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April 20, 2020

MSCI Asks Federal Reserve To Change Main Street Lending Program Term Sheets

As Connecting the Dots reported last week, the Federal Reserve has announced a new lending program authorized by Congress called the Main Street Business Lending Program, which should come online in the next two weeks or so. The program will be split into two lending facilities—the Main Street New Loan Facility and the Main Street Expanded Loan Facility. Collectively, the two facilities will offer up to $600 billion in liquidity to businesses with up to 10,000 employees or $2.5 billion in annual revenues.

Banks will be able to originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses through the program.

Unfortunately, the leverage restrictions included in Section 5(ii) of the Main Street New Loan Facility term sheet and 5(iii) of the Main Street Expanded Loan Facility term sheet appear to unfairly exclude Metals Service Center Institute (MSCI) member companies that rely solely or predominantly on asset-based revolving credit facilities. According to the term sheets, borrowers’ calculations of maximum loan size for both new loan facilities and expanded loan facilities must include “committed but undrawn debt” as a component of leverage.

In a letter submitted to the Federal Reserve on April 16, MSCI President and CEO Bob Weidner explained “the industrial metals industry may be uniquely impacted” by this provision “because use of that credit method is widely used to finance inventory.” Weidner asked that the Federal Reserve remove that condition in its entirety from the term sheets. Click here to read the full letter.