A Lender has two choices for funding a Main Street Loan. A Lender may fund a Main Street Loan and then seek to sell a participation interest in said Main Street Loan to the Main Street SPV. A Lender may condition its extension of credit to the Eligible Borrower upon the Main Street SPV agreeing to purchase the participation interest in the Main Street Loan prior to its funding of the Loan.
FAQ L.4 of the Main Street Lending Program’s Frequently Asked Questions provides the following guidance for (1) funded loans and (2) requiring a condition to funding:
L.4. Are Eligible Lenders required to commit and pre-fund loans under the Program before the SPV has committed to purchase its participation in a Program Loan?
No. Eligible Lenders have two options for funding loans under the Program:
- Funded Loan: An Eligible Lender may extend an MSNLF Loan, an MSPLF Loan, or an MSELF Upsized Tranche to an Eligible Borrower and fund such loan. The Eligible Lender, if registered with the Program, can then seek to sell a participation in such loan to the Main Street SPV by submitting all of the required documentation, completed and signed, for processing. Upon determining that such paperwork is complete and consistent with Program requirements (see FAQ L.7), the Main Street SPV would purchase a participation in such loan by dating and countersigning the Participation Agreement and returning it to the Eligible Lender. In general, Eligible Lenders using this option must submit the loan to the Main Street SPV for sale of a participation interest expeditiously (i.e., no later than 14 days) after the closing of such loans. However, for the first 14 days that the SPV purchases participations in loans, it will accept submissions of any MSNLF Loan, MSPLF Loan, or MSELF Upsized Tranche for sale of a participation interest, provided that such MSNLF Loan, MSPLF Loan, or MSELF Upsized Tranche was originated after April 24, 2020 and before the date that the relevant Main Street facility begins purchasing participations in loans; OR
- Condition of Funding: An Eligible Lender may also extend an MSNLF Loan, an MSPLF Loan, or an MSELF Upsized Tranche to an Eligible Borrower, but make the funding of such loan contingent on a binding commitment from the Main Street SPV that it will purchase a participation in the loan. Under this option, the Eligible Lender, if registered with the Program, would submit all of the required documentation, completed and signed, for processing, but would indicate in its submission that the loan has not yet been funded. The Main Street SPV would review the required documentation and, if complete and consistent with Program requirements (see FAQ L.7), would provide the Eligible Lender with a binding commitment to purchase the loan after it is funded (Commitment Letter). The Commitment Letter (template available here) will indicate that (i) the Eligible Lender is required to fund the loan within three business days of the date of the Commitment Letter and (ii) the Eligible Lender must then provide notice to the Main Street SPV of the date the funding occurred (Funding Notice) by entering the date in the appropriate field in the Main Street Portal. The Main Street SPV will generally be able to advance funds to purchase the participation within one business day of receiving the Funding Notice, if the Funding Notice is received before 7 p.m. ET. If the Funding Notice is submitted by the Eligible Lender on or after 7 p.m. ET, the notice will be treated as if it were received the next business day. The Main Street SPV will then process its purchase of a participation in such loan on the basis of the previously received paperwork. The Eligible Lender will not need to submit the required documentation a second time. If Eligible Lenders elect to use this option, the loan documentation should include language similar to the model provision below.
In the “Conditions to All Borrowings” section of the loan documentation:
“(i) the [Eligible Lender] shall have received a commitment letter from MS Facilities LLC that it will purchase a participation interest in $[PRINCIPAL AMOUNT TO BE PARTICIPATED] aggregate principal amount of the [APPLICABLE LOAN DEFINITION] under the Main Street Lending Program.”
The form of Commitment Letter provided by the Federal Reserve is here. The Commitment Letter must be provided to the Federal Reserve. In accordance with the required terms stated in the Commitment Letter, the Lender must fund the Main Street Loan within three business days following its receipt of the Commitment Letter.
KRCL’s Main Street Lending Task Force assists both Eligible Borrowers and Eligible Lenders in navigating the Main Street loan origination, structuring and documentation process.