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Federal Reserve response to the COVID-19 crisis

| April 28, 2020

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Fed funds target Quantitative easing US dollar swap lines Commercial Paper Funding Facility (CPFF) Primary Dealer Credit Facility (PDCF) Money Market Mutual Fund Liquidity Facility (MMLF) Primary Market Corporate Credit Facility (PMCFF). Secondary Market Corporate Credit Facility (SMCCF). Term Asset-Backed Securities Loan Facility (TALF). FIMA Repo Facility PPP Lending Facility Municipal Liquidity Facility Main Street New Loan Facility Main Street Expanded Loan Facility
Short description Policy rate SOMA portfolio Provides USD to foreign central banks Buys 3-Mo. A1/P1/F1 commercial paper, and, for issuers downgraded after 3/17/20, a 1-time purchase of A2/P2/F2 Makes repo loans to primary dealers with recourse Makes non-recourse repo loans to banks that buy assets from prime, single state or tax-exempt muni MMMFs Buys new issue IG corporate debt Buys secondary market IG corporate debt. Makes 3Y non-recourse loans secured by IG ABS, ‘AAA’ legacy CMBS and ‘AAA’ static CLOs Allows foreign CBs and international monetary authorities to post USTs with the Fed and get USDs. Provides term financing against SBA PPP loans Buys debt of eligible states, cities and counties Buys participations in bank loans to businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues Buys participations in bank loans to businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues
Key links FOMC (3/3)

FOMC (3/15)

FOMC (3/15)

Announcement (3/23)

H.4.1

UST Buys

MBS Buys

Announcement (3/15)

Announcement (3/19)

Announcement (3/20)

Swap activity

Announcement (3/17)

Term Sheet (3/17)

Updated Term Sheet (3/23)

Announcement (4/23)

Announcement (3/17)

Term Sheet (3/17)

Announcement (3/18)

Term Sheet (3/18)

Announcement (3/19)

Announcement (3/20)

Announcement (3/23)

Term Sheet (3/23)

FAQs (4/10)

Announcement (4/23)

Announcement (3/23)

Term Sheet (3/23)

Announcement (4/9)

Term Sheet (4/09)

Announcement (4/23)

Announcement (3/23)

Term Sheet (3/23)

Announcement (4/9)

Term Sheet (4/09)

Announcement (4/23)

Announcement (3/23)

Term Sheet (3/23)

Announcement (4/9)

Term Sheet (4/9)

Announcement (4/23)

Announcement (3/31)

FAQs (3/31)

H.4.1

Announcement (4/6)

Announcement (4/9)

Term Sheet (4/9)

Announcement (4/16)

Announcement (4/23)

Announcement (4/23)

Announcement (4/9)

Term Sheet (4/9)

Announcement (4/23)

Announcement (4/27)

Announcement (4/9)

Term Sheet (4/9)

Announcement (4/23)

Announcement (4/9)

Term Sheet (4/9)

Announcement (4/23)

Facility size Not applicable. Commits to buying $500B in USTs, $200B MBS, reinvest MBS run-off in MBS (3/15). Commits to buying MBS in “amounts needed to support smooth market functioning.” Adds agency CMBS (3/23). Not specified for standing lines with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank. (3/15). Up to $60B each for Reserve bank of Australia, Banco Central do Brasil, Bank of Korea, Banco de Mexico, Monetary Authority of Singapore, Sveriges Riksbank. Up to $30B each for Danmarks Nationalbank, Norges Bank, Reserve Bank of New Zealand. Limits per issuer: the greatest amount of USD CP outstanding for an eligible issuer between 3/16/19 and 3/16/20. Loans limited to the amount of eligible collateral, adjusted for margin, pledged by the primary dealer. Loans limited to the amount of eligible collateral Limits per issuer (3/23). Initial facility size: $500B Will (i) purchase qualifying bonds as the sole investor in a bond issuance; and (ii) purchase portions of syndicated loans or bonds at issuance.(4/9) Limits per issuer or ETF (3/23). Initial facility size: $250B. Will purchase eligible corporate bonds and ETFs (4/9). $100B Not specified. Size equal to the amount of PPP principal pledged. $500B $600B for the combined MSNLF and the MSELF See MSNLF
Eligible borrowers Eligible depositories. Purchases made through primary dealers. Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Swiss National Bank (3/15). Reserve Bank of Australia, Canco Central do Brasil, Danmarks Nationalbank, Bank of Korea, Banco de Mexico, Norges Bank, Reserve Bank of New Zealand, Monetary Authority of Singapore, Sveriges Riksbank. US issuers of commercial paper, including US issuers with a foreign parent (3/17). Expands to municipal issuers, and to issuers rated A1/P1/F1 on 3/17/20 but subsequently downgraded to A2/P2/F2 (3/23).

