Letter to The Honorable Steven T. Mnuchin, Secretary of the Treasury and The Honorable Jerome H. Powell, Chairman of the Board of Governors of the Federal Reserve - Tillis, Colleagues Push for Improvements to Main Street Lending Program To Help Employers and Save Jobs

Letter

Dear Secretary Mnuchin and Chairman Powell:
Thank you for your leadership of the Board of Governors of the Federal Reserve System (Fed)
and the Department of the Treasury, and for the extraordinary, unprecedented steps you have
taken in just four months to provide critically needed assistance to the U.S. economy. The
Primary and Secondary Market Corporate Credit Facilities have restored pre-COVID liquidity in
many asset classes, enabling larger companies with market access the ability to borrow capital to
bridge over economic impacts of the pandemic and support American working families.
Similarly, the Paycheck Protection Program has provided a lifeline to small businesses and
spared the loss of millions of American jobs.
The programs for medium sized employers, however, have proven to be more challenging. We
recognize that the Main Street Lending Program (MSLP), consisting of five credit facilities,
offers to serve borrowers across industries with diverse collateral; no two borrowers' loans are
exactly alike, and the assets are far less fungible than large companies' corporate bonds. In our
view, the MSLP's success should be judged by the number of borrowers that are able to access
the program (i.e., the take-up rate of the programs) and ultimately the number of jobs it saves.
Judging by these standards, the MSLP has had a slow start, with only a handful of our nation's
banks having signed up to be MSLP lenders and the issuance of only a few loans. In our
judgment, more support to our nation's employers is needed. The MSLP is an untapped resource
that has the potential to save thousands of jobs, but these could all be lost if businesses can't
access the credit they need at this moment in time. As companies look to set 2021 budgets for
hiring and capital expenditures, enhancements to the MSLP would give employers the certainty
they need to maintain workers, hire, and invest in the coming year.
As Congress deliberates a new round of COVID-related relief, we encourage you to make full
use of the tools available to the Treasury and the Federal Reserve in the CARES Act. While it is
incumbent upon all of us in government to be good stewards of taxpayer dollars, we believe that
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the MSLP is far too restrictive to support employers and their employees through unprecedented
economic hardship. The Exchange Stabilization Fund (ESF) is designed to backstop and provide
stability in times of financial turmoil. Restricting the MSLP only to companies that can obtain
financing outside of the program diminishes the usefulness of a program that Congress approved
in March.
Based on feedback to our offices, middle-market companies are being turned away for a variety
of reasons. Many banks seem disinterested in the program because they either wish to retain
more than five percent of a profitable loan or they have no interest in retaining any stake at all in
an unprofitable loan. Other banks are questioning the terms of the MSLP, such as the
requirement that a loan be 200% collateralized in the Main Street Priority Loan Facility
(MSPLF). And as a general matter, some are disinterested due to the complexities and reporting
requirements.
We deeply respect your leadership and tenacity in the development of the MSLP and all of the
recovery programs to stabilize our economy and workforce. But we also wish to convey--with
urgency--our expectation that your agencies will take swift action to utilize the Title IV CARES
Act credit support for small and medium sized employers. Below are views on how the program
could be amended to better serve borrowers in our states and across the nation to save millions of
American jobs.
 Reduce the minimum loan amount for the MSELF and MSPLF. The barrier to entry for
small businesses is too great. We recommend lowering the minimum loan amount for
those facilities, as the present minimum of $250,000 is overly restrictive and prevents
small business access.
 Increase the maximum debt-to-EBITDA leverage ratio that qualifies borrowers for loans.
While we continue to hear challenges faced by borrowers that currently qualify for a
MSLP loan but cannot seem to get one, we also receive daily feedback from businesses in
our state that do not qualify for the MSLP because of the leverage criteria. To be clear:
we support the use of the MSLP to provide "rescue capital" to our economy. Businesses
that were shut down by government orders and for which the MSLP is their only
potential source of credit should not be allowed to fail for the sake of an unnecessarily
restrictive CARES Act investment strategy. The MSLP should support cash flow-based
lending to businesses that have strong earning potential, especially as the pandemic
subsides, but which may not presently have any unencumbered collateral to offer;
second-lien loans should also be considered. Businesses that were likely to fail before
the shutdown should not be assisted, but businesses that were easily servicing their debt
before the pandemic are quintessentially those the MSLP should be serving.
