Chapter 7. Funding, Credit, Liquidity, and Loan Facilities
70.01 General
In response to the COVID-19 pandemic, the Federal Reserve created a number of facilities to support the economy during the downturn. The following sections provide information on the background and accounts of each facility program.
70.20 Term Asset-Backed Securities Loan Facility (145-400, 145-415, 145-430, 145-445, 145-460, 145-515, 145-530, and 145-575)
In March 2020, the Federal Reserve Board announced a program to support the credit needs of consumers and businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally. Under the TALF II LLC, the FRBNY provides loans to eligible issuers of ABS. The loans purchased by the TALF II are not designated as held for sale and therefore are held for investment under FASB ASC Topic 310, Receivables. The loans will be recorded at the cost basis. The FRBNY is the primary beneficiary of the TALF II, and its assets and liabilities are consolidated for financial reporting purposes with those of the FRBNY. The primary asset accounts related to the loan facility and the TALF II are described below.
70.30 Paycheck Protection Program Liquidity Facility
In April 2020, the Federal Reserve Board announced an emergency lending program to facilitate lending to small businesses. The Paycheck Protection Program Lending Facility (PPPLF) bolstered the Small Business Administration's (SBA) Paycheck Protection Program (PPP Loans) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Under the PPPLF, the Federal Reserve Banks will lend to eligible borrowers on a non-recourse basis, taking PPP loans as collateral. The covered PPP loans are fully guaranteed as to principal and accrued interest by the SBA, the amount of each being determined at the time the guarantee is exercised. However, these loans still must be evaluated for collectability on at least a quarterly basis. Per ASC Topic 860, Transfers and Servicing, the borrower's pledge of collateral will, therefore, be accounted for as a collateral-secured loan by both the borrower and the Reserve Banks.
70.50 Main Street Lending Program
In April 2020, the Main Street Lending Program (Program) was established to support lending to small and medium-sized businesses under the CARES Act. The Program will operate through five facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), the Main Street Expanded Loan Facility (MSELF), the Nonprofit Organization New Loan Facility (NONLF), and the Nonprofit Organization Expanded Loan Facility (NOELF). The Federal Reserve authorized the FRBB under section 13(3) of the Federal Reserve Act to lend to MS Facilities LLC (an SPV) through which these facilities will operate. The FRBB is the primary beneficiary of this SPV, and its assets and liabilities are consolidated for financial reporting purposes into the FRBB. Loan participations purchased under each of the five facilities described below are recorded at the cost of purchase and treated as loans under ASC 310, Receivables.
70.51 Main Street Lending Program—Main Street New Loan Facility (145-660 and 145-662)
The Main Street New Loan Facility (MSNLF) was set up to enhance support for small and medium-sized businesses through the provision of credit. The availability of additional credit is intended to help companies that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize. Eligible lenders extend new five-year term loans to eligible borrowers ranging in size from $100,000 to $35 million. The maximum size of a loan made in connection with the MSNLF cannot, when added to the eligible borrower's existing outstanding and undrawn available debt, exceed four times the eligible borrower's adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). Certain primary asset accounts related to the loan facility are listed below.
70.52 Main Street Lending Program—Main Street Expanded Loan Facility (145-675 and 145-677)
The Main Street Expanded Loan Facility (MSELF) is intended to facilitate lending to small and medium-sized businesses through the provision of credit. The availability of additional credit is intended to help companies that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize. Eligible lenders increase an eligible borrower's existing term loan or revolving credit facility. The upsized tranche is a five-year term loan ranging in size from $10 million to $300 million. Certain primary asset accounts related to the loan facility are listed below.
70.53 Main Street Lending Program—Main Street Priority Loan Facility (145-678 and 145-680)
The Main Street Priority Loan Facility (MSPLF) is intended to enhance support for small and medium-sized businesses through the provision of credit. The availability of additional credit is intended to help companies that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize. Eligible lenders extend new five-year term loans to eligible borrowers ranging in size from $100,000 to $50 million. The maximum size of a loan made in connection with the MSPLF cannot, when added to the eligible borrower's existing outstanding and undrawn available debt, exceed six times the eligible borrower's adjusted 2019 EBITDA. Certain primary asset accounts related to the loan facility are listed below.
70.54 Main Street Lending Program—Nonprofit Organization New Loan Facility (145-681 and 145-683)
The Nonprofit Organization New Loan Facility (NONLF) is designed to provide support to small and medium-sized nonprofit organizations and their employees across the United States during the current period of financial strain by supporting the provision of credit to such organizations. Eligible lenders extend new five-year term loans to eligible borrowers ranging in size from $100,000 to $35 million. The maximum size of a loan made in connection with the NONLF cannot exceed the eligible borrower's average 2019 quarterly revenue. Certain primary asset accounts related to the loan facility are listed below.
70.55 Main Street Lending Program—Nonprofit Organization Expanded Loan Facility (145-684 and 145-686)
The Nonprofit Organization Expanded Loan Facility (NOELF) is designed to provide support to small and medium-sized nonprofit organizations and their employees across the United States during the current period of financial strain by supporting the provision of credit to such organizations. The NOELF was designed to meet the needs of borrowers with existing loan arrangements, particularly those with larger and more complex existing loans, where pre-existing loan documentation can be used. Eligible lenders increase an eligible borrower's existing term loan or revolving credit facility. The upsized tranche is a five-year term loan ranging in size from $10 million to $300 million. Certain primary asset accounts related to the loan facility are listed below.
70.60 Municipal Liquidity Facility (145-700, 145-701, and 145-702)
In April 2020, the Federal Reserve established the Municipal Liquidity Facility (MLF). The Federal Reserve authorized the FRBNY under section 13(3) of the Federal Reserve Act to lend to a SPV through which the MLF will operate. The FRBNY is the primary beneficiary of the MLF, and its assets and liabilities are consolidated for financial reporting purposes with those of the FRBNY. The assets purchased by the SPV are designated as held-to-maturity under ASC 320, Investments—Debt and Equity Securities. The municipal notes will be recorded at amortized cost in accordance with ASC 820, Fair Value Measurement, subject to analysis for other-than-temporary-impairment. Cash generated from facility fees may be invested in assets that are valued at fair value.
70.90 Treasury Equity Contribution (240-475)
The U.S. Treasury has made preferred equity investments in each of the credit facilities operated through LLCs through the Exchange Stabilization Fund (ESF). For the MMLF, the U.S. Treasury has provided a credit protection deposit through the ESF. The U.S. Treasury is using the ESF as a backstop to cover any losses the Federal Reserve may incur through lending programs. The preferred equity / deposit contribution for each facility is recorded within the account.