Fed’s Emergency Loan Programs Are Shrinking Amid Calmer Markets
A magnifying glass is held over a 50 subject one dollar note sheet after being printed by an intaglio printing press in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Fed’s Emergency Loan Programs Are Shrinking Amid Calmer Markets

The Federal Reserve’s success in restoring order to credit markets can be measured in the shrinking size of assets held by most of its nine emergency pandemic loan programs. Only its Main Street facility attracts criticism for failing to lend more to struggling small- and mid-sized companies damaged by the coronavirus.

The Fed’s historic response, backed with approval and funds from the U.S. Treasury Department, began in March as short-term credit markets ground to a halt. Most of the programs sought to keep financial markets functioning. But in unprecedented steps, some also provided direct loans to businesses, states and local governments.

Here’s a round-up of the nine programs -- all of which remain open -- with details on their current status. Lending totals are as of Sept. 9, with the exception of the corporate credit and municipal facilities which reflect totals as of Sept. 8. The Fed updates its holdings every Thursday:

Commercial Paper Funding Facility (CPFF)

  • Announced: March 17
  • Launched: April 14
  • Treasury backstop: $10 billion
  • Program limit: none
  • Deployed: $30 million (excluding $8.56 billion from backstop)

Purchases short-term company IOUs directly from U.S. corporate and municipal issuers. Eligible securities about $1.1 trillion. Demand has been low as the Fed’s mere pledge to backstop the market drew normal lenders back in. Assets peaked at about $4.3 billion in June.

Primary Dealer Credit Facility (PDCF)

  • Announced: March 17
  • Launched: March 20
  • Treasury backstop: none
  • Program limit: none
  • Deployed: $243 million

Buys a wide range of securities -- with an agreement to sell back at a future date -- including investment-grade corporate debt, municipal debt, and mortgage- and asset-backed securities from primary dealers, which are the big banks and broker-dealers licensed to transact with the Fed. Its lending peaked in mid-April at around $33 billion, then faded as the short-term funding markets calmed.

Money Market Fund Liquidity Facility (MMFLF)

  • Announced: March 18
  • Launched: March 23
  • Treasury backstop: $10 billion
  • Program limit: none
  • Deployed: $7.9 billion

Finances the purchase of high-quality assets from U.S. money market mutual funds, including government debt, commercial paper and municipal debt. Eligible securities estimated at $600 billion to $700 billion, according to Fed officials. Lending peaked in early April at around $53 billion as withdrawals from prime money funds halted and then reversed.

Primary & Secondary Market Corporate Credit Facility (PMCCF, SMCCF)

  • Announced: March 23
  • Launched: Primary June 29, Secondary May 12
  • Treasury backstop: Primary $50 billion, Secondary $25 billion
  • Program limit: Primary $500 billion, Secondary $250 billion
  • Deployed: $12.8 billion (excluding $37.5 billion from backstop)

The Primary facility can buy investment-grade corporate debt with maturities of up to four years directly from U.S. issuers, and debt from some issuers downgraded after March 22. No purchases have been made under the Primary facility.

The Secondary facility purchases investment-grade corporate debt from U.S. issuers with maturities up to five years in the secondary market, debt from some issuers downgraded after March 22 and some Etas that buy corporate debt. The New York Fed began ETF purchases on May 12 and eligible corporate bonds after June 15, follow a diversified market index of U.S. corporate bonds created expressly for the facility. Assets were at their peak this week, but purchasing has slowed.

Term Asset-Backed Securities Loan Facility (TALF)

  • Announced: March 23
  • Launched: June 16
  • Treasury backstop: $10 billion
  • Program limit: $100 billion
  • Deployed: $2.6 billion (excluding $8.5 billion from backstop)

Purchases securities backed by credits to consumers and small businesses, including credit-card receivables, student loans, auto loans and leases, equipment loans and some small business loans. Assets reached a peak last week but remained unchanged this week.

Paycheck Protection Program Liquidity Facility (PPPLF)

  • Announced: April 6
  • Launched: April 16
  • Treasury backstop: none
  • Program limit: none
  • Deployed: $67.5 billion

Finances lending to small businesses that qualify for the Treasury’s Paycheck Protection Program. Congress appropriated a total of $669 billion for the loans, which can turn into grants if companies retain or hire back workers. Assets peaked in late July at around $70 billion.

Municipal Liquidity Facility (MLF)

  • Announced: April 9
  • Launched: June 2
  • Treasury backstop: $35 billion
  • Program limit: $500 billion
  • Deployed: $1.7 billion (excluding $14.9 billion from backstop)

Purchases municipal debt maturing in less than 36 months directly from states, counties and cities. After initial criticism, the Fed lowered the population thresholds for eligible counties and cities to 500,000 and 250,000, respectively. Issuers must have held an investment-grade rating as of April 8. With the municipal debt market having calmed, it has made just two purchases since opening.

Main Street Lending Program

  • Announced: April 9
  • Launched: June 15
  • Treasury backstop: $75 billion
  • Program limit: $600 billion
  • Deployed: $1.4 billion (excluding $37.5 billion from backstop)

Finances full recourse bank lending to U.S. companies with fewer than 15,000 employees or less than $5 billion in annual revenue. The four-year loans will be extended through three distinct facilities: one for new loans, another for increasing existing debt and a third for more heavily leveraged borrowers. The Boston Fed, which administers the program, said Sept. 4 it was include loans to nonprofit institutions.

  • New Loan Facility: Maximum loan size of $25 million or four times 2019 adjusted EBITDA. Lenders retain a 5% stake in each loan. Minimum loan size is $500,000.
  • Expanded Loan Facility: Maximum loan size $200 million, 35% of a borrower’s outstanding debt or six times 2019 adjusted EBITDA. Lenders retain a 5% stake. Minimum loan size is $10 million.
  • Priority Loan Facility: Maximum loan size of $25 million or six times 2019 adjusted EBITDA. Lenders retain 15% stake. Minimum loan size is $500,000.

©2020 Bloomberg L.P.

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