Pricing and other information for the purchase of corporate bonds by the Primary Market Corporate Credit Facility (PMCCF) is provided in a new term sheet released Monday by the Federal Reserve.
The PMCCF was created alongside the Secondary Market Corporate Credit Facility (SMCCF) to support market liquidity and the availability of credit for large employers amid the ongoing coronavirus (COVID-19) pandemic. Unless extended, both facilities are scheduled to cease purchasing eligible assets no later than Sept. 30.
According to Monday’s term sheet, the maximum amount of outstanding bonds or loans of an eligible issuer that borrows from the PMCCF may not exceed 130% of the issuer’s maximum outstanding bonds and loans on any day between March 22, 2019, and March 22, 2020. The PMCCF may purchase eligible corporate bonds as the sole investor or eligible syndicated loans and bonds purchased at issuance; for the latter, pricing will be the same pricing as other syndicate members.
In all cases, the assets must be issued by an eligible issuer and have a maturity of four years or less. The facility may purchase no more than 25% of any loan syndication or bond issuance, the term sheet shows.
It also shows that to qualify as an eligible issuer, the issuer, among other things:
- Must have been rated at least BBB-/Baa3 as of March 22, 2020, by a major nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020. If an issuer rated BBB-/Baa3 as of March 22 was subsequently downgraded, it must be be rated at least BB-/Ba3 as of the date on which the Facility makes a purchase. If rated by multiple major NRSROs, such an issuer must be rated at least BB-/Ba3 by two or more NRSROs as of the date on which the facility makes a purchase. (Issuer ratings are subject to review by the Federal Reserve in all cases).
- Must not be an insured depository institution, depository institution holding company, or subsidiary of a depository institution holding company, as such terms are defined in the Dodd-Frank Act.
- Has not received specific support pursuant to the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) or any subsequent federal legislation.
- Must satisfy CARES Act conflicts-of-interest requirements.