Legal Update

Mar 24, 2020

COVID-19 Business Stimulus Funding Update: Federal Reserve Announces New Measures to Support the Economy

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Yesterday, the Federal Reserve issued a press release announcing that it will establish new programs to support the flow of credit to employers, consumers and businesses. These new programs will provide up to $300 billion in new financing.

Two of the new programs consist of credit facilities to support large employers, the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds. A third credit facility, the Term Asset-Backed Securities Loan Facility (TALF), is intended to support credit to consumers and businesses, and will enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.

The PMCCF, open to investment grade companies (companies rated BBB-/Baa3 by a major nationally recognized statistical rating organization), will provide bridge financing for a term of four years.  Borrowers will have the right to defer interest and principal payments during the first six months, and that deferral may be extended at the discretion of the Federal Reserve to enable borrowers to maintain cash flow to pay employees and suppliers.   The Federal Reserve will finance a special purpose vehicle (SPV) to make loans from the PMCCF to companies. The United States Department of Treasury will make a $10 billion equity investment in the SPV.

The SMCCF will purchase corporate bonds in the secondary market issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. The Federal Reserve will finance a second SPV for this facility, and the Department of Treasury will also make a $10 billion equity investment in this SPV.

Greater details for each facility can be found in term sheets attached to the Federal Reserve press release.

In the same press release the Federal Reserve stated that it expects to announce the establishment of a Main Street Business Lending Program aimed at eligible small and medium size businesses. No details were released. This program would be in addition to SBA programs.

We will provide updates on each of these facilities as details become available.