Main Street Lending Program: Compensation Restrictions

On June 26, the Federal Reserve Bank of Boston (“FRBB”) released new guidance on compensation restrictions for Main Street Lending Program (“MSLP”) borrowers.  This new guidance defines for borrowers “total compensation” pursuant to restrictions on all programs established through Title IV of the CARES Act (§ 4004), including the MSLP.  Additionally, the FRBB updated the financial information a borrower must submit to the lender during the underwriting period of a MSLP loan.


Executive Compensation Restrictions

During the term of the MSLP loan and for one year after (“restricted period”), employees or officers who earned more than $425,000 in total compensation in 2019 are subject to the following compensation restrictions:

  • Annual compensation cannot exceed their 2019 compensation

  • Severance pay cannot exceed two times their 2019 compensation

  • Maximum total annual compensation of $3 million, plus 50% of the excess over $3 million of their total 2019 compensation

  • Excludes those with collective bargaining agreements dated before March 1, 2020.

According to the FRBB’s new guidance (see FAQs H-12, H-13 and H-14), total compensation includes salary, bonuses, awards of stock, and other financial benefits provided by the borrower and its affiliates to an officer or employee of the borrower but does not include the value of severance pay or other benefits paid in connection with a termination of employment.  The specific standards for calculating total compensation vary by business as follows:

  • Public company borrowers

    • Must calculate according to the methodology set forth in Item 402(c) of Regulation S-K  (17 CFR 229.402(c)(2)).

  • Nonpublic company borrowers with 2019 revenues less than $10 million

    • May choose between calculating total compensation according to federal tax rules or the methodology in 402(c).

  • Nonpublic company borrowers, 2019 revenues greater than $10 million

    • May choose between calculating total compensation according to federal tax rules or the methodology in Item 402(c).

      • EXCEPTION – Total compensation for Significant Deferred Compensation Recipients must be calculated according to Item 402(c).

      • Significant Deferred Compensation Recipients are those whose total compensation that exceeds $425,000, where more than 30% of such compensation consists of “deferred compensation.


Borrower Financial Data

The FRBB also included updated guidance on what financial data the borrower must provide to a lender at the time of MSLP application (in addition to any further data required by the lender).  These include:

  • Financial Information

    • 2019 Results – including the borrower’s 2019 revenues, adjusted EBITDA, and 2019 assets and liabilities, as well as any other data the lender required from the borrower to comply with the lender’s underwriting practices

    • Most Recent Quarter Results

When the lender submits the loan for sale to the Federal Main Street Special Purpose Vehicle, they must include the following details:

  • Borrower Identification

  • Borrower Characteristics

  • Loan Characteristics

  • Legal Agreements and Certifications

  • Lender document upload requirements

See the FRBB’s MSLP landing page for the full set of Frequently Asked Questions, including a redlined version that highlights these recent changes.


How to Apply for a Main Street Loan

An MSLP loan application may be submitted to a federally insured lending institution, which will apply its own underwriting criteria. In addition, the Federal Reserve also released application forms and agreements that must be completed in conjunction with the primary loan application.  The documents include borrower certifications and covenants.
The Federal Reserve cautions that “eligible borrowers should contact an eligible lender for more information on whether the eligible lender plans to participate in the program and to request more information on the application process.”
Please refer to the Federal Reserve’s Main Street website for the latest program information.