On April 9, 2020, the Federal Reserve and Treasury Department announced plans to provide up to $2.3 trillion in loans to help support the economy. The plans include the following:
- $349 billion for the Paycheck Protection Program Liquidity Facility (PPPLF) to help provide financing to lenders participating in the Paycheck Protection Program (PPP)
- $600 billion through the Main Street Lending Program
- $850 billion to expand the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), as well as the Term Asset-Backed Securities Loan Facility (TALF)
- $500 billion to establish a Municipal Liquidity Facility (MLF) for states and municipalities
Below, we’ll cover the highlights of the programs; however, the term sheets should be used to determine all of the details of each program.
Paycheck Protection Program Liquidity Facility
The PPPLF will provide lenders of PPP loans access to financing at a rate of 35 basis points secured by par value of PPP loans they have outstanding. The maturity date of the facility matches that of the PPP loans, and there are no fees associated with the facility. Currently, the facility is available to financial institutions, but it is expected to be increased to all PPP lenders.
Main Street Lending Program
The Main Street Lending Program is designed to help small and mid-sized businesses by offering four-year loans to qualifying companies that employ up to 10,000 workers and have revenue of less than $2.5 billion. Payments on the loan will be deferred for up to one year. Lenders can use the program to issue new loans or increase existing loans.
Eligible lenders under the program are US insured depository institutions, US bank holding companies, and US savings and loan holding companies.
Under the new loan facility, new loans can be originated with terms of a four-year maturity, adjustable rate of secured overnight financing rate (SOFR) plus 250–400 basis points, a minimum loan size of $1 million, a maximum loan size up to $25 million (subject to other limitation), and no prepayment penalty.
The expanded loan facility provides for similar terms, except the maximum loan size is $150 million, subject to other limitations.
Both borrowers and lenders must attest to certain matters under the program. Details are outlined in the facility term sheet; however, they generally require the following:
- Not using the facility to refinance, payoff, or cancel existing loans or lines of credit
- The borrower to make efforts to retain payroll
- The borrower to follow compensation, stock repurchase and capital distribution restrictions applicable under the CARES Act
Lenders are able to sell 95% of the loan on a non-recourse basis into a special purpose vehicle (SPV) established by the Federal Reserve. The lender is required to pay a 100 basis point fee to the SPV facility, which may be passed onto the borrower. The lender is also able to charge a 100 basis point origination fee to the borrower on the qualifying principal amount, as well as a 25 basis point servicing fee to the SPV.
The SPV facility will purchase loans, up to $600 billion, through September 30, 2020, unless the Federal Reserve and Treasury Department extend the facility.
Primary and Secondary Market Corporate Credit Facilities
The PMCCF will purchase bonds either, as the sole investor in bonds, or portions of syndicated loans or bonds, at issuance for eligible issuers. The SMCCF will purchase in the secondary market eligible individual corporate bonds as well as corporate bond portfolios in the form of exchange-traded funds.
The eligibility criteria are outlined in the term sheets; however, the primary criteria an institution must meet to qualify include:
- Being a US-based business
- Having minimum issuer ratings
- Not being a depository institution
- Not having received specific support pursuant to the CARES Act
Both the PMCCF and SMCCF provide limits on leverage of the issuer, limits relative to the other debt of the issuer, and overall portfolio limits. Pricing and fees are driven by market factors, subject to other limitations as outlined in the term sheets. The facilities will stop purchasing assets no later than September 30, 2020, unless extended by the Federal Reserve and Treasury Department. The combined size of the facilities will be up to $750 billion.
Term Asset-Backed Securities Loan Facility
The TALF SPV will make up to $100 billion in nonrecourse loans available, which will be secured by eligible asset-backed securities (ABS). All US companies that own eligible collateral and maintain an account relationship with a primary dealer are eligible to borrow under the TALF. The eligible collateral criteria are detailed and cover various collateral types and include haircuts that are the same as those established by the TALF in 2008.
Pricing is based on collateral type and the maturity of the facility is three years.
The facility will extend credit through September 30, 2020, unless the Federal Reserve and Treasury Department extend the facility.
Municipal Liquidity Facility
The MLF will support lending to eligible states, cities, and counties by purchasing notes from issuers at the time of issuance. The proceeds are designed to help municipalities manage the cash flow impact of income tax deferrals, reduced taxes resulting from COVID-19, and payment of principal and interest on obligations of the municipality.
Eligible issuers, and the terms of the notes, are subject to the review and approval of the Federal Reserve. Pricing will be based on the issuers’ rating at the time of purchase, but details of pricing have not yet been issued. Notes will be callable by the issuer at any time at par.
Similar to the other facilities, notes will stop being purchased on September 30, 2020, unless extended by the Federal Reserve and Treasury Department.
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