Overview of the Credit Facilities Implemented by the Federal Reserve to Provide up to $2.3 Trillion Relying upon its Emergency Lending Powers

The Main Street Lending Program (the “Main Street Program”) will enhance support for small and mid-sized businesses that were in good financial standing before the COVID-19 crisis.

Under the Main Street Program, eligible lenders may originate new loans (pursuant to the “Main Street New Loan Facility” or “MSNLF”) or use new loans to increase the size of existing loans to eligible borrowers (pursuant to the “Main Street Expanded Loan Facility” or “MSELF”).

Eligible lenders will retain a 5% share, selling the remaining 95% to the Main Street Program facility, which will purchase up to $600 billion of loans.

Eligible lenders under the Main Street Program:

U.S. insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies.

Eligible borrowers under the Main Street Program:

Businesses with up to 10,000 employees OR up to $2.5 billion in 2019 annual revenues.

Each eligible borrower must be a U.S. business with significant operations in AND a majority of its employees based in the United States.

Eligible loans under the MSNLF:

• Unsecured;
• Originated on or after April 8, 2020;
• 4-year term;
• Adjustable rate of SOFR + 250-400 basis points; and
• $1 million minimum size and maximum size that is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA.

   

  Eligible loans under the MSELF:

   

• Originated before April 8, 2020;
• 4-year term;
• Adjustable rate of SOFR + 250-400 basis points; and
• $1 million minimum size and maximum size that is the lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA.

Other key terms under both facets of the Main Street Program:

Principal and interest payments must be deferred for one year and there cannot be any prepayment penalties.

Under both the MSNLF and MSELF, eligible borrowers seeking loans under the Main Street Program must commit, among several other commitments, to make reasonable efforts to maintain payroll and retain workers during the term of the Main Street Program loan.

Borrowers will be subject to the borrower restrictions under Title IV of the CARES Act for the term of the loan and twelve months thereafter, including restrictions on dividends, stock repurchases and executive compensation.

Loan proceeds cannot be used to repay or refinance pre-existing loans or lines of credit.

Borrowers will pay a fee of 100 basis points of the principal amount of the eligible loan to the lender (with the lender passing on its ratable share of such fee to the SPV on the purchased loans in the case of the MSNLF). The SPV will pay the lender a 25 basis point per annum fee for servicing.

Eligible borrowers that participate in the MSNLF may not participate in the MSELF or the PMCCF.

Eligible borrowers that participate in the MSELF may not participate in the MSNLF or the PMCCF.

Eligible borrowers that have taken advantage of the PPP may also participate in the MSNLF or MSELF.

The Primary Market Corporate Credit Facility (“PMCCF”) will purchase qualifying bonds as the sole investor in a bond issuance and purchase portions of syndicated loans or bonds at issuance.

Eligible issuers:

• U.S. companies headquartered in the United States and with significant operations in and a majority of its employees based in the United States.
• As of March 22, 2020, must be rated at least BBB-/Baa3 as by a major nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020.
• Cannot be an insured depository institution or depository institution holding company thereof
• Cannot have received support under the CARES Act or any subsequent federal legislation.

Secondary market program operated by the Federal Reserve Bank of New York.

Eligible issuers to sell eligible corporate bonds and syndicated loans and bonds.

Eligible bonds:

Issued by an eligible issuer and have a maturity of four years or less.

Eligible syndicated loans and bonds:

Issued by an eligible issuer and have a maturity of four years or less. The PMCCF may purchase no more than 25% of any loan syndication or bond issuance.

Limit:

The maximum amount of outstanding bonds or loans of an eligible issuer that borrows from the PMCCF may not exceed 130% of the issuer’s maximum outstanding bonds and loans on any day between March 22, 2019 and March 22, 2020.

The maximum amount of instruments that the PMCCF and SMCCF combined will purchase with respect to any eligible issuer is capped at 1.5% of the combined potential size of the PMCCF and the SMCCF.

For eligible corporate bonds, pricing will be issuer-specific based on market conditions, plus a 100 basis point facility fee.

For eligible syndicated loans and bonds, the facility will receive the same pricing as other syndicate members plus a 100 basis point facility fee on the facility’s share of the syndication.

The Secondary Market Corporate Credit Facility (“SMCCF”) will purchase eligible individual corporate bonds and corporate bond portfolios exchange traded funds (“ETFs”).

