As the Coronavirus outbreak continues to develop and persist, issuers of commercial paper have been challenged to access liquidity markets. Market disruption has led to the inability of issuers to access the commercial paper markets.
Effective March 17, 2020, the Federal Reserve Board announced that it will establish a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses. Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies.
The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies.
The Federal Reserve Bank of New York will commit to lend to the SPV on a recourse basis. The New York Fed will be secured by all the assets of the SPV. The U.S. Treasury Department—using the Exchange Stabilization Fund (ESF)—will provide $10 billion of credit protection to the FRBNY in connection with the CPFF.
Clients with commercial paper programs should take the following steps to determine whether it satisfies the requirements of the CPFF:
In summary, it is important for clients with commercial paper programs to monitor market disruptions and implications for liquidity. For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization.
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1 In addition, the SPV will make one-time purchases of commercial paper (up to the amount outstanding on March 17, 2020) from issuers that met these criteria as of March 17, 2020 and were rated at least A-2/P-2/F-2 as of the purchase date. These purchases will be subject to separate pricing. The Federal Reserve reserves the right to review and make adjustments to the terms and conditions described in this term sheet, including pricing and eligibility requirements.