June 2, 2020 - On June 1st, the LSTA hosted a webinar, Main Street Lending Program 3.0, presented by Jason Kyrwood of Davis Polk, Kenneth Rothenberg of Alston & Bird, and Matthew Schernecke of Morgan Lewis. The panelists discussed the latest MSLP update released on May 27th by the Federal Reserve Bank of Boston. As members who have listened to earlier LSTA MSLP webinars will know, the MSLP is designed to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The FRB’s latest release provides the necessary legal forms and agreements for eligible participants (borrowers and lenders), instructions for completing the required documents, updates to the eligibility criteria and borrowing conditions, and detailed FAQs. As the FRB did not invite comments on the posted agreements, eligible lenders should view them as constituting the final form.
The published “Form of Participation Agreement” should look familiar to members, since the LSTA’s own Form of Par/Near Par Participation Agreement formed the basis of this contract. Its “Transaction Specific Terms” must be completed for each participation sold to the SPV, with its “Standard Terms and Conditions” being incorporated by reference. Certain eligible lenders’ duties relating to the administration of the participation have been included in a separate “Servicing Agreement,” which primarily relates to the periodic collection from the borrower of certain documents and data and delivery of that information to the SPV. An eligible lender has a choice: one option is to fund the loan — and then within 14 days submit the necessary signed documentation relating to the SPV’s acquisition of the participation interest in the loan. The other option is that eligible lender may submit documents to the SPV; if acceptable, the SPV will then provide a commitment letter to the lender pursuant to which the SPV agrees to purchase the participation interest in the loan not later than three days after the eligible lender notifies the SPV that the loan has been funded. This second option – with the SPV’s commitment to acquire the loan before it is funded – is expected to be far more popular with eligible lenders. New provisions have been included in the Participation Agreement, and members who are interested in lending under this program should carefully review them, including the modifications to the voting section and the definition of Core Rights Acts. Interestingly, the agreement includes an express waiver of claims under Section 507(a)(2) of the Bankruptcy Code, which would otherwise have given priority to certain expense and claims, including the unsecured claims of any Federal Reserve Bank loans made under section 13(3) of the Federal Reserve Act. Click here for the slides and replay.