Update on U.S. Main Street Lending Program

Torys previously issued guidance and updates on the United States Federal Reserve’s three loan programs created under the Main Street Lending Program (MSLP) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These programs, the Main Street New Loan Facility Program (MSNLF), the Main Street Expanded Loan Facility (MSELF), and the Main Street Priority Loan Program (MSPLF), will make up to $600B of term loans available to small- and medium-sized American businesses impacted by the COVID-19 pandemic.

MSNLF provides Eligible Borrowers with access to new loans of up to the lesser of $35 million and the amount that, when added to outstanding and undrawn available debt, does not exceed four times the borrower’s 2019 adjusted EBITDA. The MSELF will support upsize tranches of existing term loan or revolving credit facilities of up to the lesser of $300 million and the amount that, when added to outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 adjusted EBITDA. The MSPLF makes new loans available to Eligible Borrowers in an amount up to the lesser of $50M and the amount that, when added to outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 adjusted EBITDA. MSPLF loans must at all times be senior or pari passu with the borrower’s other debt.

In this bulletin, we highlight critical aspects of the recently released guidance and documentation provided by the Federal Reserve with respect to MSLP, which includes form documentation, revised certifications, covenants and reporting requirements, and updated Frequently Asked Questions (FAQ).

Priority and collateral

The updated FAQ provide further clarity on the priority and security requirements of MSPLF and MSELF loans. Prior Federal Reserve guidance stated that MSPLF and MSELF loans must be “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.”

The updated guidance clarifies that MSPLF and MSELF Upsized Tranche loans must be secured if, at the time of origination, the borrower has any other secured loans or debt instruments, except for mortgage debt. The MSPLF or MSELF Upsized Tranche loan may be unsecured only if the borrower does not have, as of the origination date, any such other secured debt. Further, loan documentation must i) ensure that the MSPLF or MSELF Upsized Tranche loan does not become contractually subordinated in terms of priority to any of the Eligible Borrower’s other debt and ii) contain a lien covenant or negative pledge ensuring the same. Appendix B to the FAQ contains a model lien covenant, among other sample contract clauses for MSLP Loans.


For MSNLF and MSPLF loans, the Eligible Lenders will pay the Main Street SPV at the time of origination a transaction fee of 100bps of the MSNLF or MSPLF loan, and the Eligible Borrower will pay an equivalent fee to the lender, who retains discretion over whether to charge this fee. With respect to MSELF loans, the mechanism is the same, but the fees to be paid to the SPV and Eligible Lender are 75bps of the MSELF Upsized Tranche.

In return, for purposes of loan servicing, the SPV will pay Eligible Lenders a fee of 25 bps per year.


The Federal Reserve provided further detail in the FAQ on the methodology for calculating adjusted EBITDA. Eligible Lenders extending credit to existing borrowers should use the methodology that the lender previously required for EBITDA adjustments. For new borrowers, the Eligible Lender should use the same methodology it has used for similarly situated borrowers on or before April 24, 2020. “Similarly situated borrowers” are borrowers in similar industries with comparable risk and size characteristics. If an Eligible Lender has employed multiple EBITDA adjustment methods with respect to an existing borrower or similarly situated borrowers, the lender must elect the most conservative method it has previously used.


While previous guidance from the Federal Reserve predictably indicated that certain information would be collected on borrowers and lenders participating in the MSLP, Appendix C to the FAQ released on May 27, 2020 provides for specific and extensive financial reporting requirements, including:

  • Adjusted and Unadjusted EBITDA along with descriptions of EBITDA adjustments (Quarterly and Annually)
  • Accounts Receivable and Accounts Payable, Operating Income and Operating Expenses, Inventory, and other related balances (Quarterly and Annually)
  • Details of Various Expenses, Expenditures and Fixed Charges (Quarterly and Annually)
  • Short Term and Long-Term Debt (Quarterly and Annually)
  • Covenant Status—a Pass / Fail indication of whether the facility has satisfied covenant tests, and reports on details of any covenant defaults (Quarterly and Annually)

Loan and program documentation

Since our prior updates, the Federal Reserve released over a dozen documents that establish the legal framework of MSLP, which apply either on a program-wide or transaction-specific basis, including:

  • Participation agreement: includes transaction-specific terms that must be completed by the eligible lender as well as separate standard participation terms and conditions, which include customary representations and warranties and mutual indemnities.
  • Servicing agreement: sets out rights of the SPV as servicer and lender and must be signed by the eligible lender and submitted at the time the participation is sold to the SPV.
  • Assignment-in-blank: form document by which the SPV would elevate or transfer its participation if necessary, to also be signed by the borrower.
  • Co-Lender Agreement: like the Participation Agreement, the Co-Lender Agreement includes transaction-specific as well as standard terms. This document sets the legal framework should the SPV later choose to elevate its participation in a bilateral facility to provide for a multi-lender facility.
  • Lender and Borrower Standard Certifications and Covenants: includes extensive required certifications regarding mechanics such as program eligibility, EBITDA requirements, priority, participation percentage, and use of proceeds.

While the terms of the Main Street programs are subject to additional revision and guidance, the Federal Reserve indicated in its June 3 webinar that initiation of the MSLP is imminent.

Read all our coronavirus-related updates on our COVID‑19 guidance for organizations resource page.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2021 by Torys LLP.
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