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On June 2, the Federal Reserve Board announced plans to wind down the portfolio of the Secondary Market Corporate Credit Facility (SMCCF), a temporary emergency lending facility that was established and provided by the Treasury Department under the CARES Act, which closed in December 2020. The SMCCF (covered by InfoBytes here) played a role in restoring market functioning, supported the availability of credit for certain employers, and assisted employment numbers during the Covid-19 pandemic. According to the announcement, sales from the SMCCF portfolio will be “gradual and orderly,” aiming to decrease the likelihood of “any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds.” The announcement also indicates that the Federal Reserve Bank of New York, which manages the operations of the SMCCF, will release more details before sales begin.
On June 15, the Federal Reserve Board announced that the Secondary Market Corporate Credit Facility (SMCCF) (previously covered here) will begin buying a diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers. The intent is to create a bond portfolio that tracks the composition of the broad, diverse universe of secondary market bonds that are eligible for the program. The announcement included a revised term sheet and updated FAQs for the SMCCF.
On June 3, the Federal Reserve Board announced an expansion in the number and type of entities that are eligible to directly use its Municipal Liquidity Facility (MLF). Under the revised terms, at least two cities or counties in each U.S. state will be eligible to directly issue notes to the MLF regardless of population. Additionally, each state governor will be able to designate two issuers in their jurisdictions whose revenues are generally derived from operating government activities to be eligible to directly use the facility. The FRB also issued an Appendix with limits per state and responses to frequently asked questions regarding the MLF.
Federal Reserve publishes revised terms, other information regarding lending and liquidity facilities
On May 12, the Federal Reserve Board issued additional information regarding the Term Asset-Backed Securities Loan Facility (TALF) and the Payment Protection Program Liquidity Facility (PPPLF). It issued a revised term sheet for TALF, indicating that eligible borrowers include businesses that (i) are created or organized in, or under the law of the United States; (ii) have significant operations in and a majority of their employees based in the United States; and (iii) maintain an account relationship with a primary dealer. The board also announced that, on a monthly basis, it will publicly disclose the name of each participant in the TALF and the PPPLF, as well as amounts borrowed and interest rate charged. In addition, the board issued FAQs regarding the TALF.
On May 5, the Federal Reserve Board, the OCC, and the FDIC announced an interim final rule that modifies the agencies’ Liquidity Coverage Ratio (LCR) rule to support participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility (previously covered by InfoBytes here and here). The LCR rule requires large banks to hold a certain amount of “high-quality liquid assets” in order to meet their short-term liquidity needs. The interim final rule modifies the agencies’ capital rules to neutralize the effects of participation. The rule is effective immediately and comments will be accepted within 30 days of publication in the Federal Register.
On April 29, the Small Business Administration (SBA), in consultation with the Department of Treasury (Treasury) released two new frequently asked questions (FAQs) regarding the Paycheck Protection Program (PPP). The new guidance states that businesses in operation as of February 15, 2020 are eligible to apply for PPP loans, even if the business changes ownership after that date, as long as all other criteria are met. The SBA also plans to review each PPP loan of $2 million or more after the lender submits the small business borrower’s application for forgiveness, and states that as long as lenders follow the PPP lender requirements, all loans will retain the SBA guarantee no matter what the SBA review concludes. A joint Treasury and SBA statement suggests that because a “large number of companies” returned their PPP loans after the SBA issued guidance on PPP borrower loan certification (covered by InfoBytes here), the review of loans $2 million and above will “ensure PPP loans are limited to eligible borrowers.”
Earlier in the week, Treasury and the SBA added additional guidance in the FAQs addressing various other eligibility questions. These include:
- Borrowers should refer to FAQ #31 (covered by InfoBytes here) to determine whether a small business “owned by large companies with adequate sources of liquidity to support the business’s ongoing operations” would be eligible to apply for a PPP loan;
- Housing stipends or housing allowances to employees are compensation and should be included in the employer’s calculation of payroll costs;
- To determine an employee’s principal place of residence, lenders and borrowers should consult IRS regulations (26 CFR §1.121-1(b)(2));
- Agricultural producers, farmers, and ranchers can apply for PPP loans as long as the individual or entity meets certain criteria, including that it has 500 or fewer employees or $1 million or less in annual receipts;
- Agricultural cooperatives and other cooperatives may apply for PPP loans as long as they meet all PPP requirements; and
- Small business PPP loan applicants must count all employees—full-time and part-time—when calculating whether the small business has 500 or fewer employees.
On April 24, the SBA issued an interim final rule stating, among other things, that hedge funds and private equity firms are not eligible to apply for PPP loans, and that companies in private equity portfolios should consider whether they can make the required good faith certification of need for the PPP loans. In addition, small businesses in bankruptcy proceedings are not eligible to apply for PPP loans.
On April 27, the Federal Reserve (Fed) announced it will expand the Municipal Liquidity Facility (MLF) in important ways. As previously covered by InfoBytes, the MLF was established to provide liquidity to state and local governments so they could continue to provide services for their citizens. As when it was established on April 9, the facility will provide up to $500 billion through the purchase of state and county-issued short-term notes, with $35 billion in credit protection provided by the Treasury pursuant to the CARES Act. Revisions to the MLF include lower population thresholds for the facility. Specifically, the facility will purchase notes from counties with at least 500,000 residents, down from the original two million resident threshold, and U.S. cities with a minimum of 250,000 residents, down from the original one million residents threshold. Further, to be eligible for the revised facility, notes must mature within 36 months of issuance—an increase from the previous 24-month maximum maturity term. Issuers must also have had at least two nationally recognized statistical rating firms provide investment grade ratings, as of April 8, 2020. In addition, the Fed extended the termination date for the MLF from September 30 to December 31, 2020.
On April 20, the Federal Reserve Board (Fed) released a series of frequently asked questions (FAQs) and answers relating to the agency’s newly launched Paycheck Protection Program Liquidity Facility (PPPLF). As previously covered by InfoBytes, the PPPLF was up and running on April 16 to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA-guaranteed PPP loans are used as collateral for term financing provided by the PPPLF. The PPPLF extends credit to financial institutions participating in the PPP at a fixed rate of 35 basis points. Additional information regarding the PPPLF, including a term sheet, borrowing documentation, and operational documentation including samples can be found on the Fed website here.
- APPROVED Webcast: CFL license transition to NMLS
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting