E. EBITDA. The FAQs clarify how lenders should require borrowers to adjust their 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA), the key underwriting metric required for the Program’s three facilities. If the borrower is a repeat customer, then lenders should require borrowers to adjust their 2019 EBITDA by using the same methodology as such lenders have previously required when extending credit to the borrower. If the borrower is a new customer, then lenders should require borrowers to adjust their 2019 EBITDA by using the methodology that such lenders would use for similarly situated borrowers, which the FAQs describe as borrowers in similar industries with comparable risk and size characteristics, on or before April 24, 2020. Lenders are advised to document their rationale and process for identifying similarly situated borrowers. If a lender has used multiple EBITDA adjustment methods, the lender should choose the most conservative method it has employed. Regardless, the lender must select a single method used at a point in time in the recent past and before April 24, 2020. Lenders may not “cherry-pick” or apply adjustments used at different points in time or for a range of purposes. A lender should document the rationale for its selection of an adjusted EBITDA methodology in all cases.

F. Funding. Lenders are not required to commit and pre-fund loans before the Main Street SPV has committed to purchase its participation in a Program loan. Lenders will have two loan funding options when the Program becomes operational:

1. Funded loan. Lenders may extend an MSNLF loan, an MSPLF loan, or an MSELF upsized tranche to borrowers, fund such loan, and then seek to sell a participation in such loan to the Main Street SPV by submitting all required, completed documentation for processing no later than 14 days after the extension of the funds. Upon determining that the paperwork is complete and consistent with Program requirements, the Main Street SPV would then purchase a participation in such loan by entering into the Participation Agreement (discussed below).
2. Condition of funding. Lenders may also extend an MSNLF loan, an MSPLF loan, or an MSELF upsized tranche to borrowers, but make the loan funding contingent on a binding commitment from the Main Street SPV that it will purchase a participation in the loan through a commitment letter. Under this approach, lenders would submit the required, completed documentation for processing, but indicate in the submission that the loan has not yet been funded. Upon determining that the paperwork is complete and consistent with Program requirements, the Main Street SPV would provide the binding commitment letter to purchase the loan after funding. The commitment letter would provide that (1) the lender is required to fund the loan within three business days of the letter’s date and (2) the Main Street SPV will purchase the participation in the loan not later than three business days after the lender notifies the Main Street SPV that the lender has funded the loan. This notification would be provided by entering the funding date of the loan into a field in the Programs Portal, which will be provided when the Program is operational.

Program documentation

The Federal Reserve released 15 documents, which include contracts, certificates, and other instruments that establish the framework for the Program. The Federal Reserve has not provided a comment period with respect to the released documents. As such, lenders should treat the Program documents as final in anticipation of the launch of the Program. However, it is important to note that Program details and documentation may be subject to further clarification and modification.

This section briefly discusses certain Program documents that are applicable to lenders, which are available on the Federal Reserve’s website.

A. Lender registration required documentation.

Lenders must register with the Federal Reserve in order to participate in the Program by completing the “Lender Registration Certification and Covenants” and the “Lender Wire Instructions Direction” forms. This is a separate, one-time certification process.

1. Lender registration certification and covenants. A lender must certify that it is an “eligible lender” under the Program, that it is eligible under the CARES Act’s conflicts of interest provisions, and that it is solvent as defined under section 13(3) of the Federal Reserve Act’s implementing regulations. A lender must also covenant that it will promptly notify the Federal Reserve upon any of the certifications becoming untrue. Further, a lender must acknowledge its liability for misrepresentations, the possibility of lender information disclosure, and necessary recordkeeping requirements. This form must be signed and delivered by the lender’s principal executive officer and principal financial officer (or individuals performing similar functions).
2. Lender wire instructions direction. A lender must provide wire instructions for the bank account into which the Main Street SPV will transfer the purchase price and any other payments owed to the lender under the participation agreements or servicing agreements. This form must be signed and delivered by a duly authorized employee or officer of the lender.

B. Transaction-specific lender required documentation.

Lenders are required to provide the following documents to the Main Street SPV in connection with each transaction under the Program:

