NY Fed Issues FAQs on Primary and Secondary Market Corporate Credit Facilities
Commentary by Steven Lofchie
The Federal Reserve Bank of New York ("New York Fed") issued a series of FAQs concerning the implementation of the Primary Market Corporate Credit Facility ("PMCCF") and the Secondary Market Corporate Credit Facility ("SMCCF").
As previously covered, the PMCCF and SMCCF were established by the Federal Reserve Board ("FRB") to provide credit to corporate employers. Specifically, the PMCCF was set up to invest in new bond offerings and the SMCCF to purchase outstanding corporate bonds in the secondary market or to purchase shares of exchange-traded funds.
In the new FAQs, the New York Fed addressed issues such as:
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the requirements as to issuers whose securities may be purchased through the programs;
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the types of securities that may be purchased through the programs;
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the time period for which the programs are scheduled to operate and the current expected sizes of the programs;
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the fees to be charged for participation in the programs; and
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the procedures under which the programs will operate.
The New York Fed also noted that additional FAQs on corporate credit facilities will be released soon regarding topics such as (i) anticipated start-up dates of each facility, (ii) issuer eligibility and (iii) related guidance on complying with the Coronavirus Relief, Aid, and Economic Security Act ("CARES Act") requirements.
Commentary
The program is intended for issuers with "significant U.S. operations" and a "majority of U.S. based employees." Query whether this will lead to difficult counting or accounting decisions for issuers that might be on the fringes of eligibility?
In addition, here are two small eccentricities of the program: despite the official disfavor of the use of LIBOR-based interest rates and reliance on credit rating agencies, the program will (i) rely on credit ratings to determine eligibility and (ii) purchase LIBOR-bonds.