NEW YORK - Restrictions within the US government’s coronavirus aid Main Street Lending Program are staving off borrowers and lenders alike even as new lending activity begins to pick up in the middle market.
It is just a fraction of the overall US$600bn in available funds, which has raised questions from lawmakers about the viability of a program designed to provide immediate help to companies hit by the economic shutdown. By introducing new secured debt at the top of the capital structure, the existing lender then becomes subordinate in the claims over the collateral in the event of a bankruptcy. A lender that had an existing first-lien facility will no longer be first in line for payments if the collateral is liquidated.
A typical senior loan provided by a private debt firm ranges between 500bp-700bp over Libor, according to sources. Under the PPP, more than five million loans were made totaling US$525bn, according to figures published by the US Treasury when the program closed on August 8. The MSLP, meanwhile, will remain open until the end of the year.
The heightened uncertainty brought on by the novel coronavirus dried out funding for middle market companies, which had been readily available from some banks and private credit funds before the onset of the pandemic.