Initial Read on New Fed Main Street Liquidity Facilities: MSNLF, MSELF

Sometimes life comes at you fast.  Apologies for the second post today, but I’ve received enough questions that I thought it made sense to bother you again:

  •  The Senate met and failed to upsize PPP.  Democrats wanted to add an additional $250B for hospitals and local governments.  Stay tuned.
  • The Fed announced $2.3 trillion of new liquidity and provided term sheets for the new PPP Lending facility that will lend against PPP at par, expanded PMCFF, SMCFF and TALF programs and created a municipal liquidity facility (MLF) to lend to state and local governments.
  • Combined size will be up to $600B.
    • Fed SPV to purchase 95% participations in eligible loans.
    • Originating lenders (limited to banks and S&Ls) would retain 5%.
    • Eligible Borrowers are businesses with up to 10k employees or $2.5B in 2019 revenues.
    • Terms:
      • 4 year maturity;
      • Amortization of principal and interest deferred for one year;
      • Adjustable rate of SOFR + 250-400 basis points;
      • Minimum loan size of $1 million;
      • Maximum loan size that is the lesser of (i) $25 million or (ii) up to 4x 2019 EBITDA leverage, taking into account existing drawn and committed debt facilities (QUICK READ:  This could greatly limit availability to PE sponsored companies);
      • Prepayable without penalty.
  • Loans cannot be used to refi existing debt (which makes the 4x leverage especially challenging).
  • Borrower attest that it:
    • It requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and
    • using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.
  • The Fed is imposing the comp, dividend and buyback limits from the CARES Act.  (Will follow up with more detail on that.  There had been hope that these would NOT apply to main street.)
  • Yesterday, the SEC announced yesterday that it will allow increased flexibility for BDCs to raise capital (but is not waiving dividend requirements as some had hoped).