve Bank, (ii) a vehicle created by the Board or another Federal Reserve Bank, (iii) an entity created by Congress, or (iv) a vehicle established or acquired by a department or agency of the federal government (including the Treasury Department) holds an interest in the loan. For the Expanded Facility, this agreement also covers the lender’s interest in the underlying credit facility, although the lender’s requirement to retain its interest in the underlying facility may terminate when the underlying facility matures.
   5. Additional Certifications and Covenants. Lenders must provide other certifications and covenants relating to compliance with the Program’s terms and conditions for loans, including relating to the risk rating of the underlying loan (for the Expanded Facility) or any other loans the borrower had with the lender as of December 31, 2019 being equivalent to a “pass,” the lender’s agreement not request early repayment of other debt from the borrower (except in the limited circumstances allowed by the Program) and not to cancel or reduce any existing committed credit lines that the lender provide to the borrower (except in the limited circumstances provided by the Program).
5. Borrower Certifications and Covenants. Each borrower under the Current Main Street Facilities is required to make certifications and covenants to the SPV, the lender making the loan, the FRB Boston, the Board and the Secretary. The certifications and covenants are required to be executed by the borrower’s principal executive officer and principal financial officer, or individuals performing similar functions. The certifications and covenants are divided into different categories summarized below.
   1.  Borrower Eligibility. The borrower must make various certifications and covenants relating to its status as an eligible borrower. Eligible borrowers generally include U.S. for-profit business that were established prior to March 13, 2020 and, on an aggregate basis with its affiliates, have less 15,000 or fewer employees or had less than $5 billion in 2019 annual revenues. The updated FAQs and instructions to the Borrower Certifications and Covenants include the following clarifications regarding borrower eligibility:
      1.  Significant U.S. Operations. With regard to the CARES Act’s requirement that eligible borrowers have “significant operations in the United States,” a borrower is deemed to satisfy this requirement if the borrower – together with its consolidated subsidiaries (but not its parent companies or any sister company affiliates) – has greater than 50% of its (1) assets located in the U.S., (2) annual net income generated in the U.S., (3) annual net operating revenues generated in the U.S., or (4) annual consolidated operating expenses (excluding interest expense and other expenses associated with debt service) generated in the U.S. Although this list purports to be a non-exclusive list of ways to satisfy the requirement, we expect it will be the starting point for borrowers’ analysis of this aspect of eligibility. 
      2. U.S. Subsidiaries of Foreign Companies.  A company created or organized in the U.S. that is a subsidiary of a foreign company may be an eligible borrower under the Program, subject to satisfying the other eligible borrower criteria. An eligible borrower that is a subsidiary of a foreign company, however, must agree to restrictions on the use of proceeds from the Main Street loan that are summarized below in the “Other Certifications and Covenants” section.
      3. Participation in Federal Reserve Facilities Determined on an Affiliated Basis. An affiliated group of companies may only participate in one type of Current Main Street Facility or the Primary Market Corporate Credit Facility (PMCCF) created under the CARES Act to facilitate bond issuances. As a result, if any affiliate of an eligible borrower has, for example, received a loan under the New Facility, all affiliates of that borrower may only receive a loan under the New Facility and may not participate in the PMCCF or any of the other Current Main Street Facilities. In addition, if any affiliate of an eligible borrower has participated in the Program, the maximum loan sizes provided by the Current Main Street Facilities for affiliates subsequently seeking to borrow under the Program will be determined on an aggregated basis, including taking into account loans received by affiliates as well as the affiliated group’s 2019 adjusted EBITDA for purposes of calculating the leverage ratio limitation in the applicable Current Main Street Facility. To the extent that companies affiliated with venture capital or private equity funds are eligible borrowers, these restrictions will require careful coordination with other companies with which a potential borrower might not regularly coordinate operating or financing activities. The FAQs also clarify that private equity funds themselves are not eligible borrowers. Portfolio companies of private equity funds might find it difficult to satisfy the eligible borrower requirements to have a fewer than 15,000 employees or less than $5 billion in 2019 annual revenue when calculated on an aggregate basis with all affiliates.
      4. Inability to Secure Adequate Credit. As required by regulations under the Federal Reserve Act, a borrower must certify that it “is unable to secure adequate credit from other banking institutions.” The instructions and FAQs provide that this certification does not mean that no other credit is available to the borrower; rather, that the borrower is unable to secure “adequate credit accommodations” because “the amount, price, or terms of credit available from other sources are inadequate for the Borrower’s needs during the current unusual and exigent circumstances.” The inherent ambiguity around this certification has the potential to give prospective borrowers pause when making the certification. As part of preparing loan application materials, we recommend that prospective borrowers create a contemporaneous record of the reasons the company is seeking an additional extension of credit at this time as well as efforts to obtain debt outside of the Current Main Street Facilities to support this certification.
      5. Solvency. As required by regulations under the Federal Reserve Act, a borrower must certify that it is not insolvent. For purposes of this certification, the instructions provide that business disruptions resulting from the Covid-19 pandemic may be disregarded when assessing the “generally failing to pay undisputed debts as they become due” prong of the solvency test in the Borrower Certifications and Covenants.
