Federal Reserve Board Revises Terms in Secondary Market Corporate Credit Facility

Posted on 06/16/2020


The Federal Reserve Board revealed updates to the Secondary Market Corporate Credit Facility (SMCCF), which will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers. The Federal Reserve revised its term sheet. The SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with US$ 75 billion in equity provided by the Treasury Department from the CARES Act.

The Federal Reserve Bank of New York revealed that the SMCCF will begin buying corporate bonds on June 16, 2020. The SMCCF will begin purchasing bonds from Eligible Sellers on June 16. These purchases follow the start of purchases by the SMCCF of exchange-traded funds (ETFs) on May 12. The Primary Market Corporate Credit Facility (PMCCF) is expected to become operational in the near future, as detailed previously.

*** Term Sheet ***

Revised June 15, 2020.

Eligible Assets

Eligible Individual Corporate Bonds.

The Facility may purchase individual corporate bonds that, at the time of purchase by the Facility: (i) were issued by an eligible issuer; (ii) have a remaining maturity of 5 years or less; and (iii) were sold to the Facility by an eligible seller.

Eligible ETFs.

The Facility may purchase U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. corporate bonds. The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.

Eligible Broad Market Index Bonds.

The Facility may purchase individual corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. Eligible broad market index bonds are bonds that, at the time of purchase, (i) are issued by an issuer that is created or organized in the United States or under the laws of the United States; (ii) are issued by an issuer that meets the rating requirements for eligible individual corporate bonds; (iii) are issued by an issuer that is not an insured depository institution, depository institution holding company, or subsidiary of a depository institution holding company, as such terms are defined in the Dodd-Frank Act; and (iv) have a remaining maturity of 5 years or less.

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Keywords: Federal Reserve System.