The Primary Market Corporate Credit Facility (PMCCF) is a special purpose vehicle (SPV) created on March 23, 2020 by the Federal Reserve designed to maintain the flow of credit to large employers in the face of the COVID-19 coronavirus crisis. The Fed will lend money to the SPV, which will make loans to investment grade corporations and buy corporate bonds to help them continue to function through the crisis. The loans will have a maturity of up to 4 years and corporations can defer payment for 6 months, possibly longer if the Fed decides to extend the deferment. The purpose of the program is to ensure companies have enough credit to keep functioning so they can limit layoffs, which would further worsen the recession.

The program was expanded to purchase more bonds and bonds of lower credit quality on April 9, 2020. A related initiative by the Fed is the Secondary Market Corporate Credit Facility (SMCCF). Between the two initiatives the Fed will purchase $750 billion in bonds.

Key Takeaways

  • The Fed is trying to keep credit available to major employers during the COVID-19 crisis.
  • To do this the Fed created the Primary Market Corporate Credit Facility (PMCCF).
  • The Fed will lend money to the PMCCF, which will buy corporate bonds from and extend loans to corporations.
  • Companies can use the credit to keep operations going and people employed during the economic downturn.
  • The program was substantially expanded on April 9, 2020.

Details on the PMCFF

The Primary Market Corporate Credit Facility (PMCCF) is a special purpose vehicle (SPV) that will purchase bonds and extend loans to companies. The U.S. Department of the Treasury will provide $50 billion from its Exchange Stabilization Fund (ESF) to the PMCCF. The bonds purchased will be the collateral for the loans that the Fed gives the PMCCF. 

The Federal Reserve Bank of New York (FRBNY) will manage the PMCCF and lend to it on a recourse basis. Corporate bonds that are eligible for purchase by the PMCCF must be issued by companies that are headquartered in the U.S., that have material operations in the U.S., and that are not expected to receive direct federal financial assistance.

Eligible bonds also must have had a rating of at least BBB- or Baa3 as of March 22, 2020, from a major nationally recognized statistical rating organization (NRSRO), or by at least two major NRSROs if rated by more than one. If they were subsequently downgraded, after March 22, then they must be rated BBB-/Baa3 by two of more NRSROs.

The PMCCF will limit its holdings from a given issuer to 130% of the maximum amount of bonds and loans that were outstanding from that issuer on any day between March 22, 2019 and March 22, 2020.

The PMCCF is also excluded from lending to finds that receive specific support in from the CARES act or any subsequent federal laws. Companies also must satisfy conflict of interest requirements under section 4019 of the CARES Act. They can also not be a depository institution as defined under the Dodd-Frank Act.

Subject to approval by the Fed, an issuer may choose to delay all or part of a scheduled interest payment, instead having the amount added to the principal value of the bond or loan. Issuers also have the right to call any bonds or loans held by the SPV at par. Eligible issuers must pay a commitment fee of 100 basis points. The pricing will also be "subject to minimum and maximum spreads over yields on comparable maturity U.S. Treasury securities, and such spread caps and floors will vary based on an eligible issuer’s credit rating as of the date on which the Facility makes a purchase."

The PMCCF will stop buying bonds or extending loans after December 31, 2020, unless the Fed extends its operations. The New York Fed will continue to fund this SPV until its assets mature.