By Nicole D. Prysby, J.D.
The Fed has broadened loan programs to support the economy during the coronavirus pandemic.
On April 9, 2020, the Board of Governors of the Federal Reserve System announced additional actions to provide up to $2.3 trillion in loans to support the economy during the coronavirus pandemic. The actions taken support employers of all sizes, as well as communities across the country. They include expanding existing credit facilities and the addition of new facilities.
By expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF), the Board has increased the flow of credit to households and businesses through capital markets. These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the U.S. Treasury. The PMCCF will serve as a funding backstop for corporate debt issued by eligible issuers. Under the PMCCF, the Federal Reserve Bank of New York (Reserve Bank) will commit to lend to a special purpose vehicle (SPV). The SPV will purchase qualifying bonds as the sole investor in a bond issuance and purchase portions of syndicated loans or bonds at issuance. Under the SMCCF, the Reserve Bank will lend to an SPV that will purchase in the secondary market eligible individual corporate bonds as well as eligible corporate bond portfolios in the form of exchange-traded funds.
The Department of the Treasury will make a $75 billion equity investment in the SPV to support both the SMCCF and the PMCCF. The initial allocation will be $50 billion toward the PMCCF and $25 billion toward the SMCCF. The combined size of the PMCCF and SMCCF will be up to $750 billion. Under the TALF, the Reserve Bank will commit to lend to an SPV and the Department of the Treasury will make an equity investment of $10 billion in the SPV. The TALF SPV initially will make up to $100 billion of loans available. The loans will have a term of three years, will be nonrecourse to the borrower, and will be fully secured by eligible asset-backed securities. All U.S. companies that own eligible collateral and maintain an account relationship with a primary dealer are eligible to borrow under the TALF.
The Main Street Expanded Loan Facility (MSELF) and Main Street New Loan Facility (MSNLF) are intended to facilitate lending to small and medium-sized businesses. Eligible Borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. A Reserve Bank will commit to lend to a single common SPV, which will purchase 95 percent participations in Eligible Loans from Eligible Lenders. Eligible Lenders would retain 5 percent of each Eligible Loan. The Department of the Treasury will make a $75 billion equity investment in the single common SPV in connection with the MSELF and the MSNLF. The combined size of the MSELF and MSNLF will be up to $600 billion.
The Paycheck Protection Program Lending Facility (PPPLF), is intended to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program (PPP Loans) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Reserve Banks will lend to eligible borrowers on a non-recourse basis, taking PPP Loans as collateral. Eligible borrowers include all depository institutions that originate PPP Loans.
The Municipal Liquidity Facility will support lending to U.S. states and the District of Columbia, U.S. cities with a population exceeding one million residents, and U.S. counties with a population exceeding two million residents. A Reserve Bank will commit to lend to an SPV which will purchase Eligible Notes directly from Eligible Issuers at the time of issuance. Eligible Notes are tax anticipation notes, tax and revenue anticipation notes, bond anticipation notes, and other similar short-term notes that mature no later than 24 months from the date of issuance. Eligible Issuers are states, cities, and counties. The Department of the Treasury will make an initial equity investment of $35 billion in the SPV. The SPV will have the ability to purchase up to $500 billion of Eligible Notes.
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