A statement released yesterday, entitled, "Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF)" explains, "The Federal Reserve Board announced ... that it will establish a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses. Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies. The CPFF program is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary." (NOTE: See also the WSJ article, "Treasury Department Asks Congress to Let It Backstop Money Markets.")

The Fed's comment continues, "The commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak. By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak."

It adds, "The Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the CPFF from the Treasury's Exchange Stabilization Fund (ESF). The Federal Reserve will then provide financing to the SPV under the CPFF. Its loans will be secured by all of the assets of the SPV. A brief description of the program is attached. More detailed program terms and conditions and an operational calendar will be subsequently published."

A supplemental document, "Commercial Paper Funding Facility 2020: Program Terms and Conditions" explains, "The CPFF2020 will be structured as a credit facility to a special purpose vehicle (SPV) authorized under section 13(3) of the Federal Reserve Act. The SPV will serve as a funding backstop to facilitate the issuance of term commercial paper by eligible issuers. The Federal Reserve Bank of New York will commit to lend to the SPV on a recourse basis. The New York Fed will be secured by all the assets of the SPV. The U.S. Treasury Department -- using the Exchange Stabilization Fund (ESF) -- will provide $10 billion of credit protection to the FRBNY in connection with the CPFF."

It explains, "The SPV will purchase from eligible issuers three-month U.S. dollar-denominated commercial paper through the New York Fed's primary dealers. Eligible issuers are U.S. issuers of commercial paper, including U.S. issuers with a foreign parent company. The SPV will only purchase U.S. dollar-denominated commercial paper (including asset-backed commercial paper (ABCP)) that is rated at least A-1/P-1/F-1 by a major nationally recognized statistical rating organization (NRSRO) and, if rated by multiple major NRSROs, is rated at least A-1/P-1/F-1 by two or more major NRSROs, in each case subject to review by the Federal Reserve."

The Terms document adds, "Pricing will be based on the then-current 3-month overnight index swap (OIS) rate plus 200 basis points. At the time of its registration to use the CPFF, each issuer must pay a facility fee equal to 10 basis points of the maximum amount of its commercial paper the SPV may own. The SPV will cease purchasing commercial paper on March 17, 2021, unless the Board extends the facility. The New York Fed will continue to fund the SPV after such date until the SPV's underlying assets mature."

In other news, ICI released its monthly "Money Market Fund Holdings" summary earlier this week, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our March 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.)

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in February, prime money market funds held 27.1 percent of their portfolios in daily liquid assets and 41.2 percent in weekly liquid assets, while government money market funds held 61.1 percent of their portfolios in daily liquid assets and 78.2 percent in weekly liquid assets." Prime DLA increased from 26.9% in January, and Prime WLA increased from 41.1%. Govt MMFs' DLA decreased from 61.6% in January and Govt WLA decreased from 78.8% from the previous month.

ICI explains, "At the end of February, prime funds had a weighted average maturity (WAM) of 33 days and a weighted average life (WAL) of 71 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 32 days and a WAL of 94 days." Prime WAMs were unchanged and WALs decreased by one day from the previous month. Govt WAMs decreased by one day while WALs were unchanged from the previous month.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $332.60 billion in January to $340.25 billion in February. Government money market funds' holdings attributable to the Americas declined from $2,198.77 billion in January to $2,187.10 billion in February."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $340.2 billion, or 43.0%; Asia and Pacific at $146.2 billion, or 18.5%; Europe at $297.2 billion, or 37.6%; and, Other (including Supranational) at $7.4 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $2.187 trillion, or 80.3%; Asia and Pacific at $142.6 billion, or 5.2%; Europe at $379.7 billion, or 13.9%, and Other (Including Supranational) at $15.1 billion, or 0.6%."

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