On July 6th 2020, the Federal Reserve Bank of Boston (“FRBB”) announced that the Main Street Lending Program will now begin purchases of 95% participation stakes in eligible loans, completing the roll-out of the program that represents Treasury and the Federal Reserve’s joint effort to ensure small- and mid-sized businesses have access to credit on equitable terms in the face of the pandemic.
The FRBB also announced that shortly it will publish a list of participating lenders by state for easy reference by interested borrowers.
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 agreement 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.
The Impact of COVID-19 on the PE Industry
The novel COVID-19, is one of the most significant global economic and societal events to take place within our lifetimes, and has vast implications for private equity, venture capital and the M&A market. The U.S. is now the epicenter of COVID-19 outbreak, as the growth in cases and deaths continues to accelerate.
COVID-19 has already had a devastating impact on the economy with more than 36 million unemployment claims over the past two months, more than wiping out all job gains since the Great Recession. There are widespread expectations of the unemployment rate hitting as high as 30% or more and predictions of a 10%+ drop in next quarter’s GDP. Between the travel restrictions, quarantines, social distancing, and mandated shutdowns, we are in what many are now calling the new “shut‑in economy.”
In terms of the private equity and private capital markets in particular, there are certainly going to be short-term impacts, including a delay in fundraising, impact on EBITDA, and a fall in production, as well as medium-term impacts as funds manage against the “new normal.” Medium-term considerations include taking steps to recession-proof portfolios and fortifying business resilience at the portfolio company level. There could also be more carve-outs and divestitures of non-core assets from larger companies, which would present a buying opportunity for private equity. And, after years of a relative dearth of quality assets on the market, we’ll likely see a huge uptick in quality distressed assets at discounted prices, which we expect savvy PE and VC funds to invest in or snap up.
Actions undertaken today—daily information and awareness briefings, crisis management and recovery efforts, investment strategy pivots, financial and operational planning—will help fund managers navigate through the COVID-19 crisis both at the fund level and at the portfolio level.
IMPACT OF COVID ON ACCONTING OPERATIONS
As cities and states begin to re-open, and businesses start to transition into a post- lockdown economy, there will be short- and medium-term challenges that will need to be addressed. If you were able to weather the early storm and ensure that the necessary accounting processes were operational in a virtual environment, you are already off to a strong start.
Taking Stock of the New Normal
By now, you and your teams have likely had several weeks of remote working experience under your belts. As you begin to plan a return to work, the first exercise to go through is to debrief on the past several weeks of remote working, with a goal of identifying three primary categories:
- What worked well: These could include things like processing of accounting transactions and seamlessly accessing financials from home through the cloud.
- What could be improved: Processes that perhaps did not work very well in a remote setting but that you will need to improve moving forward. This could include capabilities like remote conferencing or video software that was critical for business continuity but would make interacting with colleagues more productive in the future.
- What should be scrapped:Processes that you realize may no more be as valuable or as necessary, as your organization shifts to an increasingly remote working environment.
If appropriate, consider debriefing with your team to better understand the challenges and successes associated with the remote working structure, in order to make better decisions around future work-from-home situations—which may come in waves through the fall and beyond as the virus ebbs and flows.
Once you have a sense of areas to sustain, enhance or to discard, the next step is to review your finance and accounting staff structure to determine if you have the correct capabilities to meet the demands of the new normal. For example, many CFOs are seeing an increased need for strategic financial planning and analysis skills in order to adequately budget, forecast and create financial models in an uncertain business environment.