On May 27, 2020, the Federal Reserve Bank of Boston (the “Boston FRB”), the entity that will administer the Federal Reserve’s Main Street Lending Program (the “Program”), released additional details of the Program, most specifically related to the requirements of its three facilities, the Main Street New Loan Facility (the “MSNLF”), the Main Street Expanded Loan Facility (the “MSELF”), and the Main Street Priority Loan Facility (the “MSPLF” and collectively with the MSNLF and MSELF, the “Facilities”), including the legal documents that Main Street lenders (the “Lenders”) will be required to complete (the “Documents”). The Documents are currently available on the Boston FRB’s website.
Included in the Documents are the certifications and covenants that Lenders must make to the Boston FRB and its special purpose vehicle (the “SPV”) in connection with the Program. Specifically, a Lender will be required to make (a) certain one-time registration certifications and covenants to register as a Lender under the Program, as summarized in Section A, below, and (b) certain transaction specific certifications summarized in Section B, below, in connection with each sale by the Lender to the SVP of a participation in any loan made under the Program (each, a “Loan”).
A. Registration Certifications and Covenants
To register with the SPV, a Lender must complete the “Lender Registration Certifications and Covenants” form and certify that as of the date of its application, the Lender:
B. Transaction Specific Certifications and Covenants
Once registered, a Lender must provide the transactional certifications and covenants set forth in the “Lender Transaction Specific Certifications and Covenants” in connection with each sale by the Lender to the SPV of a participation interest in a Loan. These certifications and covenants vary slightly, depending upon the Facility used, but generally include certifications and covenants that:
Except for purposes of the certification regarding the borrower’s formation and the lien certifications and covenants described above, the Lender has no responsibility to verify the accuracy of the borrower’s certifications or to monitor the borrower’s compliance therewith and may rely on the borrower’s certifications. The Lender must, however, notify the SPV and the Boston FRB if the borrower reports that it has made a material misrepresentation or materially breached covenants during the term of the Loan and for one year after repayment.
The SPV, the Boston FRB, the Federal Reserve Board and the Secretary of the Treasury are authorized to make public disclosures of information regarding a Loan, including the identity of the Lender and amount and other material terms of the Loan.
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1. An “Eligible Lender” is 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. bank holding company, a U.S. savings and loan holding company, a U.S. intermediate holding company of a foreign banking organization, or a U.S. subsidiary of any of the foregoing.”
2. A “Covered Entity” is an entity owned 20 percent or more by the President, the Vice President, the head of an Executive department of the federal government, a member of Congress, or a family member(s) of any such person.
3. To satisfy the “reasonable diligence” standard, a Lender is only required to use the level of diligence required to make a conflict of interest certification in good faith. Unless the principal executive officer and the principal financial officer of the Lender have actual knowledge of ownership of the Lender, they are required to determine if the Lender is a Covered Entity by determining the status of all beneficial owners holding 5% or more of the Lender’s current equity and checking the names of said equity holders against a publicly available list of government officers listed here. To determine the identity of beneficial owners of publicly traded securities, the Lender may rely on information disclosed to the SEC.
4. If any of the borrower’s affiliates (determined on the basis of the SBA’s affiliation rules set forth at 13 CFR 121.301(f) (1/1/2019 ed.)) has received or has a pending application to receive a Loan, adjusted EBITDA must be calculated for the borrower and for the borrower and its affiliates on a consolidated basis.
5. If the borrower is a holding company, adjusted EBITDA must be calculated for the borrower and for its subsidiaries that are guaranteeing the Loan.
6. To make the certifications described below, a Lender must conduct lien searches and other customary diligence consistent with its ordinary course approach to similarly situated borrowers and inquire with any of its officers and employees that manage the borrower relationship and conduct a good faith, reasonable search of its records, but can otherwise rely on information provided by the borrower.
7. “Collateral Coverage Ratio” means the percentage obtained by dividing the aggregate value of any collateral security for one or more secured loans by the aggregate outstanding principal amount of such loans.
8. While the Lender will use its own form of loan agreement, Appendix B to the FAQs contains model language for the required mandatory prepayment and cross acceleration provisions as well as the lien covenant. A link to the FAQs is available on the Boston FRB’s website.
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