Pub. 10 2020-2021 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2020 9 6. What are the other requirements and restrictions of Eligible Loans? • If an Eligible Borrower has outstanding loans with the Eligible Lender as of Dec. 31, 2019, such loans must have an internal risk rating equivalent to “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date. • Eligible Lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of application. • In addition to other certifications required by statutes and regulations, the following certifications and covenants will be required from Eligible Borrowers:  The Eligible Borrower will be prohibited from prepaying principal and interest on any other debt until the Eligible Loan is repaid in full. This restriction does not include a refinancing permitted in connection with a MSPLF, repaying lines of credit in the normal course of business, taking on and repaying certain normal course debt, such as inventory or equipment financing, or refinancing maturing debt, but it does include a prepayment triggered by taking out the Eligible Loan if more than de minimus. The Eligible Borrower must commit to not seek to reduce or cancel any committed lines of credit.  The Eligible Borrower must certify that it is unable to secure “adequate credit accommodations from other banking institutions.” This does not necessarily mean that no credit is available but can mean that the amount, price, or terms of credit available are inadequate. Borrowers are not required to demonstrate that credit has been denied by other lenders or document the inadequacy of available credit.  The Eligible Borrower must have a reasonable basis to believe that, as of the date of origination of the Eligible Loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.  The Eligible Borrower must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply under the CARES Act, except that an S corporation or other tax pass-through entity may make distributions reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.  While the Eligible Loan is outstanding, each Eligible Borrower must make good-faith efforts to maintain payroll and retain employees, giving consideration to its capacities, the economic environment, available resources, and the business need for labor. However, Eligible Borrowers are still eligible to apply for Main Street loans if, as a result of COVID-19, they have already laid-off or furloughed workers. 7. What role will the SPV have? Initially, the SPV’s interest will be a participation (one that is transferable with, in most situations, the Eligible Lender’s consent). Under certain circumstances, the SPV will be able to elevate its interest from a participation to an assignment. However, it is not expected that the SPV will exercise such right as a matter of course, including if a loan is distressed or in workout, but will exercise it only where (i) the interests of the Eligible Lender and the SPV differ, or (ii) the loan is one of the larger loans in the SPV’s portfolio of participations. Eligible Lenders will have the option to fund the Eligible Loan upfront and submit the required documents to sell a participation to the SPV no later than 14 days after the closing of the Eligible Loan. Alternatively, an Eligible Lender may extend an Eligible Loan but condition its funding on receiving a binding commitment from the SPV to purchase a participation. Once a binding commitment is received, the Eligible Lender would be required to fund the Eligible Loan within three business days and the SPV would fund the participation within three business days of receiving notice of such funding from the Eligible Lender. 8. What about asset-based borrowers? While asset-based borrowers are not generally evaluated on the basis of EBITDA, it remains the key underwriting metric for the Program. The Federal Reserve and the Treasury Department will evaluate potentially adjusting eligibility requirements for asset-based borrowers. 9. How long will the Program be in effect? All participations must be purchased by the SPV by Sept. 30, 2020. n If you have any questions regarding the Main Street Lending Program, please reach out to Erin Simmons or Stephanie Block-Guedez. Initially, the SPV’s interest will be a participation (one that is transferable with, in most situations, the Eligible Lender’s consent). Under certain circumstances, the SPV will be able to elevate its interest from a participation to an assignment.