Like the participation agreement, the co-lender agreement consists of two parts – the terms and conditions and the terms specific to the transaction. The objective of the co-lender agreement is to convert a bilateral facility (eligible borrower and eligible lender) into a multi-lender facility when the VPS elevates its status as a participant to lender under the loan agreement and other loan documents. The $600 billion main street loan program was eagerly awaited to provide financial support in the form of loans to U.S. small and medium-sized businesses affected by the COVID-19 pandemic. The Federal Reserve Bank of Boston, which administers the Main Street Loan program, has published condition sheets and various other program documents for the three types of «new,» «priority,» and «expanded» loans, as well as more than 70 pages of frequently asked questions (FAQs). As a result, the contours of the Main Street lending program are now essentially clarified[1] since the Fed publicly announced on Monday, July 6 that the Main Street lending program is now fully operational and ready to acquire interest in eligible lenders subject to the program by registered lenders (eligible lenders). [4] Including: (i) changes in the lender`s level of consent to a Fundamental Rights Act, (ii) deviations from the provisions relating to certain attestations that the borrower is required to make in the Main Street program documents, (iii) deviations (except in the case of temporary delay) from a provision requiring a regular financial statement from the borrower, (iv) the explicit subordination of the Main Street loan, or a security interest in all or substantially all of the guarantee thereof and (v) the failure to accelerate and remedy the Main Street loan in the event of a cross-acceleration of the seller`s debt (defined as a cross-acceleration in the event of default under another debt owed by the borrower to the eligible lender). The form documents are published on the Reserve Bank`s website: www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program/information-for-lenders/docs.aspx. Eligible lenders and eligible borrowers should contact their legal counsel when reviewing the form documents.
We will continue to monitor developments with respect to not-for-profit institutions and provide further updates as required. Since a full analysis of the requirements of each form document would be beyond the scope of this blog, readers are encouraged to contact Neal Pandozzi at npandozzi@apslaw.com if they have any questions. The second component of any co-lender agreement is the transaction-specific terms. These specific conditions include the names of the original lender, the management agent and the new lender (which must remain empty until they are fulfilled by the new lender). This announcement followed (i) the April 30, 2020 announcement that the Federal Reserve Board (the Federal Reserve) voted unanimously to expand the highly anticipated MSLP to facilitate lending to small and medium-sized businesses, and (ii) the April 9, 2020 announcement that the Federal Reserve would purchase up to $600 billion in loans under the MSLP, the U.S. Treasury Department contributing $75 billion according to coronavirus aid. Relief and Economic Security Act. FRB Boston will act as program administrator for the Federal Reserve and MSLP documentation and FAQ can be found here. The following table describes the Main Street Agreements (which are linked to the applicable document or agreement on FRB Boston`s website) and a brief description of this Agreement. Crucially, the participation agreement provides that the eligible lender retains exclusive authority to exercise all votes, rights and remedies with respect to the Main Street Loan, except in particular with respect to fundamental rights laws. «Fundamental rights laws» are defined as (i) acts (or omissions) relating to main street lending that affect what is commonly considered «sacred rights»[3] and (ii) acts (or omissions) that affect specific concerns or characteristics of the Main Street program.
[4] The scope of the Fundamental Rights Acts is quite broad (certainly broader than the «sacred rights» that trigger participants` voting rights under the above-mentioned SBTA Model Participation Agreement Form), and eligible lenders and borrowers should be aware that obtaining consent from the Main Street VPS for such acts (and omissions) involves both substantial and administrative challenges. can bring. The Fed notes that «the Main Street SPV will make economically reasonable decisions to protect taxpayers from losses from Main Street loans, and will not be affected by non-economic factors in the exercise of its voting rights. [5] While the economic interests of the Main Street VPS and the eligible lender in general should be aligned, we anticipate that: the Decisions of the Main Street VPS regarding the Fundamental Rights Act will not always result in the outcome preferred by eligible lenders. For example, the eligible lender may be less reluctant than the Main Street VP to defer payment or write off part of the loan as part of a job. We also expect that an eligible lender with different exposure to the eligible borrower or its affiliates may assess its overall economic relationship with these companies differently from main street SPV or another government acquirer. Following an increase, the voting rights of the Main Street VPS will be governed by: (i) for Main Street bilateral loans, the co-lender agreement, and (ii) for Main Street multi-lender loans or «extended» facilities, the underlying loan documents. Under the Co-Custody Agreement, amendments and waivers require the consent of the «required lenders»[6], unless such amendments or waivers relate to acts (or omissions) involving «fundamental rights laws», in which case the consent of all relevant lenders or lenders is required. Note that since the Main Street VPS or its assignees will hold 95% of the Main Street loan after the increase, they will have control over all acts (or omissions) that require the consent of the required lenders, leaving the eligible lender in a minority position with no blocking rights, except in matters that involve fundamental rights laws or otherwise require the voice of the relevant lender. This may not be the expected outcome for eligible lenders, as «club» transactions sometimes require the approval of at least two unaffiliated lenders when the required lenders` consent is required. With respect to Main Street`s multi-lender facilities (particularly «extended» loans), the voting rights of the Main Street SPV are guided by the provisions of the underlying loan documents, so we expect these rights to be in line with market standards.
The eligible lender in their respective capacity as authorized lender and management agent and the eligible borrower must sign the terms and conditions specific to the transaction outside the portal, and the eligible lender must upload them to the portal as part of its application to participate. There are still spaces for the VPS to enter the contract date and details of the new lender, and a space is reserved for the new lender to sign the document in case the VPS exercises its right to collect its stake in an assignment. Modifications and deletions of the co-lender agreement are not allowed. The Participation Agreement also contains two useful additions: (i) it makes it clear that the interest is irrevocable and that neither party has the right to require the eligible lender to redeem or redeem the interest or the Main Street VPS to sell or reserve the interest, and (ii) the waiver of the Administrative Priority status of the Main Street SOP under Section 507(a)(2) of the Bankruptcy Act. By expressly including, in the form of the Participation Agreement and the Co-Lender Agreement, the Fed expressly waives by the Main Street SPV any claim it may have under Section 507(a)(2) of the Bankruptcy Act, the Fed is preemptively addressing a significant concern of eligible lenders that creditors are demanding from the Main Street SPV in bankruptcy proceedings, in which the borrower (or a co-debtor) is involved, are treated differently (e.B. administrative priority granted) than ordinary unsecured claims of eligible lenders and other unsecured creditors with respect to the unsecured portion of the main street loans under the Bankruptcy Code. Section 507(a)(2) expressly grants Federal Reserve banks an administrative priority claim (under Section 503(b)) in respect of any unsecured claim related to «loans made through programs or entities [such as main street credit programs] approved under Section 13(3) of the Federal Reserve Act.» The waiver is intended to give eligible lenders the convenience that bankruptcy courts will follow and enforce 95/5% of the economic risk allocation of Main Street`s lending programs. .