The Secondary Market Corporate Credit Facility (SMCCF) is a special purpose vehicle (SPV) launched by the Federal Reserve on March 23, 2020 to support the corporate bond market in the face of the COVID-19 coronavirus crisis. The SMCCF will purchase U.S. investment grade corporate bonds and bond ETFs in the secondary market. The idea is that banks will be more likely to lend to corporations if they know there is a strong secondary market to sell that debt to.
A related initiative by the Fed is the Primary Market Corporate Credit Facility (PMCCF).
- The Fed is trying to ensure banks continue to lend to corporations.
- The Secondary Market Corporate Credit Facility (SMCCF) buys corporate bonds and Bond ETFs.
- It encourages lending by ensuring that there will be demand in secondary markets for corporate bonds.
Details on the SMCFF
The Secondary Market Corporate Credit Facility (SMCCF) is a special purpose vehicle (SPV) that will purchase bonds in the secondary market. The U.S. Department of the Treasury will provide an initial investment in the SMCCF of $10 billion from its Exchange Stabilization Fund (ESF). The bonds the SMCCF holds will be the collateral for the loans the Fed gives it.
The Federal Reserve Bank of New York (FRBNY) will manage the SMCCF and lend to it on a recourse basis. Corporate bonds that are eligible for purchase by the SMCCF must be issued by U.S. businesses that have material operations in the U.S. and that are not expected to receive direct federal financial assistance. The SPV also may purchase shares of U.S.-listed ETFs whose holdings are primarily investment grade U.S. corporate bonds.
Eligible bonds also must have a rating of at least BBB- or Baa3 from a major nationally recognized statistical rating organization (NRSRO), or by at least two major NRSROs if rated by more than one. Additionally, such bonds must have a maturity of five years or less.
The SMCCF won't hold more than 10% of the bonds issued by a given corporation or 20% of an ETF's assets.
The SMCCF will stop buying bonds or ETFs after Sept. 30, 2020, unless the Fed extends its operations. The New York Fed will continue to fund this SPV until its assets mature or are sold.