Primary Market Corporate Credit Facility (PMCCF)

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Primary Market Corporate Credit Facility (PMCCF)

The Federal Reserve established the Primary Market Corporate Credit Facility (PMCCF) on March 23, 2020, as a special purpose vehicle (SPV) to preserve the flow of credit to major employers in the face of the COVID-19 crisis. The Fed granted money to the SPV, which issued loans to investment-grade firms and purchased corporate bonds to assist them survive the crisis. The loans had a maximum maturity of four years, with a six-month grace period. The program’s goal was to guarantee that businesses had enough credit to remain operating so that they could prevent layoffs, which would aggravate the crisis. 1

On April 9, 2020, the program was extended to acquire additional bonds and bonds of worse credit grade. The Fed’s Secondary Market Corporate Credit Facility was a similar effort (SMCCF).The Fed acquired $750 billion in bonds as part of the two programmes. 2

Treasury Secretary Steven Mnuchin said on November 19, 2020, that he will not approve extending the PMCCF beyond December 31, 2020. The program will cease purchasing new bonds on December 31, 2020. 3

Key Takeaways

  • During the COVID-19 crisis, the Fed has attempted to maintain credit accessible to significant companies.
  • To do this, the Fed established the Primary Market Corporate Credit Facility (PMCCF).
  • The Fed made a loan to the PMCCF, which purchased corporate bonds and made loans to firms. 1
  • During an economic downturn, businesses might utilize the loan to keep operations running and employees employed.
  • The program was significantly enlarged on April 9, 2020, and will terminate on December 31, 2020. 2
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Details on the PMCFF

The Primary Market Corporate Credit Facility (PMCCF) was a special purpose vehicle that bought bonds and made loans to businesses. The US Treasury contributed $50 billion to the PMCCF from its Exchange Stabilization Fund (ESF). The bonds acquired used as security for the Fed’s loans to the PMCCF. 2 4

The PMCCF was administered and loaned to by the Federal Reserve Bank of New York (FRBNY). Corporate bonds eligible for acquisition by the PMCCF had to be issued by corporations located in the United States, with major activities in the United States, and that were not anticipated to receive direct government financial support. 4

Eligible bonds must also have a rating of at least BBB- or Baa3 as of March 22, 2020, from a major nationally recognized statistical rating organization (NRSRO), or from at least two major NRSROs if rated by more than one. If they were later downgraded after March 22, they had to be rated BBB-/Baa3 by two or more NRSROs. 4

The PMCCF’s holdings from any individual issuer were restricted to 130% of the highest amount of bonds and loans outstanding from that issuer on any given day between March 22, 2019 and March 22, 2020. 4

The PMCCF was likewise barred from lending to issuers who got special treatment under the CARES Act or any later federal legislation. Companies were also required to comply with the CARES Act’s section 4019 conflict of interest regulations. They might also not be classified as a depository institution under the Dodd-Frank Act.2

Subject to Fed permission, an issuer might opt to postpone all or part of a planned interest payment, with the amount instead being added to the principal value of the bond or loan. The issuers also have the ability to call at par any bonds or loans held by the SPV. A commitment charge of 100 basis points was required of eligible issuers. 4 In addition, the price would be “subject to minimum and maximum margins above returns on equivalent term US Treasury securities.” Spread limits and floors would vary depending on an eligible issuer’s credit rating as of the day the Facility purchases.2

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After December 31, 2020, the PMCCF will no longer purchase bonds or provide loans. This SPV has been funded by the New York Fed until its assets mature. 5

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