Member Article

The Federal Reserve System (the “Fed”) has recently announced programs intended to help businesses not covered by the loan provisions under the purview of the Small Business Administration, specifically PPP and EIDL loans available under the CARES Act.

In order to facilitate lending to larger corporations, the Fed instituted the Primary Market Corporate Credit Facility (“PMCCF”) and the Secondary Market Corporate Credit Facility (“SMCCF”). Under these programs, the Fed can now be a direct purchaser of corporate debt, either in a primary issuance or in the secondary market.

The programs are only available to those companies with investment-grade credit and are not available if the business is expected to receive direct financial assistance under any other program related to the CARES Act. There are no size or revenue restrictions for businesses seeking relief under these programs. There are also no limitations on the use of proceeds in the PMCCF or the SMCCF.

Please note, under a previous PMCCF term sheet, the PMCCF would have been able to make direct loans to eligible businesses who would therefore be subject to the compensation, stock repurchase and capital distribution restrictions found in section 4003(c)(3)(A)(ii) of the CARES Act. However, now that the PMCCF does not include any form of direct loans, it may be the case that corporations that receive assistance through this program will not be subject to any restrictions outside of falling under the definition of “eligible issuer” below.

The following is an outline of the two facilities, with links to their term sheets.

Primary Market Corporate Credit Facility

• The Fed facility will (i) purchase qualifying bonds directly from eligible issuers as the sole investor in a bond issuance and (ii) purchase portions of syndicated loans or bonds at issuance.
• Eligible Corporate Bonds as Sole Investor
• Eligible corporate bonds must meet each of the following criteria at the time of bond purchase by the facility: (i) issued by an eligible issuer; and (ii) have a maturity of 4 years or less.
• Eligible Syndicated Loans and Bonds Purchased at Issuance
• Eligible syndicated loans and bonds must meet each of the following criteria at the time of purchase by the facility: (i) issued by an eligible issuer; and (ii) have a maturity of 4 years or less.
• The facility may purchase no more than 25 percent of any loan syndication or bond issuance.

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