Reed Smith Client Alerts

On June 20, 2020, the Federal Reserve released further updates on the Main Street Lending Program (the Program) Frequently Asked Questions (the FAQs). The FAQs address questions about the Program’s three facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF).
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Key takeaways from the updated FAQs

A. Eligible borrower debt.

An eligible borrower’s debt that is being refinanced by an MSPLF loan should be excluded in the calculation of the eligible borrower’s existing outstanding and undrawn available debt. If the outstanding debt is being partially refinanced by an MSPLF loan, only the portion that is being refinanced may be excluded from the calculation. All such excluded debt must be fully refinanced by the MSPLF loan.

B. Conflicts of interest certification.

Each eligible lender or eligible borrower must certify that it is not an entity in which the president, vice president, head of an executive department, member of Congress, or certain immediate family members of such government officials (the Covered Individuals) hold a “controlling interest.”

  1. Good faith. A reasonable level of diligence is required to make the conflicts of interest certification in good faith.
  2. Reasonable diligence standard. This reasonable diligence standard applies to all types of equity interests, including common stock, preferred stock, and equivalent LLC or partnership interests, and equity interests held by financial intermediaries such as broker-dealers, custodians, and investment funds. To meet this standard, an eligible lender or eligible borrower:

i. Must consider its actual knowledge.

ii. Must determine whether a Covered Individual is the beneficial owner of any 5 percent or greater equity interest (and, if necessary, ask a beneficial owner to confirm they are a Covered Individual).

iii. May rely upon information disclosed pursuant to sections 13(d) and 13(g) of the Securities Exchange Act of 1934.