1. Participation Agreement. This is the primary document under which the Main Street SPV purchases a participation interest in each Program loan from lenders. This agreement governs the Main Street SPV’s transfer, elevation, and voting rights, among other items. The Participation Agreement incorporates by reference the Participation Agreement Standard Terms and Conditions, which do not need to be separately completed.
2. Servicing Agreement. This document sets forth the role of the originating lender as servicer of the loan. It requires the lender to maintain records relating to the loan documentation package and make them available upon reasonable prior notice. It also requires the lender to provide certain information to the Main Street SPV on a quarterly and annual basis. Additionally, the agreement sets the lender’s standard of care: gross negligence and willful misconduct.
3. Assignment in Blank. This document is intended to be used by the Main Street SPV to facilitate elevation and assignments that do not require consent. The lender and borrower pre-sign this document and consent in advance of any such elevation or transfer. The Main Street SPV does not pre-sign this document.
4. Co-Lender Agreement. This document is intended to be used by the Main Street SPV to facilitate the conversion of a bilateral facility to a multi-lender facility in connection with an elevation and assignment. The Co-Lender Agreement Standard Terms and Conditions are incorporated by reference into this document. The Co-Lender Agreement is pre-signed by both the borrower and lender.
5. Facility Transaction Specific Lender Certifications and Covenants. The documentation includes transaction-specific certifications and covenants for lenders with separate forms for the MSNLF, MSELF and MSPLF. These forms incorporate the certifications and covenants that are required pursuant to the Program term sheets for each of the facilities, and the forms must be completed and delivered with each transaction. Additional information on these certifications and covenants is detailed below.

C. Lender certifications and covenants.

Lenders are required to make certain certifications and covenants, including, but not limited to, the following.

1. Due inquiry with respect to formation. A lender must certify that, following due inquiry, it has no knowledge or reason to believe that the certification made by the borrower that the borrower is a business eligible to participate in the Program and was established before March 13, 2020, is incorrect or untrue in any material respect.
2. Reliance on borrower certifications. The lender must certify that the borrower has delivered the certifications required for borrowers under the Program (the Borrower Certifications) to the lender. The lender has no responsibility to verify the accuracy of the Borrower Certifications and may rely on them, except with respect to the formation certification, and, with respect to MSPLF and MSELF loans, the lien certifications and covenants.
3. EBITDA methodology. The lender must certify that the methodology it required the borrower to use when calculating the borrower’s adjusted 2019 EBITDA and related entities is the methodology it has previously required to be used for adjusting EBITDA when extending credit to the borrower or other similarly situated borrowers prior to April 24, 2020.
4. Lien certifications and covenants.

a. Secured MSPLF loan. The lender must certify that the collateral coverage ratio is at least 200 percent, or not less than the aggregate collateral coverage ratio for the borrower’s other secured debt (other than mortgage debt).

b. MSPLF loan secured by a shared pool of collateral. The lender must certify that it has no knowledge or reason to believe that its lien is not senior to or pari passu with the lien that secures the borrower’s other debt (other than mortgage debt). The lender must conduct lien searches and other customary diligence that is consistent with its ordinary course approach to similarly situated borrowers, but can rely on the collateral reporting provided by the borrower.

c. Unsecured MSPLF or MSELF loan. The lender must certify that the lender has no knowledge or reason to believe that the borrower’s other debt (other than mortgage debt) is secured at the time the Program is originated. The lender must conduct lien searches and other customary diligence that is consistent with its ordinary course approach to similarly situated borrowers, but can rely on the collateral reporting provided by the borrower.

d. MSELF loan. The lender must certify and covenant that any collateral securing the underlying credit facility at the time the MSELF loan is originated secures both the underlying credit facility and the MSELF loan on a pari passu basis, until the MSELF loan matures or such time that neither the Main Street SPV nor any government assignee hold any interest in the MSELF loan.

5. Due inquiry with respect to repayment of other debt. The lender must covenant that it will not require that the borrower repay debt owed to the lender, or pay interest on such outstanding obligations unless the debt or interest payment is mandatory and due, until the Program loan is repaid in full or neither the Main Street SPV nor any governmental assignee hold any interest in the Program loan.
6. Committed lines. The lender must commit that it will not cancel or reduce any existing committed lines of credit to the borrower until the Program loan is repaid in full or such time as neither the Main Street SPV nor any government assignee hold any interest in the Program loan, except in an event of default.
7. Prompt notice. The lender must notify the Main Street SPV and the Federal Reserve Bank of Boston if it becomes aware of a material misrepresentation or a material breach of covenant by the borrower while the loan is outstanding and the Main Street SPV or a government assignee, hold any interest in the Program loan, and for one year after the Program loan is no longer owned in any capacity by the Main Street SPV or a government assignee.

Loan document checklist

Lenders should use their own loan documentation for Program loans. Under the guidance provided by the Federal Reserve, such documentation should be substantially similar, including with respect to required covenants, to the loan documentation that the lender uses in its ordinary course of lending to similarly situated borrowers, and adjusted only as appropriate for such loan to be in accordance with the Program. Appendix B of the FAQs provides model language for many provisions in the loan documentation, which lenders may (but are not required to) use.

For the Main Street SPV to participate in a loan, the loan documentation must reflect the required components set out in the chart below.

In addition to the requirements listed above, lenders that elect to make receipt of a binding commit letter from the Main Street SPV a condition of closing should include conditional language similar to the provision provided in Appendix B of the FAQs.

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