 Eliminate the 200% collateralization requirement in the MSPLF and increase the
maximum loan amount. This facility offers loans to new borrowers (i.e., those without an
existing facility with the lending bank) up to six-times 2019 EBITDA. Per the FAQs for
the program, however, the maximum advance rate on a secured loan is limited to 50%
because the program requires a 200% collateral coverage ratio. Many would-be
borrowers have collateral to offer as security for which normal advance rate would be
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much higher than 50%. A prudent policy would be to require lenders to use their normal
advance rates, which have been approved and continue to be monitored by their banking
regulators. Additionally, the maximum loan amount should be increased to $300 million,
setting it on par with the MSELF. Under current policy, if a borrower needs more than
the $50 million available in the MSPLF and its existing lender does not want to extend it
any new credit, the borrower cannot turn to another bank to seek a MSPLF loan.
Increasing the MSPLF maximum loan size will encourage competition--and thus better
terms--for borrowers.
 Provide greater incentives for lenders to participate in the MSLP. Currently, the only
incentive for banks to participate appears to be in the Main Street Expanded Loan Facility
(MSELF), where a bank with temporarily impaired collateral can have the Fed provide
95% of new credit to rehabilitate the business and, with it, the prior loan. Balance sheet
support, which banks typically have no problem solving through syndication, seems to be
the only incentive in the other two facilities. We suggest that the most effective solution
is to eliminate the risk retention feature altogether and pay lenders a fee for originating
loans according to Fed-provided underwriting criteria (much like the PPP's lender-asdistributor model). Alternatively, place the Special Purpose Vehicle's (SPV) resources in
a first-loss position up to a certain percentage of credit loss rather than the current model
of sharing losses pari passu. A third option is to allow lenders to collect more than 5% of
the interest payable on the loan while retaining only 5% of the credit risk.
 Permit borrowers of MSLP loans to refinance debt within at least 12 months of the
maturity period, revising the present prohibition on refinancing debt until it comes within
90 days of the maturity date. Business will need maximum flexibility during this crisis,
and refinancing is a crucial tool in maintaining viability. Standard practice is to refinance
debt 12-18 months before maturity; refinancing debt on a short schedule could create
rollover risk and further imperil the financial health of businesses impacted by the
pandemic.
Below are just a few examples of specific companies we have heard from that would benefit
from the proposed changes outlined and better able to access capital to save jobs and invest in
our economy through the lending facility:
 An oil and gas producer seeking a $130 million MSELF loan to maintain their employees
and restart planned 2020 drilling programs.
 A fertilizer company seeking a $150 million MSELF loan to maintain and expand
operations to help America's farmers.
 A COVID and Genomaic Testing Company seeking a $30 million loan to increase testing
capacity to over a million tests per month and hire more workers.
In addition to these changes, we welcome your input on areas where the law may need to be
changed to better serve businesses and their employees in our states. For example, structure
MSLP loans at a lower interest rate than LIBOR+300 (note that the CARES Act envisioned a
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Main Street facility at L+200, but Congress is aware of the "penalty rate of interest" language of
the Federal Reserve Act). We welcome your constructive feedback on what changes, if any, may
be needed to federal law to make the MSLP more effective and keep more employees on the
job.
In closing, please be assured of our gratitude for your steady leadership during the COVID-19
pandemic. Our comments are offered in the hope that we can continue to have a constructive
and productive approach to meeting the needs of small and medium-sized companies and saving
millions of jobs in our states. If you have any questions, please do not hesitate to reach out to us
directly.
Sincerely,
__________________________
Kelly Loeffler
United States Senator
______________________________
Mike Braun
United States Senator
______________________________
John Cornyn
United States Senator
______________________________
Thom Tillis
United States Senator