 

Issuers inactive before 3/17/20 are ineligible (3/23).

Primary dealers. US depositories, bank holding companies, US branches or agencies of foreign banks. US companies headquartered in the US with material operations in the US—except those expected to get relief through legislation. May borrow a maximum % of bonds and loans outst. bet. 3/22/19-3/22/20. % for ‘AAA’ is 140%, ‘AA’ is 130%, ‘A’ is 120% and ‘BBB’ is 110%. (3/23). Expands to ‘fallen angels’ detailed below. Issuer maximum reset to 130%. No issuer can be more than 1.5% of PMCCF + SMCCF potential max. size of $750B. (4/9) This facility makes outright purchases of IG bonds—except those of companies expected to get legislative relief– and IG ETFs. It does not lend against assets. It will only purchase secondary market bonds of US businesses “with material operations in the United States.” Amount is capped at 10% of max. bonds outst. 3/22/19-3/22/20. Capped at 20% of ETF as of 3/22/20 (3/23). Expands to ‘fallen angels’ detailed below. No issuer can be more than 1.5% of PMCCF + SMCCF potential max. size of $750B. (4/9). US companies with primary dealer relationship Most of the estimated 250 foreign international monetary authorities (FIMA) with accounts at the Federal Reserve All depositories that originate PPP loans. FRB is working to expand eligibility to all PPP lenders (4/9). Reemphasizes the FRB is working to expand eligibility to Community Development Financial Institutions and other non-bank SBA lenders (4/23). US states, District of Columbia, US cities with population of 1 million+, US counties with a population of 2 million+ (4/9). Amended to include counties with at least 500,000 residents, cities with at least 250,000 (4/27).

 

Issuer must have an investment grade rating as of 4/8/20 from at least two rating agencies (4/27).

 

Fed may consider entities that issue bonds backed by their own revenues (4/27).

 

Limited to an aggregate amount of 20% of the general revenue from own sources and utility revenue of the applicable State, City, or County government for fiscal year 2017. States may request that the SPV purchase notes in excess of the applicable limit in order to assist political subdivisions and instrumentalities in eligible for the MLF..

Small and medium-sized businesses getting loans through US-insured banks and thrifts. A Fed SPV will take a 95% participation in eligible loans with the lender retaining 5%. Eligible Borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each Eligible Borrower must be a business that is created or organized in the US or under the laws of the US with significant operations in and a majority of its employees based in the United States. Eligible Borrowers that participate in the Facility may not also participate in the MSELF or the Primary Market Corporate Credit Facility. See MSNLF
Eligible collateral or loan terms No collateral required. US Treasury debt, agency MBS, agency CMBS on schedules specified by the NY Fed. Counterparties exchange currency based on spot rates and return currency at the same rate at maturity. Rate of OIS + 25 bp for up to 84 days. Counterparties may require collateral for USD loans made to local borrowers. No collateral required. All collateral eligible for open market operations, including Treasury STRIPS, IG corporate debt, international agency securities, CP rated A1/P1 or A2/P2, municipal securities, IG asset-backed securities except for CMBS, CLOs and CDOs, which must be ‘AAA,’ and equity except for ETFs, UITs, mutual funds, rights and warrants. Assets purchased by the borrower from prime MMMFs. Includes US Treasury and fully guaranteed agency debt, US GSE debt, ABCP or unsecured CP from a US issuer rated A1/P1/F1 by two major rating agencies, or, if by one agency, in the top rating category. Includes certain repo agreements. (3/18). Expands to include assets bought from single state or tax-exempt muni MMMFs (3/20). Expands to include variable rate demand notes and bank CDs (3/23). ‘BBB-/Baa3’’ or higher rating from at least one agency, or, if rated by multiple agencies, at least two. Debt from eligible issuers up to a maximum percent of bonds and loans outstanding between 3/22/19 and 3/22/20. Maturity of four years or less. (3/23). Issuers rated ‘BBB-/Baa3’ on 3/22 but downgraded no further than   ‘BB-/Ba3.’ Excludes insured depositories. Excludes issuers getting CARES Act support. Issuers subject to CARES Act conflict of interest rules (4/9). The facility will buy corporate bonds of eligible issuers, ‘BBB-‘ or higher by at least one rating agency, or, if rated by multiple agencies, ‘BBB-‘ or higher by two. Maturities of five years or less. It will also buy ETFs providing “broad exposure” to US IG bonds (3/23). Issuers rated ‘BBB-/Baa3’ on 3/22 but downgraded no further than ‘BB-/Ba3.’ Excludes insured depositories. Excludes issuers getting CARES Act support. Issuers subject to CARES Act conflict of interest rules. Adds HY ETFs (4/9). Cash ABS with highest long- or short-term rating from at least two agencies, no lower ratings. List includes: auto, SLABS, cards, equipment loans, floorplans, ins. premium finance loans, SBA, servicing advances. All or substantially all underlying loans must be newly issued. (3/23).All ABS must be issued on or after 3/23. List modified to exclude servicing advances and include CMBS issued before 3/23 and static CLOs issued after 3/23. SASB and CRE CLO not eligible. ABS issuers subject to CARES Act conflict of interest rules (4/9) US Treasury debt PPP loans guaranteed by the Small Business Administration Eligible Notes are tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar short-term notes issued by Eligible Issuers, provided that such notes mature no later than 24 months from the date of issuance (4/9). Amended to allow maturity up to 36 months (4/27).

 

Allowable use of proceeds: (i) to help manage the cash flow impact of income tax deferrals resulting from an extension of an income tax filing deadline; potential reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic, (ii) requirements for the payment of principal and interest on obligations of the relevant State, City, or County, or (iii) to   purchase similar notes issued by, or otherwise to assist, political subdivisions and instrumentalities of the relevant State, City, or County for the purposes enumerated in the prior sentence

Loans originated on or after Apr 8, 2020, with (i) a 4Y maturity, (ii) no amort of P&I in the first year, (iii) SOFR + 250-400 bp, (iv) min. $1 million balance, (v) max. balance the lower of $25 million or amount when added to other debt is no more than 4x 2019 EBITDA, (vi) without prepayment penalties. Lender must attest (i) loan not used to repay or refinance existing debt, (ii) borrower will not cancel or reduce existing LOCs, (iii) financing required due to ‘exigent circumstances’ from COVID-19, and borrower will make ‘reasonable efforts’ to maintain payroll and retain employees during the loan term, (iv) borrower meets EBITDA leverage requirements, (v) borrower will meet compensation, stock repurchase and capital redistribution requirements of the CARES Act, (vi) borrower is eligible in light of CARES Act conflict of interest rules. Any upsized tranche of a loan made before Apr 8, 2020, provided the upsized tranche has (i) a 4Y maturity, (ii) no amort. of P&I in the first year, (iii) SOFR + 250-400 bp, (iv) min. $1 million balance, (v) max. balance the lower of (a) $150 million, (b) 30% of the borrower’s outstanding and existing but undrawn bank debt, or (c) an amount when added to outstanding and existing but undrawn bank debt is no more than 6x 2019 EBITDA.
Collateral valuation No collateral required. No collateral required to transact. Counterparties exchange currency based on spot foreign exchange rate and unwind at the same rate at maturity. No collateral required. As priced by the clearing bank. Amortized cost or fair value. For ABCP or unsecured CP, at amortized cost. Eligible new issues valued at par. Fair market value based on secondary pricing. Will not buy ETFs that “materially exceed” NAV of underlying. Haircut based on sector, WAL, historical volatility. Likely in line with 2008 TALF. (3/23). Detailed haircuts provided (4/9) Haircut the same as applied at the Fed’s Discount Window. PPP loans valued at the par amount pledged. Eligible new issues valued at par. None See MSNLF
Pricing Fed funds effective rate. The Fed buys securities at market price. OIS + 25 bp. 3-Mo OIS + 200 bp.(3/17). For A1/P1/F1, revised to 3-Mo. OIS + 110 bp, for A2/P2/F2 to 3-Mo. OIS + 200 bp (3/23). Rate available to depositories at the Discount Window. For US Treasury debt or fully guaranteed agency debt, the rate available to depositories at the Discount Window. For other assets, the rate at the Discount Window + 100 bp. Rate with be “informed by market conditions.” Borrower can elect, on each interest date, to pay part of all interest in kind for six months. Fair market value based on secondary pricing. Will not buy ETFs that “materially exceed” NAV of underlying. For ABS w/o government guarantee, 2Y WAL @ 2Y swaps + 100 bp, 2Y+ WAL @ 3Y swaps + 100 bp. (3/23). CLOs @ 30-day SOFR + 150 bp, SBA 7(a) @ FF + 75 bp, SBA 504 @ 3Y OIS + 75 bp, For ABS w/o government guarantee, 2Y WAL @ 2Y OIS + 125 bp, 2Y+ WAL @ 3Y OIS + 125 bp (4/9). IOER + 25 bp 35 bp Pricing will be based on issuers’ rating at the time of purchase with details to be provided later (4/9). Par See MSNLF
Fees None. None. None. 10 bp on the maximum amount of each issuer’s commercial paper the facility may own. None. None. Facility fee: 100 bp None. 10 bp of loan amount on settlement None. None. 10 bp of principal Facility fee: 100 bp of UPB; Origination and servicing: borrower pays lender 100 bp origination fee, SPV pays lender 25 bp annually for servicing See MSNLF
Maturity Overnight. Treasury debt across the yield curve, all MBS but primarily coupons in proportion to new issue volume, all CMBS. Swaps last up to 84 days. Three months. Overnight and term funding for up to 90 days. Loan is for the term of the asset, but no longer than 12 months. Issuer maturities of four years or less. Bond maturities of five years or less. Three years. Overnight, but can be rolled as needed. Maturity of credit extended will match maturity of the PPP loan. Maturity accelerated if loan defaults and lender sells to SBA to realize guarantee. Also accelerated on receipt of any loan forgiveness reimbursement from the SBA. Up to 24 months (4/9). Amended to up to 36 months (4/27). Four years. See MSNLF
Non-recourse Recourse to borrower. Non-recourse transaction. Recourse to borrower. Fed has recourse to the SPV. Fed has recourse beyond pledged collateral to the primary dealer. The Fed has recourse to the SPV. No recourse to the borrower. Not applicable Not applicable No recourse to borrower Recourse to the collateral and the borrower. No recourse to the borrower. Not applicable. Not applicable Not applicable
Prepayments None. Not applicable. None. None. Borrower can prepay at any time. None. Bonds and loans under the facility are callable by the issuer at any time. Bonds under the facility may be callable by the issuer at any time. At any time, but no substitution of collateral None. Extension of credit matches maturity, default reimbursement or forgiveness reimbursement date. Callable at any time at par. As specified in the loan participation. As specified in the loan participation.
Program termination No termination date. As determined by Fed policy. As determined by Fed policy. 3j/17/21, unless the Fed extends the facility. In place for at least six months from 3/17/20 and may be extended as conditions warrant. No new credit extensions after 9/30/20, unless extended by the Fed and Treasury No new purchases or loans after 9/30/20, unless extended by the Fed and Treasury. No new purchases after 9/30/20, unless extended by the Fed and Treasury. No new loans after 9/30/20, unless extended by the Fed and Treasury. Not specified. No new credit extensions after 9/30/20, unless extended by the Fed and Treasury. No new notes purchased after 9/30/20, unless extended by the Fed and Treasury (4/9). Amended to end on 12/31/20 (4/27). The facility will stop buying participations on 9/30/20, unless extended by the Fed and Treasury. The facility will stop buying participations on 9/30/20, unless extended by the Fed and Treasury.
Other terms None. None. None. The Fed will make a 1-time purchase of CP from issuers rated A2/P2 on March 17, 2020, up to the amount of CP outstanding on that date. Separate pricing from main program (3/17). Plans detailed disclosure of usage, costs and revenues (4/23). None. Banking regulators exclude assets purchased for the MMLF from calculations of leverage capital requirements (3/19). Plans detailed disclosure of usage, costs and revenues (4/23). Facility will leverage IG 10x, nonIG 7x (4/9). Plans detailed disclosure of usage, costs and revenues (4/23). Facility will leverage IG 10x, nonIG 7x (4/9). Plans detailed disclosure of usage, costs and revenues (4/23). Other details forthcoming. Plans detailed disclosure of usage, costs and revenues (4/23). None. Under f the CARES Act, a PPP Loan gets a 0% risk weight under the risk-based capital rules of the federal banking agencies. Bank regulators 4/9/20 issued an interim final rule to allow banking organizations to neutralize the effect of PPP Loans financed under the facility on leverage capital ratios. Plans detailed disclosure of usage, costs and revenues (4/23). Plans detailed disclosure of usage, costs and revenues (4/23). Plans detailed disclosure of usage, costs and revenues (4/23). Plans detailed disclosure of usage, costs and revenues (4/23).

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