Home News & Insights Main Street Lending Program Approaches 5-Year Maturity
February 13, 2024
Main Street Lending Program Approaches 5-Year Maturity
By Ben Gonzalez , Bill Patterson, CTP, CIRA, CPA

What Does This Mean for the 1,800 Businesses That Participated in the Program?

The Main Street Lending Program (MSLP)—established by the Federal Reserve in response to the onset of the COVID-19 pandemic and its related impact on business lending—provided funding to over 1,800 companies in the U.S. in 2021 and 2022. With an average loan size of $10M, the loans were originated by banks throughout the U.S.—and the Federal Reserve acquired a participating interest—95% of the total loan.

The MSLP was created to ensure that U.S. companies had available liquidity in the period coming out of the COVID-19 pandemic. These loans had a deferral of principal payments until Year 3. In Year 3, a principal payment of 15% of the balance became due. In Year 4, another 15% principal payment became due. Upon maturity of the loan in Year 5, the remaining principal payment of 70% is due. Anecdotal evidence suggests that some participating companies have struggled to meet interest payments—as well as the first amortization payment of 15% of principal—that was due in 2023.

Loan defaults may be on the rise. 

Due to the structure of the loans with a deferral of the principal payment requirements, we anticipate an increase in loan defaults among MSLP borrowers—as well as the need to refinance existing debt, raise equity, or consider other strategic alternatives, including a sale of all or part of the company. While refinancing may be an option, it will likely come with more expensive debt, further eroding credit quality and debt capacity. If you or your clients’ companies are borrowers under the MSLP, getting ahead of the looming maturity dates is critical, especially if you anticipate difficulties in meeting principal amortization or covenant requirements.

What should MSLP participants do now?

  1. Forecast cash flows to determine ability to meet debt obligations when they come due.
  2. Consider options to restructure or refinance obligations. Due to the structure of the MSLP loans, the banks will likely be unwilling or unable to roll the debt over in its entirety (since they only hold 5% of total exposure), with the Fed holding the balance in a Special Purpose Vehicle (SPV).
  3. Look for alternative sources of capital, including higher-priced private credit providers or subordinated debt.

MSLP Loan Restrictions: What Borrowers Should Know

Here’s our understanding of the MSLP loan limitations and restrictions. For more information, you should also visit the MSLP website.

  • The MSLP is not expected to be extended beyond the maturity date of its loans. In general, the Fed will not have the infrastructure to manage the portfolio and work with clients who need to restructure obligations beyond 2025. Under certain circumstances, the originating bank may restructure principal obligations within the MSLP’s 5-year window, but it will require consent from the Fed. For example, if a borrower struggles to meet its first payment of 15% of total principal, the bank/Fed might extend the due date by 90 days or amortize that payment over a 12-month period until the next 15% principal obligation is due—as long as the loan maturity does not extend beyond 2025.
  • The originating bank and the Fed have the authority to sell the loan, but they will evaluate options against a liquidation or bankruptcy proceeding to determine the outcome that yields better results. The Fed is not interested in offers to purchase loans at deep discounts if they can yield a better result through traditional restructuring, liquidation, or bankruptcy proceedings.
  • The Boston Fed will not likely consider a debt for equity conversion—nor any level of debt forgiveness for borrowers outside of a formal court-supervised proceeding.

Can’t Meet Loan Deadlines? Here are 6 Options for Borrowers

Depending on the borrower’s situation, here are some options to consider:

  1. Loan Restructuring. Explore balance sheet restructuring to optimize the company’s capital structure —to potentially de-leverage by replacing debt with equity. This should consider the cost of capital and the consequences of not addressing MSLP obligations. In this situation, engaging an advisor familiar with capital market dynamics and available options is essential. They can help navigate the complexities of obtaining necessary consents for restructuring, including those from lenders and regulatory bodies, while also assessing the lender’s motivation to collaborate on feasible solutions given their limited exposure. Due to the MSLP structure, it may be difficult to obtain consent from creditors to restructure debt terms, such as extending maturity dates, reducing interest rates, or altering repayment terms.
  2. Sell a majority or minority stake in the company. It may be in the best interest of shareholders to sell part or all the company to satisfy its debt obligations. This alternative should be considered and evaluated against the company’s value in an adverse proceeding initiated by the agent bank acting on behalf of the Fed and the broader syndicate constituency.
  3. Secure New Loans or Credit Facilities: Obtain new financing to pay off the existing Main Street Loan. The MSLP loan typically has a first lien on the borrower’s collateral and may have restrictions on releasing any collateral without a full payoff. In addition, any additional borrowing may require lender approval. The company will likely be facing more expensive pricing and tighter covenants with a replacement lender, but the tradeoff will be an extension of maturity and principal payment requirements—potentially relieving cash flow pressure.
  4. Operational Restructuring. This may include implementing operational efficiencies, cost reductions, and other measures to improve the company’s financial performance. In some cases, you may request concessions from your customers and vendors as part of a restructuring plan.
  5. Sell Non-Core Assets. Generating cash by selling non-core assets can help reduce debt and improve liquidity. This can be part of a broader strategy to streamline operations.
  6. Bankruptcy or Insolvency. If a borrower becomes distressed and enters bankruptcy or insolvency proceedings or misses a mandatory and schedule payment on an MSLP loan, the Boston Fed, through the SPV it created to purchase its 95% interest in the loan, will have the option to elevate its participation to an assignment to be in privity (legal relationship) with the borrower.

Wrapping it Up

For companies dealing with difficult business or financial challenges, Harney Partners can help determine the best path forward. We have managed a broad gamut of complex situations both in and out-of-court for our clients. For companies considering their options for MSLP obligations, we are prepared to help raise debt capital, determine debt capacity, forecast cash flows, plan for contingencies, or run a process to sell all or part of the company. Hiring a firm that provides professional consulting services with business turnaround specialists provides the independent expertise needed to make the best decisions for your unique situation. Harney Partners offers a wide range of restructuring consulting and advisory services to help companies navigate financial and operational strategies to optimize business outcomes. Contact us to find out if we may be a fit to help your business.


Ben Gonzalez
Managing Director

Ben has extensive financial restructuring and investment banking experience and has been involved in some of the world’s largest corporate restructurings and distressed M&A transactions. He has advised bank syndicates,…Read More

Bill Patterson, CTP, CIRA, CPA
Executive Vice President

Bill has 35 years of experience providing financial advisory services to business stakeholders of organizations – including ten years with Big Four firms, plus experience as the CFO of both early-stage and middle-market companies. He has extensive experience navigating the complexities of recapitalization, bankruptcy, reorganization, and litigation issues. Additionally, Bill has broad experience in organizational and corporate governance and risk in the U.S and abroad. His industry expertise includes manufacturing; construction; consumer products; distribution and transportation; services; E&P; oil field services; retail; renewable energy; medical devices and equipment; and financial services.

At Harney Partners, Bill is an advisor to corporate stakeholders and companies experiencing a complex transition that are seeking financial and operational stabilization.