Fed Says Primary Corporate Credit Facility Open for Business


The Federal Reserve announced that the Primary Market Corporate Credit Facility opened for business Monday, the last of its nine pandemic emergency lending programs to become operational.

The program to support up to $500 billion in direct credit to corporate borrowers was announced in March as a flight from risk as the coronavirus spread began raising borrowing costs for corporations of all kinds.

Partly due to Fed interventions, corporate credit spreads have since narrowed and companies have been able to borrow billions of dollars via new financing to take advantage of cheaper credit costs. The Federal Reserve said that its expectation is for limited usage of the facility in healthy markets. Details on the loans, including the names of borrowers, will be disclosed every 30 days.

The Fed said in its release that pricing will be issuer-specific and informed by market conditions. Prices will also be subject to minimum and maximum spreads over comparable maturity Treasury securities. Spreads will be capped at around the 95th to 97th percentile of spreads over the past 15 years on three- to five-year senior debt versus comparable Treasury securities.

Fed Says Primary Corporate Credit Facility Open for Business

The program is part of the central bank’s aggressive response to support the economy during the pandemic, alongside cutting interest rates to almost zero and pumping trillions of dollars of liquidity into the financial system to keep markets functioning smoothly.

The lending facilities have a similar goal of keeping credit flowing. As well as the primary program, the Fed has stood up a separate but related initiative called the Secondary Market Corporate Credit Facility. In May, the central bank began buying exchange-traded funds invested in corporate debt through it, and earlier this month started purchasing securities of individual issuers.

Details released by the Fed Sunday show that purchases in the Secondary Market facility so far include bonds issued by companies such as AT&T Inc., UnitedHealth Group Inc. and Walmart Inc. Draw-down of this program has been relatively light. As of Tuesday, the Fed had amassed $8.71 billion of assets including ETFs and individual securities through the program.

©2020 Bloomberg L.P.

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