After much anticipation, the Board of Governors of the Federal Reserve (“Federal Reserve”) on April 9, 2020 announced additional actions “using its full range of authorities” to provide US$2.3 trillion of credit to a wide variety of business enterprises, States and municipalities. The Federal Reserve’s actions in support of existing and new programs, as described below, leverage up to US$500 billion of investment by Treasury and leave substantial “dry powder” for the Federal Reserve to modify or provide additional financial support if and as needed after these programs take root. The guidance provided to date is both incomplete and subject to revision, with the Federal Reserve seeking public comment to its guidance on or before April 16.
Specifically, as part of its response to address the negative economic effects stemming from the COVID-19 pandemic, the Federal Reserve will:
- Purchase up to US$600 billion in loans through the Main Street Lending Program, with the Treasury Department using US$75 billion available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 (“Act”) to provide equity to the facility;
- Expand the size and scope of the Primary and Secondary Market Corporate Credit Facilities (“PMCCF” and “SMCCF”), as well as the Term Asset-Backed Securities Loan Facility (“TALF”), allowing these three programs to support up to US$850 billion in credit backed by US$85 billion in equity investments (for credit protection) provided by the Treasury Department;
- Establish a Municipal Liquidity Facility that will offer up to US$500 billion in lending to states, as well as cities with over one million residents and counties with over two million residents, with the Treasury Department providing US$35 billion in equity investments pursuant to the Act as credit protection for the facility; and
- Through the Paycheck Protection Program Liquidity Facility (“PPPLF”), supply liquidity to banks making loans to small businesses under the Paycheck Protection Program (“PPP”). The PPPLF will provide term financing to such banks, backed by PPP loans, taking the loans as collateral at face value with the only recourse being to the underlying PPP loans to businesses
With the exception of the PPPLF and Municipal Liquidity Facility – and subject to restrictions on size, etc. (which are discussed in detail below) – only businesses created or organized in the US or under the laws of the US, and that have significant operations in and a majority of their employees based in the US, are eligible for financial assistance under these Federal Reserve programs.
Our colleagues James Barresi, Stacy H. Krumin, Alethia N. Nancoo, Tom Reems, James A. Schneider, David A. Zagore, James C. Sivon, and David Stewart have prepared a client alert that provides an overview of each of these programs and their respective term sheets, including as they relate to eligible assets and issuers, limits per issuer, and pricing, among other issues. As in our previous alert, this alert also discuss key considerations regarding the feasibility and costs, economic and otherwise, of obtaining such relief. A separate Squire Patton Boggs analysis addresses the responses and relief measures being provided by the Export-Import Bank of the US. Read the full client alert below: