ACG asks Fed to ease restrictions for Main Street Lending Program

The Association of Corporate Growth (ACG) asked the Federal Reserve to make it easier for private equity-backed middle-market businesses to qualify for emergency funding.

The Main Street Lending Program, created under the Fed, provides loans to small and medium-sized companies that were financially sound prior to the coronavirus pandemic.

ACG called for the Fed to issue clarity and better guidelines on calculating EBITDA, which they said under the program would not count adjustments and pro forma impacts, ultimately making it harder for companies to meet leverage tests. ACG also recommended that non-bank and foreign lenders be considered eligible lenders.

Many lower to middle-market companies that did not qualify for the $349 billion Paycheck Protection Program (PPP) turned to the Main Street Lending Program for support. Rules under the Coronavirus Aid, Relief, and Economic Security (CARES) Act excluded private equity and venture-funded businesses from participating in the PPP.

ACG declined to comment for this story.

Under the program there are two facilities, the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), which have different eligibility requirements for businesses seeking aid.

According to the term sheets, the maximum loan size under the MSNLF is either less than $25 million or an amount that does not exceed four times the borrower’s 2019 EBITDA when included with “existing outstanding and committed but undrawn debt.”

For MSELF, the maximum loan size is either less than $150 million, “30 percent of the eligible borrower’s existing outstanding and committed but undrawn bank debt,” or does not go past six times the borrower’s 2019 EBITDA.

“The Main Street Lending Program can provide much more debt,” Charles Morton, partner at the law firm Venable told Buyouts. Loans must be at least $1 million, according to the term sheets.

“The Paycheck Protection Program is about maintaining payroll, the Main Street Lending Program is about trying to preserve businesses,” Morton said.

Borrowers are eligible for the loan if they have up to 10,000 employees or up to $2.5 billion in revenues from 2019, according to documents outlining eligibility requirements.

Unlike loans under the PPP, loans under the Main Street Lending Program must be repaid in full.

“Loans would have a four-year maturity, and principal and interest payments on the loans will be deferred for one year,” the Federal Reserve’s website reads.

David Acharya, partner at AGI Partners, which did not qualify for the Paycheck Protection Program, and did not apply  to the Main Street Lending Program, said it’s a good lifeline for businesses, but that he doesn’t “think it can play a big role with middle-market companies that actually have credit lines.”

“If you have existing credit lines, there’s no need to sign up for this,” Acharya told Buyouts.