The Fed released updated Main Street term sheets, including a term sheet for a new Main Street Priority Loan Facility (MSPLF). Below are pdf copies of each of the new term sheets and an FAQ document on the facilities, along with redlines of MSNLF and MSELF against the original respective versions, and redlines showing how MSELF differs from MSNLF and how MSPLF differs from MSNLF.
At first glance, it appears that the Fed answered and addressed many of the questions and concerns that were raised regarding the facilities, including:
- The use of adjusted EBITDA, as long as it is consistent with existing loans to the same or, for MSNLF and MSPLF, similarly situated borrowers (bring on EBITDAC).
- Using LIBOR as the index rate (all facilities are priced at L+300).
- Lowering the MSNLF (and setting the MSPLF) minimum loan size to $500k, while MSELF has been raised to $10M (both were previously $1M).
- Raising the maximum loan size for MSELFto $200M, with MSNLF remaining and MSPLF set at $25M.
- Raising the size standards to 15,000 employees (up from 10k) and $5B of 2019 revenues (up from $2.5B).
- Incorporating terms from SBA regulations as to:
- Calculation of size standards
- Affiliation rules
- Certain ineligible businesses tied to the PPP standards (NOTE: this means that lenders, investment companies, finance companies and probably PE and other investment funds themselves (at the fund or management company level) are not eligible).
- The program still incorporates the CARES Act limits on executive comp, buybacks and dividends but expressly permits tax dividends from pass-through entities (it doesn’t (yet?) address guaranteed payment and “active partner” compensation).
However, the program has not yet been expanded to include “non-bank” lenders. The main differences between MSPLF, MSELF and MSNLF seem to be:
- MSPLF must rank senior to or pari passu with all existing debt of the borrower (other than mortgage debt).
- MSNLF is only prohibited from being contractually subordinated to existing debt, meaning that the MSNLF could be unsecured (or potentially at a holdco level?).
- MSPLF and MSELF are amortized 15% at the end of year 2 and 3, with a 70% bullet at the four year maturity.
- MSNLF is amortized in three equal 1/3 installments at the end of years 2-3.
- SPV Participation / Lender Retention
- The Fed SPV will buy an 85% participation in the MSPLF, and the lender is required to retain its 15%
- The Fed SPV will buy an 95% participation in the MSNLF and MSELF, and the lender is required to retain its 5%
- Use of Proceeds.
- MSPLF proceeds can be used to repay third party debt (but not debt to the MSPLF lender).
- MSELF and MSNLF proceeds cannot be used to repay any debt.
Stay tuned for an updated term sheet from us, as well as more detailed analysis of the FAQ.