The Federal Reserve Board's Commercial Paper Funding Facility, announced October 7 to provide a backstop to CP markets, goes live today. The New York Fed, which administers the program, says, "The purpose of the CPFF is to enhance the liquidity of the commercial paper market by increasing the availability of term commercial paper funding to issuers and by providing greater assurance to both issuers and investors that firms will be able to roll over their maturing commercial paper."
The Commercial Paper Issuers Working Group (CPIWG), a group representing direct issuers of CP, and General Electric, one of the largest issuers of CP, have expressed their intentions to participate. We expect almost all the major market participants to follow, and we expect tensions in the money markets to continue easing this week as the CP program goes live.
The CPIWG says they "applaud the Federal Reserve for their steadfast actions related to the implementation of various programs, including the Commercial Paper Funding Facility (CPFF), designed to help unlock the U.S. credit markets.... [W]e believe the CPFF addresses two fundamental necessities to support a liquid, and functioning, commercial paper market: (1) the facility mitigates maturity 'rollover' risk by providing eligible issuers of commercial paper access to 3-month funding; and (2) in turn, investors in commercial paper should have restored confidence in their ability to obtain liquidity should they need to request an early redemption prior to the original maturity date." CPIWG adds, "[W]e intend to update the CPIWG web site with a list of member issuers of commercial paper that have publicly announced their registration with the CPFF."
GE Deputy Treasurer and spokesman Mark Barber shared a letter sent to CP investors late last week. It says, "We join with commercial paper issuers and investors in applauding the launch of the Commercial Paper Funding Facility by the Federal Reserve. The CPFF adds a liquidity backstop to this $1.5 trillion market, helping to reduce rollover risk for participating issuers and providing support for a more active secondary market. We believe the CPFF will strengthen confidence in the prime commercial paper market and encourage more term buying." He tells Crane Data, "It's all about liquidity in the market.... It's the best back-up there is."
Barber continues, "As of today, all of the U.S. issuers of commercial paper in the GE family are registered and approved to access the facility, which goes live on October 27. Each of these issuers is rated A-1+ by Standard and Poor's and P-1 by Moody's Investors Service." These include: General Electric Company, General Electric Capital Services, Inc., and General Electric Capital Corporation. GE adds, "We plan to use the CPFF primarily to support our CP investors who may need liquidity. To ensure access and operability and to demonstrate our support for the Fed's action, we plan to test the facility on October 27.... We appreciate your continued support."
The Fed said when it announced the program, "The Board authorized the CPFF on October 7, 2008 under Section 13(3) of the Federal Reserve Act to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets and thereby increase the availability of credit for businesses and households. Under the CPFF, the Federal Reserve Bank of New York will finance the purchase of unsecured and asset-backed commercial paper from eligible issuers through its primary dealers. The CPFF will finance only highly rated, U.S. dollar-denominated, three-month commercial paper."
See also, Bloomberg's "GE to Sell CP to Fed to Help Unlock Credit Markets".