      6. Diligence on Ownership by Government Officials. The CARES Act prohibits entities in which certain government officials and their family members own a “controlling interest” (generally 20% or greater) in an entity. The instructions to the Borrower Certifications and Covenants prescribe steps that a borrower should take to make the good faith certification regarding the absence of conflicts of interest prohibited by the CARES Act. 
   2. CARES Act Covenants. Section 4003(c)(3)(A)(ii) of the CARES Act mandates certain restrictions on distributions, equity repurchases and executive compensation that are summarized in our prior alert on the Program and apply while a Main Street loan is outstanding and for 12 months after the loan ceases to be outstanding. The instructions to the Borrower Certifications and Covenants include the following clarifications:
      1. New Hires and Employees who Become Highly Compensated. For officers and employees whose employment with the borrower began in 2019, the applicability of the CARES Act compensation restrictions will be calculated based on the person’s compensation for the 12-month period starting from the month in which the person commenced employment with the borrower, rather than the compensation paid by the borrower to the employee in 2019. Furthermore, the borrower must agree that it will apply the same compensation restrictions to officers or employees whose compensation first exceeds the $425,000 and $3 million thresholds provided by the CARES Act during any 12-month period ending after 2019, thus broadening the scope of individuals covered by compensations restrictions beyond what is required by the CARES Act.
      2. Distribution Restrictions. In addition to the restrictions on dividends and capital distributions with respect to common equity in Section 4003(c)(3)(A)(ii)(II) of the CARES Act, the restrictions on dividends and distributions are extended by the instructions to cover preferred stock and other equity interests in a borrower unless both the preferred stock or equity interest and the obligation to pay a dividend or distribution existed as of March 27, 2020.
   3. Eligible Loan Certifications. The borrower must make various certifications and covenants relating to satisfaction of certain criteria required for loans to be issued in accordance with the Program:
      1. Financial Records and Selected Subsidiaries. The borrower must certify that (a) it has provided financial records to the lender and a calculation of 2019 adjusted EBITDA reflecting only adjustments pursuant to the methodology agreed upon between the borrower and lender and (b) the financial records fairly present, in all material respects, the financial condition of the consolidated entities for the period covered in accordance with U.S. GAAP (if the borrower is subject to U.S. GAAP reporting requirements or prepares its financial statements in accordance with GAAP), consistently applied, and that the 2019 adjusted EBITDA calculations are true and correct in all material respects. The financial records and 2019 adjusted EBITDA calculations may include “Selected Subsidiaries,” which are operating subsidiaries of the borrower selected by the borrower. Any Selected Subsidiaries must (a) guaranty the Main Street loan on a joint and several basis, (b) be eligible to borrow in its own right based on the Current Main Street Facilities’ criteria and (c) have its results of operations included in the 2019 adjusted EBITDA calculation used to calculate the maximum loan size under the applicable Current Main Street Facility. Only holding companies are required to designate Selected Subsidiaries.
      2. Collateral and Security Requirements. For loans made under the Priority Facility and the Expanded Facility, borrowers also must make certifications relating to the senior or pari passu priority and security requirements summarized above, including, for the Priority Facility, certifications that the value of any collateral for the Main Street loan and other loans of the borrower is calculated in good faith at the time of loan origination. These certifications are intended to support the “Collateral Coverage Ratio” calculations for secured loans under the Priority Facility described above in the “1. Loan Agreement and other Loan Documents – a. Priority and Security Covenants” section.
   4. Other Certifications and Covenants. The borrower must make other certifications and covenants covering matters contemplated by the term sheets previously released for the Program, including relating prohibitions on repayment of other debt that is not “mandatory and due,” prohibitions on reducing other credit lines, and the ability to meet its financial obligations for the next 90 days. New FAQ H.7 provides additional detail on what debt is “mandatory and due.” The other covenants also include, for a borrower that is a subsidiary of a foreign company, a commitment that the borrower will use the proceeds from the Main Street loan only for its own benefit and the benefit of its U.S. subsidiaries and other affiliates that are U.S. businesses (and not for the benefit of any foreign parent, subsidiary or affiliated company).
   5. Record Retention.  The borrower must agree that it will retain records containing the basis for its certifications relating to its eligibility as a borrower under the CARES Act and compliance with covenants mandated by the CARES Act for the longer of (i) 10 years following termination of the Program and (ii) the period required by the borrower’s document retention policy. FRB Boston may request that a borrower provide those records.
   6. Indemnification. The Borrower Certifications and Covenants include an indemnification provision for the benefit of the parties to whom the certifications are made that the borrower will indemnify and hold harmless those parties from losses resulting from a material breach by the borrower of its representations, warranties, covenants or agreements made in the certification document.
   7. Employee Retention. While the term sheets for the Program provide that a borrower “should make commercially reasonable efforts to maintain its payroll and retain its employees” while the Main Street loan is outstanding, the Borrower Certifications and Covenants do not contain a provision that corresponds to this portion of the term sheets.

