Primary Market Corporate Credit Facility (PMCCF)

The Primary Market Corporate Credit Facility (PMCCF) was a special purpose vehicle (SPV) created on March 23, 2020 by the Federal Reserve designed to maintain credit flow to large employers in the face of the COVID-19 crisis. The Fed lent money to the SPV, which made loans to investment grade companies and bought corporate bonds to help them continue to function during the crisis. The loans had a maturity up to four years and companies could defer payment for six months. The aim of the program was to ensure businesses had enough credit to keep operating in order to limit layoffs, which would further deepen the recession.

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

On November 19, 2020, Treasury Secretary Steven Mnuchin said he would not allow the PMCCF to be extended again after December 31, 2020. The program stopped buying new bonds on December 31, 2020.

Key points to remember

  • The Fed has attempted 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 lent money to the PMCCF, which bought corporate bonds and extended corporate loans.
  • Businesses could use the credit to keep operations and people employed during the economic downturn.
  • The program was significantly expanded on April 9, 2020 and ended on December 31, 2020.

PMCFF Details

The Primary Market Corporate Credit Facility (PMCCF) was an SPV that bought bonds and made corporate loans. The US Treasury Department provided $50 billion of its Exchange Stabilization Fund (ESF) at the PMCCF. The bonds purchased were collateral for the loans the Fed made to the PMCCF. 

The Federal Reserve Bank of New York (FRBNY) managed the PMCCF and lent to it on a basis of appeal. Corporate bonds eligible for purchase by the PMCCF must have been issued by companies headquartered in the United States, which have significant operations in the United States and which were not to receive federal financial assistance direct.

Eligible bonds also had to have a rating of at least BBB- or Baa3 as of March 22, 2020, of a high 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 had to be rated BBB-/Baa3 by at least two NRSROs.

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

The PMCCF was also excluded from lending to issuers who received specific support from the CARES Act or any subsequent federal legislation. Companies also had to meet conflict of interest requirements under Section 4019 of the CARES Act. They also might not be a depository institution within the meaning of the Dodd-Frank Act.

Subject to Fed approval, an issuer could choose to delay all or part of a scheduled interest payment, instead of having the amount added to the principal value of the bond or loan. Issuers also had the right to call the bonds or loans held by the SPV to by. Eligible issuers had to pay a commitment fee of 100 basis points.The price would also be “subject to minimum and maximum spreads over the yields of US Treasury securities of comparable maturity.” The spread caps and floors would vary depending on the credit rating of an eligible issuer on the date the facility makes a purchase.

The PMCCF stopped buying bonds or making loans after December 31, 2020. The New York Fed continued to fund this SPV until its assets mature.