The US Federal Reserve confirmed in its frequently asked questions about the Main Street Loan Program (the “FAQ”) that US subsidiaries of foreign companies may be eligible borrowers under the various loans available under the program as long as they otherwise meet the other loan eligibility conditions.
As a reminder, the Main Street loan program consists mainly of three distinct loan programs:
(I) New Main Street Loan Program – New five-year guaranteed or unsecured amortizing term loans with principal varying from US $ 250,000 to lesser of: (i) US $ 35 million (less amounts already loaned to a subsidiary of the borrower under the program), (ii) an amount which, added to the borrower’s existing and unused debt , does not exceed 4x the Borrower’s 2019 Adjusted EBITDA, and (iii) an amount which, added to all existing and unused debt of the borrower’s affiliate group, does not exceed 4x the Adjusted EBITDA 2019 of the borrower and its affiliates.
(ii) Main Street Priority Loan Program – New five-year guaranteed or unsecured amortizing term loans with principal varying from US $ 250,000 to lesser of: (i) US $ 50 million (less any amount already loaned to a subsidiary of the borrower under the program), (ii) an amount which, added to the borrower’s existing and unused debt , does not exceed 6x the 2019 Adjusted EBITDA of the borrower, and (iii) an amount which, added to all existing and unused debt of the borrower’s affiliate group, does not exceed 6 times the 2019 adjusted EBITDA of the borrower and its affiliates.
(iii) Main Street Expanded Loan Program – Term loans amortizing over five additional years guaranteed or unsecured compared to existing term loans or revolving loans of the borrower with principal amounts ranging from $ 10 million lesser of: (i) US $ 300 million (less amounts already loaned to a subsidiary of the borrower under the program), (ii) an amount which, added to the borrower’s existing and unused debt , does not exceed 6 times the Borrower’s Adjusted EBITDA, and (iii) an amount which, added to all of the existing and unused available debt of the borrower’s affiliate group, does not exceed 6 times the ” 2019 adjusted EBITDA of the borrower and its affiliates.
For the purposes of the Main Street Loan Program, “Affiliates” are determined in accordance with the Cares Act Paycheck Protection Program (PPP). By definition, “affiliates” include not only majority control, but also certain minority controls, as discussed in more detail in 13 CFR 121.301 (f).
U.S. subsidiaries of foreign companies are eligible for loans provided, among other conditions:
The borrower himself must be an entity created or organized in the United States before March 13, 2020.
The borrower has significant operations in the United States and a majority of its employees in the United States – for the purposes of this test, the relevant entities to examine are the borrower and its consolidated subsidiaries alone (not its parent company (including foreign parent company) or other companies controlled by the parent company (i.e. sister companies)). The determination of material transactions in the United States should be made taking into account several factors such as:
more than 50% of the assets are located in the United States,
more than 50% of annual net income is generated in the United States,
more than 50% of annual net operating revenues are generated in the United States or
over 50% of annual consolidated operating expenses (excluding interest expense and other debt service charges) are generated in the United States.
These factors are not exhaustive and other factors may be taken into account in the analysis.
The borrower and its affiliates (including its foreign parent company and other foreign affiliates) have on a combined basis (i) 15,000 or fewer employees globally or (ii) 2019 annual revenues of US $ 5 billion or less. Income for 2019 can be determined based on audited United States GAAP financial statements or annual revenues reported to the United States Internal Revenue Service. If the borrower does not have audited financial statements, they can use their most recent audited financial statements or annual receipts.
The company is not an ineligible company within the meaning of 13 CFR 120.110 (b) – (j), (m) – (s), which includes, among others, private equity funds, loan companies, life insurance companies and businesses located in a foreign country.
Note that while a US subsidiary of a foreign parent company may be an eligible borrower under the Main Street loan program, none of the proceeds from these loans can be used by the borrower for the benefit of the foreign parent company. foreign affiliates or foreign affiliates of the US borrower.
Borrowers under the Main Street loan program must also make commercially reasonable efforts to maintain payroll and retain employees for the life of the loan. They will also be subject to restrictions on share repurchases, dividends and other distributions of capital and will be required to comply with executive compensation limits during the term of the loan and for 12 months thereafter.
Finally, borrowers are subject to certain restrictions on refinancing or paying off debt during the term of the loan.
The Federal Reserve has published the term sheets for each of the three loan programs and the FAQs on its website. For more details on the program, see the alert issued by our Coronavirus Working Group with a full summary of program conditions. here.
The main street loan program is expected to become officially operational in the coming weeks.
Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.Revue nationale de droit, volume X, number 167