The Federal Reserve has launched a new $2.3 trillion lending program to provide further liquidity to the markets. Several provisions may be of interest to PESA Member Companies.
PROVISIONS OF NOTE
- The program adds stability to Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.
- The program expands credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 billion in equity to the facility.
- The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.
- Principal and interest payments will be deferred for one year.
- Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.
- Banks will retain a 5% share, selling the remaining 95% to the Main Street facility, which will purchase up to $600 billion of loans.
- Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans.
- The program increases the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
- The Federal Reserve will broaden the range of assets that are eligible collateral for TALF. TALF-eligible collateral will now include the triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations.