Federal Reserve Market Support Facilities

What You Need To Know:

The Fed has launched eleven facilities to support market functioning and the flow of credit. The CARES Act provided $454 billion to the Treasury to fund Federal Reserve programs; over $250 billion of this Cares Act funding has been allocated so far.

Programs to support lending to the economy:

Programs to support wholesale funding markets:

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Overview of Central Bank Facilities

Full summaries of the Federal Reserve facilities are below, with more information on BoE and ECB facilities available upon request. Please contact a member of the MFA International Affairs staff for more information.


Term Asset-Backed Securities Loan Facility (TALF) 

The TALF will provide financing to eligible borrows to facilitate the issuance of newly issued (after March 23, 2020) asset-backed securities and improve the market conditions for ABS by supporting the flow of credit to consumers and businesses.

  • A Special Purpose Vehicle (SPV) will initially make up to $100 billion of loans available to eligible U.S. borrowers. The loans will have a term of three years, will be non-recourse to the borrower, and will be fully secured by eligible ABS.
  • Eligible borrowers are U.S. businesses including “investment funds that are created or organized in the United States and managed by an investment manager that is created or organized in the United States and has significant operations in and a majority of its employees based in the United States are eligible borrowers for purposes of the TALF.”
  • The pledged collateral will be valued and receive a haircut according to a schedule based on its sector, the weighted average life, and the historical volatility of the ABS.
  • Eligible collateral includes U.S. dollar dominated, newly issued cash ABS and static CLOs that meet several criteria listed in the Term Sheet—including a AAA rating. The TALF will also accept AAA-rated tranches of outstanding CMBS though not newly issued CMBS. The issuer of eligible collateral does not need to be a U.S. company, although the manager of a CLO is required to be a U.S.-entity.
  • “Substantially all” of a securitization vehicle’s underlying credit exposures must be newly issued. The Fed’s guidance states that “all or substantially all” means 95 percent or more of the principal balance of the underlying assets in the ABS. The Fed’s definition of “newly issued” includes certain underlying exposures originated after January 1, 2019.
  • The Fed updated the information about TALF that it will disclose on a monthly basis during the operation of the facility, to include information on any person who owns, directly or indirectly, 10 percent or more of any outstanding class of securities of a borrower.

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Corporate Credit Facility – Primary Markets (PMCCF)

The PMCCF will purchase the issuance of new bonds and loans directly from eligible U.S. companies. Will focus on investment grade (IG) debt but also some high yield issuers if they had been IG before the COVID-19 shock providing a backstop for newly issued, highly rated corporate debt. On May 4, the FRBNY updated the PMCCF in a frequently asked questions document published on its website.

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Corporate Credit Facility – Secondary Market (SMCCF)

The SMCCF will provide market liquidity by purchasing outstanding corporate bonds from eligible sellers, which will initially be U.S. primary dealers.

  • An SPV will buy corporate bonds issued by U.S. businesses and U.S. listed ETFs whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds, along with some ETFs with exposure to U.S. high-yield bonds (eligible issuers).The cumulative investments of the primary and secondary facilities will not exceed $750 billion, and will be supported by a $75 billion investment from Treasury.
  • On May 4, the FRBNY updated the SMCCF in a frequently asked questions document published on its website. Consistent with prior guidance, the SMCCF FAQ update only permits primary dealers to participate as eligible sellers, however, the FAQ does note the Federal Reserve will “add additional counterparties as Eligible Sellers under the SMCCF, subject to adequate due diligence and compliance work.”  The FAQ also does not directly address how investment funds can meet the requirement to have “significant U.S. operations and a majority of U.S.-based employees” to become an eligible seller.

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Paycheck Protection Program

The Paycheck Protection Program (PPP), administered by the Small Business Administration (SBA) and Treasury, was established by the CARES Act to loan money to small businesses for payroll and other approved expenses. Under the SBA’s affiliation rules, which require certain companies under common ownership to aggregate their employees to determine if they qualify as a small business, some companies that would qualify on their own will be excluded from PPP loans.  These affiliation rules can be particularly impactful for businesses owned by venture capital and private equity funds. At the end of April, the SBA issued additional guidance that hedge fund and private equity managers are not eligible for PPP loans even if they meet the size requirements.

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Paycheck Protection Program Lending Facility

The PPP Lending Facility is designed to provide low cost, non-recourse financing to banks providing loans to small businesses under the PPP of the CARES Act.

  • Federal Reserve banks lend to banks and non-banks approved to make PPP loans on a non-recourse basis and take PPP loans as collateral.
  • Eligible collateral includes PPP loans guaranteed by the SBA.
  • Includes affiliation rule restriction.

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Main Street Loan Facilities

Treasury has announced a $75 billion equity investment that can be leveraged up to $600 billion across the three facilities announced by the Federal Reserve.

Main Street New Loan Facility (MSNLF)

The MSNLF is intended to facilitate lending to small and medium-sized businesses by originating new loans.

  • A Federal Reserve Bank will lend to a common SPV on a recourse basis, and the SPV will purchase a 95% participation in Eligible Loans, while Eligible Lenders will retain 5% of each loan.
  • An eligible loan is an unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated on or after April 8, 2020. The loan must also have a 4 year maturity; a minimum size of $1 million; a maximum size of $25 million; and include several other features listed in the term sheet.
  • Borrowers must meet at least one of the following two conditions: have 15,000 employees or fewer or 2019 annual revenues of $5 billion or less and must be below prescribed debt limits.
  • Borrowers must also attest that they will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
  • Minimum loan size is $500,000, maximum loan size is the lesser of:
    • (a) $25 million, or
    • (b) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s adjusted 2019 EBITDA.

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Main Street Expanded Loan Facility (MSELF)

The MSELF is designed to facilitate lending to small and medium-sized businesses by increasing the size of existing loans.

  • A Federal Reserve Bank will lend to a common SPV on a recourse basis, and the SPV will purchase a 95% participation in the upsized tranche of the Eligible Loan, provided that it is upsized on or after April 20, 2020, at par value.
  • An eligible loan is an unsecured term loan made by an Eligible Lender(s) to an Eligible Borrower that was originated on or after April 8, 2020. The loan must also have a 4 year maturity; a minimum size of $1 million; a maximum size of $150 million; and include several other features listed in the term sheet.
  • Borrowers must meet at least one of the following two conditions: have 15,000 employees or fewer or 2019 annual revenues of $5 billion or less and must be below prescribed debt limits.
  • Borrowers must also attest that they will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
  • Minimum loan size is $10 billion, maximum loan size is the lesser of:
    • (a) $200 million,
    • (b) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt that is pari passu in priority with the Eligible Loan and equivalent in secured   status, or
    • (c) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed six times the Eligible Borrower’s   adjusted 2019 EBITDA

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Main Street Priority Loan Facility (MSPLF)

The MSPLF is designed to facilitate lending to small to medium-sized businesses by purchasing loans from eligible lenders.

  • The SPV will purchase 85% participations in eligible loans from eligible lenders who will in turn retain 15% of each eligible loan.
  • Borrowers must meet at least one of the following two conditions: have 15,000 employees or fewer or 2019 annual revenues of $5 billion or less and must be below prescribed debt limits.
  • Borrowers must also attest that they will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
  • Minimum loan size is $500,000, maximum loan size is the lesser of:
    • (a) $25 million, or
    • (b) an amount that, when added to the Eligible Borrower’s existing outstanding and          undrawn available debt, does not exceed six times the Eligible Borrower’s adjusted 2019 EBITDA

 

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Municipal Liquidity Facility

The Municipal Liquidity Facility is designed to support lending to U.S. States, Cities, and Counties in order to help them better manage cash flow pressures.

  • The Fed will lend to a SPV on a recourse basis, and the SPV will purchase eligible notes directly from an eligible State, City, or County, or Multi-State Compact.
  • Eligible Notes are tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar short-term notes that mature no later than 36 months from the date of issuance, this was updated in May from 24 months.

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Money Market Mutual Fund Liquidity Facility (MMLF)

The MMLF began lending on March 23, and as of April 14 the total outstanding amount of loans was $51 billion.

The MMLF provides liquidity into money market mutual funds by lending to eligible financial institutions in order to facilitate the purchase of high-quality assets from eligible prime money funds.

  • The Boston Fed will make nonrecourse loans to eligible borrowers and take certain types of assets as collateral.
  • Eligible collateral includes U.S. Treasuries and Fully Guaranteed Agencies; Securities Issued by U.S. Government Sponsored Entities; Asset Backed commercial paper, unsecured commercial paper, or a negotiable certificate of deposit that is issued by a U.S. issuer; U.S. municipal short-term debt; Variable rate demand notes; and, Receivables from certain repurchase agreements.

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Commercial Paper Funding Facility (CPFF)

The CPFF began lending on April 14, and on that first day, provided $250 million in outstanding loans.

The CPFF provides liquidity to US issuers of commercial paper and certain municipal bonds by purchasing three-month unsecured and asset-backed commercial paper directly from eligible issuers.

  • The SPV will only purchase commercial paper (including asset-backed commercial paper that is top-rated (at least A1/P1/F1) by a rating organization. As an exception, an issuer that was top-rated on March 17 but was subsequently downgraded to A2/P2/F2 will be able to make a one-time sale of commercial paper to the SPV.
  • The SPV will not purchase commercial paper on the secondary market.

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Primary Dealer Credit Facility (PDCF)

The PDCF began operations on March 17, and as of April 14 the total outstanding amount of the FRBNY’s loans was $34.5 billion.

The PDCF provides secured loans on a recourse basis to primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households.

  • Primary dealers pledge margin-adjusted collateral in exchange for financing from the NY Fed.
  • Eligible collateral includes: Equity securities, Investment grade corporate debt securities, international agency securities, commercial paper, municipal securities, mortgage-backed securities, and asset-backed securities.

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Foreign and International Monetary Authorities (FIMA) Repo Facility

The FIMA Repurchase facility allows FIMA account holders to enter into repurchase agreements with the Federal Reserve to obtain U.S. dollars.

  • FIMA account holders will temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions.