Reed Smith Client Alerts

On May 27, 2020, the Federal Reserve updated its frequently asked questions (the May FAQs) for the Main Street Lending Program (the Program), which were originally released on April 30, 2020 (the April FAQs). The May FAQs provide a substantial amount of new information. Below are several important updates to the Program.

作者: J. Eric Holland Daniel Teplin

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Borrower eligibility

Foreign affiliation and significant U.S. operations

In order to qualify as an “eligible borrower” under the Program, section 4003(c)(3)(C) of the CARES Act requires and the April FAQs demonstrate that the borrower has to have been “created or organized in the United States or under the laws of the United States with significant operations in and a majority of their employees based in the United States.” The May FAQs have provided some additional information regarding the terms “created or organized in the United States or under the laws of the United States” and “significant operations in the United States”

To determine if a borrower has “significant operations” in the United States, the borrower’s business operations should be evaluated with its subsidiaries, but not its parent companies or sister affiliates. The May FAQs have given several examples wherein a borrower would be found to have significant operations in the United States. Specifically, when consolidated with its subsidiaries, if more than 50 percent of the borrower’s: (i) assets are located in the United States; (ii) annual net income is generated in the United States; (iii) annual net operating revenues are generated in the United States; or (iv) annual consolidated operating expenses (excluding interest expenses and any other expenses associated with debt service) are generated in the United States, then the borrower would be found to have significant operations in the United States.

For the avoidance of doubt, with respect to the requirement that a borrower must have been “created or organized in the United States or under the laws of the United States,” a borrower may be a subsidiary of a foreign company provided that the borrower itself was created or organized in the United States or under the laws of the United States, and the borrower meets the “significant operations” requirement, as described above. However, it is important to note that if a borrower is a subsidiary of a foreign company, the proceeds of a Program loan must only be used for the benefit of the borrower, its consolidated U.S. subsidiaries, and other U.S. business affiliates of the borrower. The proceeds of a Program loan may not be used for the benefit of a borrower’s foreign parents, affiliates, or subsidiaries.