June 3, 2020

Down on Main Street: Fed Provides More Info on Main Street Lending Program

Last week, the Federal Reserve issued additional guidance on its “Main Street Lending Program” for small & mid-sized businesses.  This Crowell & Moring memo provides an overview of the program, eligibility requirements, and the mechanics of how it will operate.  Here’s an excerpt:

The Program, administered by the Boston Fed, is intended to facilitate lending to small and medium-sized businesses that were financially stable prior to the COVID-19 pandemic so that they may maintain operations and payroll during the COVID-19 pandemic emergency period. The Program operates through three types of loans (the New Loan Facility (“MSNLF ”), the Priority Loan Facility (“MSPLF ”), and the Expanded Loan Facility (“MSELF”)) each offering a 4-year term loan, with an adjustable interest rate based on LIBOR plus 300 basis points, and with principal and interest payments deferred during the first year of the loan. Loans range in size from $500,000 to $200 million, depending upon the loan facility selected.

The lending is conducted through lenders who meet the Program’s eligibility criteria (“Eligible Lenders”). Program loans are secured or unsecured new term loans originated after April 24, 2020 (in the case of MSNLF and MSPLF) or are based upon, and are an upsized tranche of an existing term loan to an ligible Borrower, originated on or before April 24, 2020 (in the case of MSELF).

The loans are full recourse loans, and unlike the SBA’s Paycheck Protection Programs (“PPP”) loans, the Program loans have no forgiveness of debt features. When the Boston Fed announces the opening of the Program, Eligible Lenders that wish to participate in the Program must first register with the Boston Fed. The Program will remain active until September 30, 2020, unless it is extended by the Federal Reserve and the Department of Treasury.

Eligible borrowers may use loan proceeds to maintain their U.S. operations & payroll until conditions normalize. While the new FAQs for the Program indicate that borrowers should undertake good-faith efforts to retain employees & payroll, businesses that have already laid-off or furloughed workers due to COVID-19 are eligible to apply for a loan. Copies of the FAQ and form documents for the Program are available on the Boston Fed’s website.

Reopening Risks: Covid-19 Waivers

For the first time in over three months, my pickup hockey group is going to be allowed to play this Sunday. Naturally, the rink is imposing all sorts of rules – we have to wear masks off the ice, we’re limited to 15 players, there is no locker room access, etc.  Everyone also must sign a waiver that specifically addresses the risk of contracting the Covid-19 virus.

If your client is considering implementing a Covid-19 waiver policy, then you should take a look at this Cleary Gottlieb memo, which reviews the permissible scope of waivers & their enforceability. This excerpt addresses some of the unique issues raised by waivers purporting to address Covid-19 risks:

The primary question a court will likely consider is whether COVID-19 exposure is the kind of risk that can be waived. There is typically no requirement that the risks a customer waives be specifically related to the nature of the business drafting the waiver. Rather, waivers are limited by the common law requirements noted above, namely that the type of risk assumed be specifically enumerated and the presumption against the use of general waivers of all potential liability. It therefore seems that COVID19 waivers could be enforceable, provided that they are sufficiently concrete.

Whether these waivers would be seen as contrary to public policy, however, is a separate issue that courts will have to confront, and may well result in inconsistent outcomes as courts attempt to balance the public’s interests in preventing the spread of COVID-19, maintaining safe public spaces, and providing legal remedies for individuals exposed to COVID-19, against mitigating the chilling effect of legal risk on a reopening economy.

The memo also contains a helpful discussion of practical considerations for companies that are considering the implementation of waivers as part of their reopening strategies.

Transcript: “Capital Raising in Turbulent Times”

We have posted the transcript for our recent webcast: “Capital Raising in Turbulent Times.”

John Jenkins