Federal Reserve Board Announces Nonprofit Organization Loan Facilities Under Main Street Lending Program

On Monday, June 15, 2020, the Federal Reserve Board (the Board) announced its proposed expansion of the Main Street Lending Program, which we originally detailed in our April 9 client alert and updated in our May 4 client alert. As noted in these alerts, the Main Street Lending Program is an effort by the Federal Reserve to direct credit towards small and medium-sized businesses harmed by the COVID-19 Pandemic. However, under the Main Street New Loan Facility, Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility terms, nonprofit organizations were omitted from the definition of “Eligible Borrower.” With Monday’s news, the Board sought to broaden program coverage by making loan options available to nonprofit organizations via two facilities, the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF) (each a Facility, and together the Facilities). Under the Facilities, the minimum loan size is $250,000 for NONLF loans, $10 million for NOELF loans, and the maximum loan size is $35 million for NONLF loans or $300 million for NOELF loans. The proposed term sheets for these Facilities are drafts and will likely change in the coming weeks.

The proposed economic terms of the loans under these Facilities (interest rate, deferral of principal and interest payments, and five-year term) mirror those for Main Street business loans and are summarized in the chart that follows. However, the proposed nonprofit Facilities fundamentally differ from the Main Street facilities in how the loan sizing metrics are determined.

Eligible Borrowers

Under the NOELF and the NONLF, Eligible Borrowers are defined to include a nonprofit organization under Internal Revenue Code Section 501(c)(3) or a nonprofit veteran’s organization under Internal Revenue Code Section 501(c)(19), provided the nonprofit was established prior to, and has been in continuous operation since, January 1, 2015. Significantly, the Federal Reserve has noted via a footnote in the draft term sheets that it may use discretion in including other types of nonprofits organizations not included in Sections 501(c)(3) and 501(c)(19) within the definition of Eligible Borrower. We suspect that many nonprofit organizations defined in other sections of the Internal Revenue Code will utilize the public comment period to request this definition be broadened.

In addition, the nonprofit must meet the following requirements to be an Eligible Borrower:

1. It has 15,000 employees or fewer, or it had 2019 annual revenues of $5 billion or less;
2. It has at least 50 employees;
3. It has an endowment of less than $3 million;
4. It has 2019 revenues from donations that are less than 30% of its total 2019 annual revenues, which total includes proceeds from fundraising events, federated campaigns, gifts, and funds from similar sources;
5. It has a ratio of adjusted 2019 earnings before interest, depreciation, amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 5%;
6. It has a ratio (expressed as a number of days) of (i) liquid assets at the time of loan origination [of the upsized trance, for the NOELF] to (ii) average daily expenses over the previous year, equal to or greater than 90 days; 
7. At the time of loan origination [of the upsized tranche, for NOELF] has a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the Facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 65%; 
8. It is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States;
9. Does not also participate in the other nonprofit organization loan Facility, the MSNLF, the MSPLF, the MSELF, the Primary Market Corporate Credit Facility, or the Municipal Liquidity Facility; and 
10. It has not received specific support pursuant to the CARES Act.[1]

Links to the draft term sheets for the NONLF and NOELF can be found here and here.

The public may submit feedback on these draft term sheets via email here until Monday, June 22.

[1] For the avoidance of doubt, Nonprofit Organizations that have received PPP loans are permitted to borrow under the Facilities, provided that they are Eligible Borrowers.