Section 2. Nonprofit Main Street Facilities

Consistent with prior public statements, the Federal Reserve proposed to expand the Program to include nonprofit businesses as eligible borrowers. As proposed, nonprofit businesses could potentially participate in one of two facilities under the Program – the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF). The Federal Reserve has requested feedback on the NONLF and NOELF by June 22. This section of the client alert summarizes the initially proposed terms of the NONLF and NOELF, which are substantially similar to the Main Street Facilities in many respects, including with regard to eligible lenders, loan term, payment schedule, interest rate and lender risk retention.

Eligible Lenders. Under each Nonprofit Main Street Facility, as well as each Current Main Street Facility, an Eligible Lender is defined as a U.S. federally insured depository institution (including a bank, savings association, or credit union), a U.S. branch or agency of a foreign bank, a U.S. savings and loan holding company, a U.S. intermediate holding company of a foreign banking corporation, or a U.S. subsidiary of any of the foregoing.

Eligible Borrowers. Under each Nonprofit Main Street Facility, an Eligible Borrower is a “Nonprofit Organization” that:

1. was established prior to, and has been in continuous operation since, January 1, 2015.
2. meets at least one of the following two conditions: (i) has 15,000 employees or fewer or (ii) had 2019 annual revenues of $5 billion or less;
3. has at least 50 employees;
4. has an endowment of less than $3 billion;
5. 2019 revenues from donations that are less than 30% of total 2019 revenues (for purposes of this requirement, “donations” include proceeds from fundraising events, federated campaigns, gifts and funds from similar sources);
6. has a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 5%;

   Note: the methodology used by the Eligible Lender to calculate adjusted 2019 EBIDA must be the methodology it has previously used for adjusting EBIDA when extending credit to the Eligible Borrower or similarly situated borrowers on or before June 15, 2020. The Eligible Lender should calculate operating revenue as unrestricted operating revenue, excluding funds committed to be spent on capital, and including a proxy for endowment income in place of unrestricted investment gains or losses. The methodology used by the Eligible Lender to calculate the proxy for endowment income must be the methodology it has used for the Eligible Borrower or similarly situated borrowers on or before June 15, 2020.

