Federal Reserve Board, Treasury Department Unveil New and Expanded Credit Facilities

The Federal Reserve Board and U.S. Department of the Treasury Secretary Steven Mnuchin on April 9, 2020, announced new and expanded measures aimed at providing up to $2.3 trillion in relief to U.S. businesses, states and municipalities impacted by the coronavirus (COVID-19) pandemic. Among other measures, the announcement detailed steps that the Federal Reserve is taking to "ensure credit flows to small and mid-sized businesses" through the establishment of the Main Street Lending Program. The Federal Reserve intends to accomplish its goals through the creation of new credit facilities and the expansion of existing ones.

Included with the announcement were details on the Federal Reserve's Main Street Lending Program, which will provide up to $600 billion in loans for small and mid-sized businesses. The Treasury Department will provide $75 billion in equity, again using appropriated Coronavirus Aid, Relief, and Economic Security Act (CARES Act) funds.

Additionally, the Federal Reserve announced the creation of the Municipal Liquidity Facility (MLF), which will offer up to $500 billion in lending to states and municipalities, with the Treasury Department to provide $35 billion of credit protection using funds appropriated by the CARES Act.

The Federal Reserve is also expanding three existing loan facilities, the Primary Market Corporate Credit Facility (PMCCF), the Secondary Market Corporate Credit Facility (SMCCF) and the Term Asset-Backed Securities Loan Facility (TALF), which were initially created on March 23, 2020, in response to the COVID-19 pandemic. The Federal Reserve has expanded these programs by providing up to $850 billion in credit backed by $85 billion in credit protection from the Treasury Department.

This Holland & Knight alert provides the key details of the credit facilities.

The Main Street Lending Program

In order to facilitate lending to small and medium-sized businesses, the Federal Reserve announced the creation of two "Main Street Lending Programs" – the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), the combined size of which will be up to $600 billion. Eligible borrowers (U.S. businesses with up to 10,000 employees or up to $2.5 billion in 2019 revenues) may seek either a new term loan or an upsized tranche to an existing loan.

Read a complete summary of the Main Street Lending Program, including a summary of the term sheets for both the MSNLF and MSELF, and FAQs.

The Federal Reserve has noted that the Main Street Lending Program is still being finalized and has solicited input from lenders, borrowers and other stakeholders until April 16, 2020.

The Holland & Knight team is preparing comments. Should you wish to do the same, please contact Holland & Knight's Title IV team.

Municipal Liquidity Facility

The Federal Reserve created the MLF in order to help state and local governments manage the cash flow impacts attributable to income tax deferrals, potential reductions of revenues and/or increases in expenses related to the COVID-19 pandemic. The MLF will support lending to the states and the District of Columbia, U.S. cities with a population exceeding 1 million residents and U.S. counties with a population exceeding 2 million residents by purchasing up to $500 billion of short term notes.

Read a complete summary of the Municipal Liquidity Facility, including FAQs.

Primary and Secondary Market Corporate Credit Facilities and the Term Asset-Backed Securities Loan Facility

Finally, the Federal Reserve announced it is expanding the size and scope of the PMCCF and SMCCF, as well as the TALF. The Federal Reserve announced these facilities on March 23, 2020, as part of its initial effort to support the economy during the COVID-19 pandemic. The PMCCF supports credit to employers through new bond and loan issuance, whereas the SMCCF supports credit to employers by providing liquidity to the market for outstanding corporate bonds. The TALF supports the flow of credit to consumers and businesses. These three programs, as expanded, will support up to $850 billion in credit, backed by $85 billion from the Treasury Department.

Read a complete summary of the Primary and Secondary Market Corporate Credit Facility and the Term Asset-Backed Securities Loan Facility, including FAQs.

Conclusion

For more information or any questions regarding these new and expanded facilities announced by the Federal Reserve Board and the Treasury Department, please contact the authors.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.