Our membership with the Council of Insurance Agents and Brokers continues to be invaluable. We are sharing the below update from them on a dramatic step taken today by the Federal Reserve Board to interject $2.3 trillion in loans into the economy. This is a significant announcement and one we believe may benefit many of our clients.
This morning, the Federal Reserve Board took a dramatic step of interjecting an additional $2.3 trillion of loans into the cratering American economy. We view this development to be critical to all Council member firms and their clients, the majority (if almost all) of whom could be beneficiaries of this action.
As The Wall Street Journal reports, the actions “take the Fed well beyond the lender-of-last-resort functions it played in 2008 to prevent a financial panic from deepening the economic downturn and rely on hundreds of billions of dollars in Treasury money that Congress made available in the recent $2.2 trillion economic-relief legislation.”
“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” Federal Reserve Chairman Jerome Powell said in a statement. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”
Among the actions were the release of terms for new loans and the expansion of existing loans under the Main Street Lending Program. Encouraged in the $2 trillion relief package passed by Congress last month, the Program is designed to support small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies (i) employing up to 10,000 workers or (ii) with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year.
Eligible banks will be able to originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. The Main Street facilities will purchase up to $600 billion of loans.
Those looking to access these facilities should be aware of a number of important borrower eligibility criteria, features of the loans, and commitments and attestations borrowers will need to make.
The two term sheets related to these programs can be found here:
Loans issued under this Program will have the following features:
Borrowers will need commit to refrain from using the proceeds of the loan to repay other loan balances, and from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the loan in full.
A borrower also will need to attest that it:
The Program will continue through September 30, 2020, unless the Federal Reserve and the Treasury Department decide to extend it. The terms of these loans are subject to change, particularly as the Federal Reserve and the Treasury seek feedback until April 16 on this and other programs.
It is unclear what impact this action will have on joint insurance/policyholder efforts to establish a Business Continuation and Recovery Fund in a potential “Phase 4” of congressional action. However, we strongly welcome this development and hope that lending institutions will be able to work seamlessly with the Fed in providing desperately needed liquidity relief to the broadest possible swath of American business
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