7. has a ratio (expressed as a number of days) of (i) liquid assets (defined as unrestricted cash and investments that can be accessed and monetized within 30 days) at the time of origination to (ii) average daily expenses over the previous year, equal to or greater than 90 days;
8. at the time of loan origination, has a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the Nonprofit Main Street Facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 65%;
9. is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States;
10. does not participate in the other Main Street Nonprofit Facility or any Current Main Street Facility; and
11. has not received specific support pursuant to the CARES Act (though Nonprofit Organizations that have received PPP loans are permitted to borrow under either the NONLF or NOELF).

“Nonprofit Organization” is defined as tax-exempt organization described in section 501(c)(3) of the Internal Revenue Code (IRC) or a tax-exempt veterans’ organization described in section 501(c)(19) of the IRC.

Eligible Loans.  An Eligible Loan under the NONLF is a secured or unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that has the features set forth in the table below. An Eligible Loan under the NOELF is a secured or unsecured term loan or revolving credit facility made by an Eligible Lender(s) to an Eligible Borrower that was originated on or before June 15, 2020, and that has a remaining maturity of at least 18 months (taking into account any adjustments made to the maturity of the loan after June 15, including at the time of upsizing), provided that the tranche of the loan is a term loan and includes the features set forth in the table below.

Loan Classification. The Eligible Loan must have had an internal risk rating equivalent to a “pass” in the Federal Financial Institution Examination Council’s supervisory rating system as of December 31, 2019 for the NOELF. This is also required for the NONLF if the Borrower had other loans outstanding with the Eligible Lender as of December 31, 2019.

Loan Participations.

            NONLF. The SPV will purchase at par value a 95% participation in the Eligible Loan. The SPV and the Eligible Lender will share risk in the Eligible Loan on a pari passu basis. The Eligible Lender must retain its 5% of the Eligible Loan until it matures or the SPV sells all of its participation, whichever comes first. The sale of a participation in the Eligible Loan to the SPV will be structured as a “true sale” and must be completed expeditiously after the Eligible Loan’s origination.

            NOELF. The SPV will purchase at par value a 95% participation in the upsized tranche of the Eligible Loan, provided that it is upsized on or after June 15, 2020. The SPV and the Eligible Lender will share risk in the upsized tranche on a pari passu basis. The Eligible Lender must be one of the lenders that holds an interest in the underlying Eligible Loan at the date of upsizing. The Eligible Lender must retain its 5% portion of the upsized tranche of the Eligible Loan until the upsized tranche of the Eligible Loan matures or the SPV sells all of its 95% participation, whichever comes first. The Eligible Lender must also retain its interest in the underlying Eligible Loan until the underlying Eligible Loan matures, the upsized tranche of the Eligible Loan matures or the SPV sells all of its 95% participation, whichever comes first.

Required Lender Certifications and Covenants.

1. The Eligible Lender must commit that it will not request that the Eligible Borrower repay debt extended by the Eligible Lender to the Eligible Borrower, or pay interest on such outstanding obligations, until the Eligible Loan (or upsized tranche of the Eligible Loan for the NOELF) is repaid in full, unless the debt or interest payment is mandatory and due, or in the case of default and acceleration.
2. The Eligible Lender must commit that it will not cancel or reduce any existing committed lines of credit to the Eligible Borrower, except in an event of default.
3. The Eligible Lender must certify that the methodology used for calculating the Eligible Borrower’s adjusted 2019 EBIDA and operating revenue is the methodology it has previously used:
1. with respect to the NONLF, for adjusting EBIDA, when extending credit to the Eligible Borrower or similarly situated Borrowers on or before June 15, 2020; and
2. with respect to the NOELF, for adjusting EBIDA when originating or amending the Eligible Loan on or before June 15, 2020.

1. The Eligible Lender must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

Required Borrower Certifications and Covenants.

1. The Eligible Borrower must commit to refrain from repaying the principal balance of, or paying any interest on, any debt until the Eligible Loan (upsized tranche of the Eligible Loan for the NOELF) is repaid in full, unless the debt or interest payment is mandatory and due.
2. The Eligible Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender.
3. The Eligible Borrower must certify that it has a reasonable basis to believe that, as of the date of upsizing of the Eligible Loan and after giving effect to such upsizing, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
4. The Eligible Borrower must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
5. The Eligible Borrower must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019 of the CARES Act.

