A $10 billion commercial paper funding facility (CPFF) to support the flow of credit to households and businesses will be set up by the Federal Reserve to provide, it said Tuesday, 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 directly from eligible companies.
“The commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak,” the agency said. “By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak.”
The SPV, the Fed said, will purchase commercial paper rated A1/P1 (as of March 17, 2020).
The Fed said it will be provided $10 billion of credit protection from the U.S. Treasury in connection with the CPFF from the Treasury’s Exchange Stabilization Fund (ESF). The Fed will then provide financing to the SPV under the CPFF. Its loans will be secured by all of the assets of the SPV.
Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses