The Main Street Lending Program (MSLP) was designed to ensure that small businesses are able to stay in business during the economic damage incurred by the COVID-19 pandemic, but Mark Leahey, president and CEO of the Medical Device Manufacturers Association (MDMA) says the program’s provisions are leaving some small device makers out in the cold, a predicament MDMA is working to resolve.

MDMA had submitted a series of recommendations to the Department of the Treasury and the Federal Reserve regarding the term sheets used for both the new loan facility and the expanded loan facility under the MSLP. In the April 17 statement, MDMA urged the Treasury and the Federal Reserve to add two other lending provisions to the program, one of which is an unsecured loan of up to $15 million that would not carry a requirement to conduct an EBITDA/leverage analysis of the applicant company.

The second recommendation is to provide unsecured loans to companies for as much as one half the company’s EBITDA for companies that are above the EBITDA/leverage threshold. Any such loans would be subordinate to other loans, and would not affect other loans in terms of interest charged or accelerate covenant provisions. Leahey said in this communique that many small device makers require many years of device development before attaining profitability and sustainability, and that consequently these companies will need a quick response from the banks to survive long enough to deliver therapies to patients.

Non-COVID devices taking massive hit

Regarding device utilization, Leahey told BioWorld that any device that is not directly related to the pandemic “has seen a material drop from the third week of March on.” This was the approximate date on which the Trump administration had recommended that elective surgeries be delayed so as to help contain the virus, although the Trump administration has since suggested that elective surgeries may be resumed when certain conditions are in place.

The terms of the MSLP were not spelled out in the CARES Act, and Leahey said MDMA commented in early April regarding the proposed guidelines to the effect that the criteria for loans might best be calculated by either of two means. One of these is that the loans should cover the amount of revenue lost during the pandemic, and the other that the loan cover the operating expenses required to keep a company in operating trim during the course of the pandemic.

Splitting the difference at $15 million

Leahey said the $15 million threshold recommended by MDMA was based on a perceived need to find an amount between the lending threshold under the Paycheck Protection Program, which runs only as high as $10 million, and the MSLP, which as matters stand commences at $25 million. “We felt that something that landed in the middle” might be both palatable to the government and useful for companies caught between the two programs.

The banks making loans under the MSLP would be taking a risk for only 5% of the loan amount, Leahey said, while the Federal Reserve is on the hook for the remaining 95%. Lenders will also receive fees to cover their processing costs, and thus the lending institution has very little financial skin in the game, which should help lenders make loans to device makers.

Leahey said Congress “understands the importance of making sure as many companies qualify as possible” and remains optimistic that the Treasury and the Fed will amend the term sheet before it is finalized. For example, when the draft application for the PPP loans was published, it required applicants to list investors with more than a 20% stake in the borrower and these investors would have to attest to the appropriate use of the loan, any violations of which might have carried criminal penalties. There are also questions regarding the applicability of the affiliate aggregation rules used by the Small Business Administration (SBA) program for companies with minority investors. Fortunately, the Treasury and the SBA modified the application and eliminated the criminal liability for investors and eased the affiliate rules. Leahey said the MSLP will go live in two weeks and that it is his hope that the administration is able to further address these questions.

Leahey said the Federal Reserve and the Treasury have received in excess of 2,000 comments on the term sheets and how the MSLP program will operate in general. It is critical that the Treasury and the Federal Reserve get the details right, or the result is that “you could neuter the ability of the program to have the impact” policymakers seek, he said.

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