Retaining Employees. Each Eligible Borrower that participates in the NONLF or NOELF should make reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding.

Fees. The fees applicable to the respective Nonprofit Main Street Facilities are set forth in the table below. 

Facility Termination. The SPV will cease purchasing participations in the Eligible Loans on September 30, 2020, unless the Board and the Department of the Treasury extend the Nonprofit Main Street Facilities.

Section 3. Borrower Action Items

The following action items are for prospective borrowers considering a Main Street Loan.

• Primary Action Items.
• Gather evidence that you meet the eligibility requirements for an Eligible Loan and can make the required Borrower certifications and covenants. This would include:
• Analyzing who your affiliates are for purposes of the Program to determine what other entities’ employees and revenues need to be aggregated with your own for purposes of the Eligible Borrower size test.
• If the affiliation rules would result in you not being an Eligible Borrower, analyzing whether (1) the elimination or irrevocable waiver of certain rights held by venture capital or other equity holders could result in other entities ceasing to be affiliates such that you would satisfy the Eligible Borrower size test, and (2) any such modifications of an equity holder’s rights is desirable to potentially obtain an Eligible Loan given your circumstances.
• Gathering your most recent financial statements, determining the current status of your fiscal year 2019 audit, if not already complete, and the expected timing for completion of that audit.
• Contact lenders that you know to confirm whether they are an Eligible Lender who is participating in the Program so that you can begin the approval process. For borrowers entering into a new relationship with an Eligible Lender, this approval process is likely to take longer than a borrower seeking an Expanded Facility Upsized Tranche. Eligible Lenders could become inundated with requests for financing under the Program and therefore we recommend you get in line as quickly as you can.
• Analyze the maximum loan amount available for the type of facility expected to be used and the amount of the loan that you would seek to obtain in light of the Business’s current financial position, recent results of operations and projected financial performance.
• Additional Action Items.
• Analyze your existing agreements to determine if any action is required, such as amendments, waivers of defaults and notices. For example, if you have several lending relationships and seek an Expanded Facility, then the other facilities would likely need to be amended to permit the Expanded Facility as the incurrence of indebtedness thereunder is likely a breach of a negative covenant, which typically triggers an automatic event of default. Similarly, subordination and intercreditor agreements will likely need to be amended as many include provisions that would be violated by the incurrence of an Eligible Loan (e.g., maximum debt thresholds and standstill periods).
• Prepare board materials to demonstrate due care was used in determining whether to apply for a loan. These materials should include a thorough analysis of the Eligible Borrower’s recent results and financial position and near-term projections to support the required certifications that (1) the Eligible Borrower has a reasonable basis to believe that, after giving effect to a Program loan, it will have the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period and (2) the amount, price, or terms of credit available from other sources are inadequate for the Eligible Borrower’s needs during the current unusual and exigent circumstances.
• Consider the effects that the compensation restrictions imposed by the CARES Act could have on your workforce and ability to retain key employees. In light of the five-year duration of Eligible Loans, and the one-year post repayment applicability of the CARES Act’s compensation and other restrictions, these restrictions could be in place for a significant period of time. The nature and duration of the restrictions could have a significant effect on your ability to increase compensation for both your top-compensated employees, as well as for employees who currently are a “tier” below those employees and who, under normal circumstances, might be expected to receive compensation increases that would cause the lower-tier employee’s compensation surpassing the compensation of an employee whose compensation is frozen as a result of the CARES Act’s restrictions.
• Consider the effects that the compensation, distribution and repurchase restrictions imposed by the CARES Act could have on a sale of your business. These restrictions would continue to apply for one year after the Eligible Loan is repaid, even in connection with a sale of the Eligible Borrower.
• If a public company, consider (i) drafting a press release and required Form 8-K disclosures and (ii) limiting dissemination of the borrower’s plan to apply for an Eligible Loan to those who “need to know” as such information may be considered material nonpublic information.

As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.