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College sports conference first to tap Fed loans for nonprofits

Yahoo Finance's Brian Cheung joins Kristin Myers to break down the Federal Reserve's first official borrower of it's Main Street Lending Facility.

Video Transcript

KRISTIN MYERS: But I want to get now to talking about college sports, because I don't think most folks would think of college sports conferences as a nonprofit. And yet, we have a new report from Yahoo Finance's Brian Cheung about how the Sun Belt Sports Conference is actually tapping into a loan from the Fed, which is earmarked for nonprofits. Hey, Brian, break it down for us.

BRIAN CHEUNG: Well, Kristin, normally, I talk about things like central banking and the economy. But a little unusual for me to be talking about college sports, but relevant because we've been talking over the past few months about the Federal Reserve's Main Street Program. It's their emergency loans to for-profit but also nonprofit organizations.

And the Fed has officially extended credit to the first borrower that's a nonprofit organization since it opened that up to those organizations in September. It is the Sun Belt Conference. This is a D1 program that covers 12 schools, schools throughout the Southeast. Think of the Ragin' Cajuns in Louisiana, Appellation State.

This is based on disclosures from the Federal Reserve that were released this week, showing that the Fed tapped the Main Street lending facility for a $4.4 million loan. That was in early October. This is pretty remarkable, given the Fed's intention to really open this up to nonprofits. They had announced that back in June, but it didn't go live until September, as the Fed was trying to work out exactly how they would do this. No one was able to successfully complete the application until Sun Belt ultimately got its through through the First Bank and Trust bank in New Orleans, Louisiana.

I had a chance to speak with the commissioner. He said that he did this to beef up their cash position. He said they have a strong balance sheet, but they really did this to try to sustain the revenue hit of having to obviously move their sports schedule due to COVID. They also have to pay more for COVID testing. But it might be a surprise to many watching this nonprofit space to say, actually, it was a sports league, not maybe a humanitarian organization, that ultimately turned to this Fed program to get some help.

KRISTIN MYERS: So Brian, I want to ask you now about some of the pros and cons of this lending program, especially because, throughout the pandemic-- and you've talked about this-- there have been a lot of criticisms for some of the lending programs from the government, particularly when it comes to small businesses and the loans there. So walk us through this program here.

BRIAN CHEUNG: Yeah, absolutely. We just flashed the terms of the-- the program, I believe, in a full screen. And basically, the terms of this are-- it's a five-year loan. You will be able to get a loan that's as large-- or rather, the minimum size is $100,000, so hopefully accessible to a number of types of organizations.

But the problem is that it's pricing. LIBOR plus 300 basis points is actually more expensive than where they can find in the private market. In the case of Sun Belt, based on the conversation I had with the commissioner, it appears they really liked the feature specifically that allows you to defer principal payments for the first two years. The Fed was hoping to use this as a carrot stick to get lenders to offer these types of loans.


--but any sort of other organization that might be facing liquidity issues. One issue is that there's that EBITDA to test where you have to have enough earnings to actually qualify for this program. But obviously, by nature of it being a nonprofit, there are a lot of organizations that have too little margin to actually qualify, which might have explained the low uptake. But at least for the Sun Belt, they have made enough money to qualify, which is a little ironic, given the nature of this program. But definitely worth watching in the future.

KRISTIN MYERS: All right. Thank you so much. Our Fed whisper, Brian Cheung, thanks so much for breaking that down for us.

BRIAN CHEUNG: Thanks, Kristin.