Audit Memorandum: MSLP Loan Losses' Effect on Treasury's Investment (SIGPR-A-23-002-7)

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Audit memorandum SIGPR-A-23-002-7, dated December 16, 2024, from the Office of Audits of the Special Inspector General for Pandemic Recovery to the U.S. Department of the Treasury, on the Main Street Lending Program's loan losses and Treasury's $37.5 billion equity investment. The memo states Treasury has been reimbursed all but $4.9 billion, but that rising loan losses, exceeding $1 billion as of September 30, 2024, make full reimbursement uncertain. It describes the program's 1,830 loans from 319 lender banks, the MS Facilities 2020 LLC structure, and tables of interim distributions, interest income, expenses and monthly loan losses. It also notes that SIGPR's March 2025 statutory sunset precedes the loans' final due dates. The memo closes with a distribution list and a scope and methodology appendix covering audit work from February 2023 to October 2024.

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SIGPR-A-23-002-7 
 
 
 
 
 
Audit Memorandum:  The Main Street  
Lending Program’s Loan Losses’ 
Effect on Treasury’s Investment  
in the Program 
 
Report Number SIGPR-A-23-002-7 
December 16, 2024 
 
 
 
 
 
 
 
 
 
 
 
 
Office of the Special Inspector General for  
Pandemic Recovery 
Office of Audits 

 
SIGPR-A-23-002-7 
1 
 
Office of the Special Inspector General for Pandemic Recovery 
 
December 16, 2024 
 
 
TO: 
Dini Ajmani  
Deputy Assistant Secretary for Capital Markets 
U.S. Department of the Treasury 
 
 
FROM: 
Kevin Gallagher   
Acting Assistant Inspector General for Auditing 
Special Inspector General for Pandemic Recovery (SIGPR) 
 
SUBJECT: 
Audit Memorandum:  The Main Street Lending Program’s Loan 
Losses’ Effect on Treasury’s Investment in the Program 
SIGPR-A-23-002-7 
 
 
The SIGPR Office of Audits has the mission to conduct audits of loans, loan guarantees, 
and other investments made by the U.S. Department of the Treasury (Treasury) under 
any program established by the Treasury under Division A of the CARES Act. Section 
4003(b)(4) authorizes the Secretary “to make loans and loan guarantees to, and other 
investments in, programs or facilities established by the Board of Governors of the 
Federal Reserve System….” On April 9, 2020, the Board and Secretary of the Treasury 
announced the establishment of the Main Street Lending Program (MSLP) under the 
authority of Section 13(3) of the Federal Reserve Act, with approval of the Secretary.  
Treasury made a $37.5 billion equity investment in support of the MSLP. SIGPR 
conducted this audit to determine if loan losses experienced by the MSLP have hindered 
Treasury’s ability to recoup its $37.5 billion investment into the MSLP.   
 
Although Treasury has been reimbursed all but $4.9 billion of its $37.5 billion investment 
into the MSLP, increases in program loan losses make a full reimbursement uncertain. 
MSLP 5-year term loans do not become due until July 2025 through January 2026. 
Without extension to SIGPR’s currently scheduled March 2025 statutory sunset date, it 
will not exist to definitively determine whether Treasury will recover all its investment into 
the program. Program loan losses continue to increase, exceeding more than $1 billion 
as of September 30, 2024. MSLP borrowers currently are making their second 15 percent 
principal payments and facing 70 percent principal balloon payments next year, in 
addition to variable loan interest rates that have increased significantly since loan 
origination. These are contributing factors to the MSLP’s high loan loss allowance, which 
indicates that the program may experience nearly $1 billion in additional loan losses by 
program’s end.  These factors, in addition to expected increases in program support costs 
over the last year of the program, cast doubt on the likelihood that Treasury will be made 
whole on its MSLP investment.   
 
    
 

 
SIGPR-A-23-002-7 
2 
 
Office of the Special Inspector General for Pandemic Recovery 
Background 
 
The CARES Act authorized the Federal Reserve to establish the MSLP to aid small and 
medium sized businesses during the COVID-19 pandemic. In total, 319 lender banks 
participated in the MSLP issuing 1,830 commercial loans. The total value of the loans 
issued was approximately $17.5 billion. The Federal Reserve Bank of Boston (FRBB), 
which manages the program, set up MS Facilities 2020 LLC (MS Facilities), a Special 
Purpose Vehicle, which took out a loan from the FRBB to purchase 95 percent of loan 
participations from lender banks. These purchases were backed by Treasury’s equity 
investment in the program. The lender banks retain the remaining 5 percent of the risk 
associated with making a loan. 
 
Payment terms for MSLP loan borrowers are for five years. No payments were due in the 
first year. After the first year of the loan, interest payments became due in accordance 
with the loan agreement. No principal was due in the first or second year of the loan. The 
loans are amortized over the remaining term of the loan with 15 percent of principal due 
at the end of year three, 15 percent due at the end of year four, and a balloon payment 
of 70 percent at the end of year five.   
 
All MSLP loans were issued between July 2020 and January 2021. Therefore, most 
borrowers still have the second 15 percent principal payment due, and all borrowers with 
outstanding loans still have the 70 percent balloon payment due on their loans.   
 
As of September 30, 2024, 823 of the 1,830 MSLP loans are outstanding. The total loan 
balance of the outstanding loans is approximately $5.2 billion.   
 
Treasury’s Equity Investment and Agreements with the FRBB  
 
In May 2020, the FRBB and Treasury entered into a Limited Liability Company Agreement 
of MS Facilities LLC (the LLC Agreement) to both become members of MS Facilities, the 
Special Purpose Vehicle which purchased the loan participations of the MSLP. As part of 
the LLC Agreement, the FRBB is the Managing Member, and Treasury is the Preferred 
Equity Member. As Preferred Equity Member, Treasury contributed $37.5 billion to protect 
the FRBB from potential loss on the loan participations purchased by MS Facilities. As 
the Managing Member, the FRBB has the exclusive right to manage the business of the 
MS Facilities, meaning that Treasury, although it contributed the equity investment into 
the program, does not have the right to take part in the management or control of the MS 
Facilities’ business.   
 
Treasury’s investment into the MSLP is maintained by MS Facilities in a “Preferred Equity 
Account.” The Preferred Equity Investment Agreement between the FRBB and Treasury 
directs the FRBB to invest 85 percent of the Preferred Equity Account funds into Treasury 
non-marketable debt securities that earn MS Facilities interest paid out by the Treasury.  
As of September 30, 2024, these securities have earned MS Facilities over $700 million 
in interest paid out by the Treasury. The other 15 percent of the Preferred Equity Account 
is intended to provide a cash buffer for the liquidity needs of the SPV.   
 

 
SIGPR-A-23-002-7 
3 
 
Office of the Special Inspector General for Pandemic Recovery 
As MSLP loans are paid down by borrowers and the balance of outstanding loans 
decreases, the amount of Treasury’s equity needed to secure the program’s loans also 
decreases.  As such, the LLC Agreement directs MS Facilities to make interim 
distributions to Treasury.  These interim distributions come from the funds Treasury 
invested that reside in MS Facilities’ Preferred Equity Account.  
    
Status of Treasury’s Equity Investment in the MSLP 
 
Treasury made its initial $37.5 billion equity investment into the MSLP in May 2020.  In 
January 2021, once the MSLP program had closed to new borrowers, MS Facilities made 
an initial interim distribution of $20.9 billion to Treasury to align with the amount of loan 
participations purchased by MS Facilities (approximately $16.6 billion).  Since then, as 
MSLP borrowers pay down their loan balances, the MS Facilities has made interim 
distributions to Treasury to reimburse portions of the equity investment no longer needed 
as collateral.  MS Facilities made its next interim distribution to Treasury in November 
2021, and every May and November since then.  Figure 1 shows the history of interim 
distributions made by the SPV back to Treasury:     
 
Figure 1 – Interim Distributions to Treasury 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per the LLC Agreement, interim distributions will continue until the balance of the 
Preferred Equity Account is down to $1 billion.  At that time, the $1 billion will be kept in 
the Preferred Equity Account as collateral until all MSLP loans have been settled.    
 
MSLP Financial Performance 
 
Income 
 
MS Facilities has three main sources of income associated with the MSLP: 1) interest 
collected from borrower loan payments; 2) interest earned from non-marketable securities 
investments from the Preferred Equity Account; and 3) transaction fees/late fees collected 
from borrowers. Borrowers paid interest on their MSLP loans at a rate of LIBOR (London 
Interbank Offered Rate) plus 3 percent.  The LIBOR rate has increased significantly since 
MSLP interest payments initially became due.  Figure 2 displays changes in LIBOR from 
July 2020 through July 2024.   
 
Date 
Amount 
Outstanding Equity 
Investment 
May 2020 
- 
$37,500,000,000 
Jan 2021 
$20,927,945,289 
$16,572,054,711 
Nov 2021 
$897,649,095 
$15,674,405,616 
May 2022 $1,783,474,054 
$13,890,931,562 
Nov 2022 
$2,438,231,374 
$11,452,700,188 
May 2023 $1,768,376,089 
$9,684,324,099 
Nov 2023 
$2,245,845,236 
$7,438,478,863 
May 2024 $2,480,128,817 
$4,958,350,046 

 
SIGPR-A-23-002-7 
4 
 
Office of the Special Inspector General for Pandemic Recovery 
Figure 2 – LIBOR from July 2020 through July 2024 
 
 
 
In June 2023, LIBOR was decommissioned, and lenders were required to change from 
LIBOR to a comparable rate.  Most lenders (96 percent) changed to the SOFR (Secured 
Overnight Financing Rate).  Differences between the LIBOR and SOFR have been 
minimal, by comparing LIBOR in Figure 2 with SOFR as shown in Figure 3.     
 
Figure 3 – SOFR From July 2020 through July 2024 
 
 
 

 
SIGPR-A-23-002-7 
5 
 
Office of the Special Inspector General for Pandemic Recovery 
Both LIBOR and SOFR have increased from rates that were tenths of a percentage at the 
beginning of the program, up to over 5 percent as of July 2024.  Because borrowers 
incurred interest at a rate of LIBOR (now SOFR) plus 3 percent, borrowers are incurring 
over 8 percent interest on MSLP loans in 2024.   
 
Even with the year over year decrease in number of loans outstanding, these increases 
in borrower interest rates have resulted in increases in interest income earned by MS 
Facilities.  Figure 4 shows increases in interest income (from borrower incurred interest) 
from 2020 through 2023.   
 
Figure 4 – Interest Income 2020 through 2023 
 
 
 
 
 
 
 
 
 
As explained earlier in this memo, MS Facilities also earns interest by investing 
Treasury’s Preferred Equity Account holdings into Treasury’s non-marketable securities.  
These securities earn interest paid by the Treasury.  As of September 30, 2024, Treasury 
had paid over $700 million in interest to MS Facilities. 
 
Lastly, MS Facilities earned transaction fees paid by MSLP lender banks for each loan 
the banks originated.  Banks had the option to pass this fee on to the borrower.  For each 
loan over $250,000, MS Facilities collected a transaction fee of 1 percent.  MS Facilities 
also earns 95 percent of all late fees and penalties paid by MSLP borrowers.  MS Facilities 
has recognized approximately $142 million in transaction and other fees as of December 
31, 2023.     
 
Expenses 
 
To fund its purchase of 95 percent participations in MSLP loans, MS Facilities borrowed 
from the FRBB.  The loan totaled $16.6 billion.  The LLC Agreement states that MS 
Facilities at the end of the program must pay back its loan from the FRBB before Treasury 
receives any investments back from the Preferred Equity Account or shares in the 
program’s net income.  Therefore, MS Facilities’ ability to repay its loan to the FRBB is 
important in determining whether Treasury can be made whole on its investment into the 
MSLP.  MS Facilities is required to pay interest on its loan from the FRBB and do so at a 
rate of 0.1 percent.  As of December 31, 2023, MS Facilities has incurred approximately 
$41 million in interest expense on the loan payable to the FRBB.  
 
MS Facilities’ loan payments to the FRBB are due monthly and made using the proceeds 
from MSLP borrower principal and interest payments.  If principal and interest proceeds 
are not sufficient to make its monthly expense and loan repayment amounts due, MS 
Facilities will transfer an amount from the Preferred Equity Account to address the 
shortfall.  In subsequent monthly periods following a withdrawal from the Preferred Equity 
Year 
Interest Income 
2020 
$59,300,000 
2021 
$438,500,000 
2022 
$546,900,000 
2023 
$797,000,000 
TOTAL 
$1,841,700,000 

 
SIGPR-A-23-002-7 
6 
 
Office of the Special Inspector General for Pandemic Recovery 
Account, MS Facilities must reimburse the Preferred Equity Account an amount equal to 
the withdrawn shortfall amount as proceeds are available.  From June 2000 through 
November 2023, MS Facilities made three withdrawals from the Preferred Equity Account 
totaling $11.4 million and reimbursed the withdrawals in full.  However, from December 
2023 through July 2024, MS Facilities has made six withdrawals to cover shortfalls 
totaling $265.1 million and has only reimbursed $91.3 million of this amount as of 
September 30, 2024.  
 
In addition to interest expense, MS Facilities has other expenses such as legal fees and 
loan servicing costs associated with the MSLP.  MS Facilities has a variety of professional 
services fees it pays vendors to assist running the program.  There are legal and 
accounting firms performing credit administration and custodial services, loan workout 
services, external legal counsel, and independent auditing.  Participating MSLP banks 
also collect fees from MS Facilities for servicing the loans.  As of December 31, 2023, MS 
Facilities has incurred approximately $112 million in professional services fees, and $107 
million in loan servicing costs.   
 
Figure 5 – MS Facilities’ MSLP Expenses (as of December 31, 2023) 
 
 
 
 
 
 
   
Credit losses on loans that default or are sold at a discount are the largest expense for 
MS Facilities.  Credit losses have steadily increased over the past year and are the 
biggest variable when determining the outlook of MS Facilities’ loan from the FRBB and 
Treasury’s likelihood of getting its $37.5 billion equity investment fully returned.  As of 
September 30, 2024, the program has experienced $1.19 billion in actual credit losses, 
net of subsequent recoveries.   Figure 6 shows the increase in credit losses over the past 
12 months.   
 
Figure 6 – MSLP Loan Loss History 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense 
Amount 
Interest incurred on FRBB loan 
$40,942,000 
Professional Services 
$110,341,000 
Loan Servicing 
$107,409,000 
TOTAL 
$258,692,000 
As of Date 
Loss Amount 
Loan Loss 
Allowance 
10/31/23 
$301 million 
$820 million 
11/30/23 
$359 million 
$820 million 
12/31/23 
$564 million 
$820 million 
1/31/24 
$572 million 
$841 million 
2/29/24 
$582 million 
$841 million 
3/31/24 
$695 million 
$841 million 
4/30/24 
$746 million 
$1.1 billion 
5/31/24 
$788 million 
$1.1 billion 
6/30/24 
$878 million 
$1.1 billion 
7/31/24 
$899 million 
$923 million 
8/31/24 
$1.01 billion 
$923 million 
9/30/24 
$1.19 billion 
$923 million 

 
SIGPR-A-23-002-7 
7 
 
Office of the Special Inspector General for Pandemic Recovery 
Net Income 
 
We reviewed the audited financial statements of MS Facilities from the inception of the 
program in 2020 through the end of calendar year 2023. The financial statements show 
that MS Facilities has experienced a net income of nearly $900 million in that time. This 
net income figure takes into account revenue earned from MSLP borrower interest, 
interest earned though MS Facilities’ investment in non-marketable securities (with 
interest on these investments paid by the Treasury), and transaction and other fees. The 
net income figure also accounts for expenses incurred by MS Facilities, including interest 
expense on its loan from the FRBB, loan participation servicing costs, professional fees 
due to vendors in support of the program, and a provision for credit losses.  Figure 7 
captures a summary of the income statements of MS Facilities from 2020-2023.   
 
Figure 7 – Summary of MS Facilities’ Net Income 2020-2023 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Final Distributions to Treasury and the FRBB 
 
At the end of the MSLP, once MS Facilities has repaid its loan to the FRBB and all its 
obligations are complete, funds from the Preferred Equity Account and any net income 
earned over the course of the program are distributed to FRBB and to Treasury. Treasury 
is entitled to the full balance remaining in the Preferred Equity Account, and 90 percent 
of any remaining net income earned by MS Facilities.  As of July 2024, there is $5.47 
billion in the Preferred Equity Account.  This $5.47 billion balance consists of the 
remainder of the initial $37.5 billion investment made by Treasury ($4.958 billion), plus 
interest MS Facilities earned through its investment of non-marketable securities ($688 
million), minus the unreimbursed withdrawals made by MS Facilities ($173.8 million).  
 
 
 
 
 
Income 
Amount 
Interest Income – MSLP Loans 
$1,841,700,000 
Interest Income – Non-Marketable Securities 
$545,000,000 
Other Interest Income 
$26,761,000 
Transaction Fees and Other Income 
$142,037,000 
Total Income 
$2,555,548,000 
Expenses 
Amount 
Interest expense on FRBB loan 
$40,942,000 
Professional Fees 
$110,341,000 
Loan Servicing 
$107,409,000 
Provision for Credit Losses 
$1,379,452,000 
Loss on Sale of Loan Participations 
$25,254,000 
Total Expenses 
$1,663,398,000 
NET OPERATING INCOME 
$892,100,000 

 
SIGPR-A-23-002-7 
8 
 
Office of the Special Inspector General for Pandemic Recovery 
Conclusion 
 
Because there are over 15 months until all borrowers’ MSLP loans become due, it is 
impossible to determine if Treasury will be made whole in its investment into the program.  
There are over $5 billion in loans outstanding, and borrowers with outstanding loans still 
owe a 15 percent principal payment in year 4 and a 70 percent balloon payment in the 
last year of the 5-year term loans.   
 
Because Treasury had to borrow to finance its initial equity investment into the MSLP 
(see Figure 8 below), the program must operate at a net income for Treasury to be made 
whole on its total cost of investment. Although MS Facilities has experienced a net income 
of approximately $892 million through the first three and a half years of the program, 
growing numbers of loan charge-offs, and expected increases in program administration 
costs at program’s end make it unclear whether the program will maintain a net income 
through the end of the program. And while increases in borrower interest rates have 
resulted in subsequent increases in interest income to MS Facilities and the FRBB, there 
are signs that these rate increases may also be creating financial stress for the borrowers 
and contributing to borrower defaults and increases in loan losses. Figure 8 provides a 
summary of Treasury’s investments into the MSLP.   
 
Figure 8 – Treasury Investment Summary and Status 
 
 
To be made whole on its true investment into the MSLP, we estimate that the program 
must operate at a net income of approximately $570 million by program’s end. Although 
the program already reported a net income of $892 million through the end of 2023, 
uncertainty around borrowers’ ability to repay outstanding MSLP loans make it impossible 
to project whether this figure will be met.      
 
 
 
 
 
 
 
1 Treasury pays interest on any outstanding debt from borrowings at the Single Effective Rate. This estimate 
of Treasury’s cost of financing is based on the MSLP concluding in calendar year 2026.  
 
Amount 
Treasury’s Initial Investment 
$37,500,000,000 
Add:  Estimated Total Cost of Financing Initial Equity Investment 
$513,000,0001 
Treasury’s Total Cost of Investing into the MSLP 
$38,013,000,000 
Less: Initial Investment Returned to Treasury 
($32,548,446,793) 
Treasury’s Total Investment Cost Outstanding 
$5,464,553,207 

 
 
SIGPR-A-23-002-7 
9 
 
Office of the Special Inspector General for Pandemic Recovery 
Memorandum Distribution 
 
Chief Recovery Officer – U.S. Department of the Treasury  
 
Office of General Counsel – U.S. Department of the Treasury  
 
Federal Reserve Bank of Boston 
 
Federal Reserve Board of Governors 
 
Inspector General – Special Inspector General for Pandemic Recovery  
 
Office of General Counsel – Special Inspector General for Pandemic Recovery 

 
 
SIGPR-A-23-002-7 
A-1 
 
Office of the Special Inspector General for Pandemic Recovery 
Appendix A – Scope and Methodology 
Scope and Methodology 
Our objective was to determine if loan losses experienced by the MSLP have hindered 
Treasury’s ability to recoup its investment into the program. 
To accomplish our objective, we: 
• Interviewed Treasury’s and the Federal Reserve’s program officials involved with 
the program; 
• Reviewed audited financial statements of MS Facilities from calendar years 2020 
through 2023; 
• Reviewed Federal Reserve Board Periodic Reports for updates on outstanding 
lending facilities authorized by the Board under Section 13(3) of the Federal 
Reserve Act; 
• Reviewed MSLP documentation such as the MSLP Limited Liability Corporation 
Agreement between Treasury and the FRBB, the MSLP Frequently Asked 
Questions document, the MSLP Credit Agreement between MS Facilities and the 
FRBB, monthly Preferred Equity Account statements, and semi-annual interim 
distribution letters from the FRBB to Treasury. 
We conducted this audit between February 2023 and October 2024 in accordance with 
generally accepted government auditing standards. Those standards require that we plan 
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives.

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