This client alert is one of a series as we track developments in the implementation of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). For more information on the CARES Act, please see our prior client alerts:
- Paycheck Protection Program Update – April 9, 2020
- Paycheck Protection Program Update- April 7, 2020
- SBA Issues Interim Final Rules for Title I of CARES Act Paycheck Protection Program; Treasury Issues Instructive Guidelines for Loans under Title IV
The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy, including establishing a Main Street Lending Program for mid-sized businesses and bolstering the existing Paycheck Protection Program. The funding is intended to assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.
Among the actions announced by the Federal Reserve are:
- Ensuring 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 CARES Act will provide $75 billion in equity to the facility;
- Bolstering the effectiveness of the 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 PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
- Increasing 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; and
- Helping state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.
The Fed said that 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 4-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 percent share, selling the remaining 95 percent 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.
Additional details regarding this program will follow.
All of the facilities mentioned above are established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary.
For more information, see link below:
This information is intended to inform our clients and other friends about legal developments, including recent decisions of various municipalities, legislative, and administrative bodies. Because of the rapidly changing landscape related to COVID-19, we intend to send out regular updates. The information we provide is not intended as legal advice and viewers/readers should not rely on information contained in these materials to make business or legal decisions. Before making any legal decisions, consult your lawyer. Please do not hesitate to contact us should you need assistance responding to the many issues which have arisen, and will continue to arise, out of this situation.