• The Federal Reserve’s announcement that it is creating a Commercial Paper Funding Facility (CPFF) is the Federal Reserve’s first use of its “unusual and exigent circumstances” powers in this crisis.[1]
  • It is designed to make sure that any U.S. issuer of commercial paper (CP), including corporate issuers, is able to roll over CP and to encourage investors to lend once again in CP markets.
    • It is not primarily designed to help out the financial sector, although banks that issue CP are eligible.
    • The Treasury Secretary has approved the establishment of the program, as is now required under the Dodd-Frank Act’s amendments to the Federal Reserve Act.
  • The CPFF is very similar to the financial crisis era program.
    • The Federal Reserve Bank of New York (FRBNY) creates and lends to a special purpose vehicle (SPV).
    • The SPV buys CP from “eligible issuers”.
    • The lending is on a collateralized and recourse basis. The collateral the SPV gives is the CP.
    • The Treasury, via the Exchange Stabilization Fund, is providing $10bn of credit protection. During the financial crisis, this credit protection was provided by the then-extant Troubled Asset Relief Program.
  • Under the CPFF: “eligible issuers” are any U.S. issuers of CP, including those with a foreign parent. Only 90-day CP will be purchased.  Pricing is 200bps over the 3-month overnight index swap (OIS) rate.
    • The CP must be rated at least A-1/P-1/F-1 if rated by a major nationally recognized statistical rating organization (NRSRO) and must be rated at least A-1/P-1/F-1 by two or more major NRSROs if rated by multiple major NRSROs.[2]
    • The maximum amount of the SPV’s holdings of a particular issuer’s CP at any point in time will be equal to the maximum amount of that issuer’s outstanding USD-denominated CP on any day between March 16, 2019 and March 16, 2020.
    • The SPV will not purchase additional CP from an issuer whose aggregate CP outstanding to all investors (including the SPV) is at or above this limit.
    • No explicit limit has been placed on the aggregate amount of the CPFF.
    • The CPFF exists through March 17, 2021.
  • More details in the one-page terms and conditions. See the linked chart that shows usage in the CP market as of last Wednesday.
  • The Bank of England has also announced a similar program, the Covid Corporate Financing Facility, which will purchase CP of up to one-year maturity issued by firms making a material contribution to the UK economy.
    • Its purpose is to help businesses in across a range of sectors to pay wages and suppliers. Firms need not have tapped CP markets before, but they need to have been in sound financial condition before the crisis.
    • The BoE also states that the facility is intended to preserve the capacity of the banking system to lend to other companies, including small and medium-sized enterprises, which rely on banks for funding.

See the Davis Polk Financial Crisis Manual for more information on other crisis era programs.

[1] Federal Reserve Act, § 13(3), 12 U.S.C. § 343; see also 12 C.F.R. § 201.4(d).

[2] Ratings of at least A-2/P-2/F-2 will be required for one-time purchases made by the SPV up to the amount outstanding on March 17, 2020, and these purchases will be subject to separate pricing.


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