NY Fed Provides FAQs on New Commercial Paper Funding Facility

The Federal Reserve Bank of New York ("NY Fed") provided FAQs on the recently established Commercial Paper Funding Facility ("CPFF"). The Federal Reserve Board ("FRB") established the CPFF to "support the flow of credit to households and businesses due to the coronavirus outbreak" (see prior coverage).

In the FAQs, the NY Fed provided the following information:

Purpose - The goal of the CPFF is to improve the liquidity of the commercial paper market by (i) increasing the opportunity for issuers of term commercial paper funding, and (ii) assuring both issuers and investors that firms and municipalities can roll over their maturing commercial paper. The FRB's intent is to support term lending.

Operations - U.S. issuers of commercial paper will receive a liquidity backstop through the CPFF that will be provided through a special purpose vehicle ("SPV"). The SPV will hold commercial paper until maturity, and then use the proceeds from the maturing commercial paper to repay loans from the NY Fed.

U.S. Treasury Backing - The U.S. Treasury approved the FRB's implementation of the CPFF, and will make a $10 billion equity investment in the SPV.

Effective Date - The CPFF will become operational at the beginning of April 2020.

Eligibility - An issuer is eligible if it (i) is a U.S. issuer of commercial paper, including municipal issuers and U.S. issuers with a foreign parent, and (ii) was an active issuer prior to the announcement of the CPFF. The FRB will deem an issuer inactive if it did not engage in asset-backed commercial paper (or "ABCP") issuing for a "period of three-months or longer between March 16, 2019 and March 16, 2020."