Eligible issuers:

• U.S. companies headquartered in the United States and with significant operations in and a majority of its employees based in the United States.
• As of March 22, 2020, must be rated at least BBB-/Baa3 as by a major nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020.
• Cannot be an insured depository institution or depository institution holding company thereof.
• Cannot have received support under the CARES Act or any subsequent federal legislation.

Eligible sellers:

U.S. companies headquartered in the United States and with significant operations in and a majority of its employees based in the United States.

Secondary market program operated by the Federal Reserve Bank of New York.

Eligible corporate bonds:

Issued by an eligible issuer, have a remaining maturity of five years or less, and sold by an eligible seller.

Eligible ETFS:

U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. corporate bonds.

Limits per eligible issuer/ETF:

The maximum amount of bonds that the SMCCF will purchase from the secondary market of any eligible issuer is also capped at 10% of the issuer’s maximum bonds outstanding on any day between March 22, 2019 and March 22, 2020.

The SMCCF will not purchase shares of a particular ETF if the SMCCF would hold more than 20% of the ETF’s outstanding shares.

The maximum amount of instruments that the SMCCF and PMCCF combined will purchase with respect to any eligible issuer is capped at 1.5% of the combined potential size of the SMCCF and PMCCF.

What Does the Program Do?

Who Can Participate?

How to Participate?

Comments

Supports the asset-backed securities (“ABS”) market by providing loans for new ABS issuances.

Eligible ABS:

• Auto loans and leases;
• Student loans;
• Credit card receivables (both consumer and corporate);
• Equipment loans;
• Floorplan loans;
• Insurance premium finance loans;
• Certain small business loans that are guaranteed by the SBA;
• Leveraged loans; or
• Commercial mortgages.

Eligible ABS must be issued on or after March 23, 2020. Commercial mortgage-backed securities (“CMBS”) issued on or after March 23, 2020, will not be eligible. For CMBS, the underlying credit exposures must be to real property located in the U.S. or a territory.

Eligible borrowers:

• All U.S. companies that own eligible collateral and maintain an account relationship with a primary dealer are eligible to borrow under the TALF.
• A U.S. company is defined as a business that is created or organized in the U.S. or under the laws of the U.S. AND that has significant operations in and a majority of its employees based in the United States.

Through relationships with primary dealers, eligible borrowers can pledge eligible collateral to the Federal Reserve Bank of New York:

• U.S. dollar denominated assets;
• Credit Rating: highest long-term or the highest short-term investment-grade rating category from at least two eligible NRSROs; does not have a credit rating below the highest investment-grade rating category from an eligible NRSRO.

Detailed terms and conditions will further define the eligible underlying credit exposures for purposes of the TALF. The definitions are expected to be broadly consistent with the defined terms used for purposes of the 2008 TALF program.

Under the Paycheck Protection Lending Facility (the “PPP Facility”), the Federal Reserve Banks will lend to eligible borrowers on a nonrecourse basis, taking PPP loans as collateral.

Eligible borrowers:

All depository institutions that originate PPP loans. The Federal Reserve is working to expand the universe to other lenders that originate PPP loans. Eligible borrowers participate in the PPP Facility through the Reserve Bank in the district in which the eligible borrower is located.

Only PPP loans guaranteed by the SBA are eligible to serve as collateral for the PPP Facility.

A PPP Loan will be assigned a risk weight of zero percent under the risk-based capital rules of the federal banking agencies. On April 9, 2020, the Federal Reserve, the OCC and FDIC issued an interim final rule to allow banking organizations to neutralize the effect of PPP Loans financed under the PPP Facility on leverage capital ratios.

Under the Municipal Liquidity Facility (the “MLF”), the Federal Reserve Banks will lend to U.S. states and the District of Columbia, large U.S. cities with a population exceeding one million and large U.S. counties with a population exceeding two million.

Eligible issuers:

An eligible issuer is a state, city or county (or an instrumentality thereof that issues on behalf of the state, city or county for the purpose of managing its cash flows).

Eligibility is subject to review and approval by the Federal Reserve.

Eligible notes are tax anticipation notes, tax and revenue anticipation notes, bond anticipation notes and other similar short-term notes issued by eligible issuers, provided such eligible notes mature no later than 24 months from the date of issuance.

Each note’s eligibility is subject to review and approval by the Federal Reserve.

Under the MLF, the Federal Reserve Banks will lend to an SPV on a recourse basis and the SPV will purchase eligible notes directly. The SPV will have the ability to purchase up to $500 billion of eligible notes.