A significant part of the CARES Act allocates $454 billion in the form of loans, loan guarantees, and other investments to support businesses as well as state and local governments. On April 9, 2020, the Federal Reserve announced a series of new or enhanced programs to provide liquidity to financial institutions and up to $2.3 trillion in loans to support the US economy.
Notably, the Federal Reserve's Main Street Lending Program will provide loans to small- and mid-sized businesses that were in good standing prior to the COVID-19 pandemic. Four-year loans will be available for companies with revenues under $2.5 billion who employ up to 10,000 workers. Under this program, the maximum loan size is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower's existing outstanding committed, but undrawn debt, does not exceed four times the eligible borrower's 2019 EBITDA. The program will also ensure that credit remains available to small- and mid-sized businesses through a commitment by the Federal Reserve to purchase up to $600 billion in loans from banks. In addition, the Federal Reserve will provide further support for small businesses through the Small Business Administration's ("SBA") Paycheck Protection Program by providing liquidity to participating lenders.
The Federal Reserve also established the Primary Market Corporate Credit Facility ("PMCCF") for investment grade companies to provide bridge financing of four years for new bond and loan issuances. The Secondary Market Corporate Credit Facility ("SMCCF") will provide liquidity for existing corporate bonds by purchasing these bonds in the secondary market. The Department of Treasury will utilize the funding under the CARES Act to provide $50 billion in equity to implement the PMCCF and $25 billion toward the SMCCF.
The Term Asset-Backed Securities Loan Facility ("TALF") will support credit flow to consumers and businesses for certain AAA-rated asset-backed securities backed by student loans, credit card loans, and SBA-guaranteed loans.
The Federal Reserve also implemented the Municipal Liquidity Facility (MLF) to assist state and local governments, and manage cash flow pressures.
The following checklists provide an overview of the eligibility requirements and terms for these various lending facilities. Businesses that are considering applications to access funding under one or more of these programs should engage in a detailed review of both the eligibility criteria and the requirements on borrowers to ensure that participation is appropriate and beneficial. Businesses should also make a careful assessment of the tax implications of these programs, as well as a review of their existing credit arrangements (including loans, lines of credit, credit agreements, etc.) to confirm that they are not prohibited from incurring additional debt or obtaining these loans.
Main Street Business Lending Program
Paycheck Protection Program (Lenderside)
Primary and Secondary Market Corporate Credit Facility
Term Asset-Backed Securities Loan Facility
The Municipal Liquidity Facility