The Commercial Paper Funding Facilty (CPFF) will be structured as a credit facility to a special purpose vehicle (SPV) authorized under section 13(3) of the Federal Reserve Act. The SPV will serve as a funding backstop to facilitate the issuance of term commercial paper by eligible issuers.
The Federal Reserve will commit to lend to the SPV at the target federal funds rate. Draws on the facility will be on an overnight basis, with recourse to the SPV, and secured by all the assets of the SPV. The Federal Reserve will also be secured by other means described below.
Assets of the SPV
The SPV will purchase directly from eligible issuers 3-month U.S. dollar-denominated commercial paper at a spread over the 3-month overnight index swap (OIS) rate. The Federal Reserve will consult with market participants regarding appropriate spreads that are consistent with the facility serving as a funding backstop under more normal market conditions (for example, 100 basis points).
Commercial paper (including asset-backed commercial paper (ABCP)) purchased by the SPV must be rated at least A1/P1/F1 by a major NRSRO and not rated below A1/P1/F1 by any major Nationally Recognized Statistical Rating Organization (NRSRO). The SPV will only purchase commercial paper issued by U.S. issuers (including U.S. issuers with a foreign parent).
Commercial paper that is not ABCP must be secured to the satisfaction of the Federal Reserve. The commercial paper may be secured in one of the following ways:
Limits per issuer
- The issuer pays the SPV an upfront fee based on the commercial paper initially sold to the SPV and a further fee based on subsequent commercial paper sales above that amount; or
- The issuer obtains an endorsement or guarantee of the issuer’s obligations on the commercial paper sold to the SPV that is satisfactory to the Federal Reserve; or
- The issuer provides collateral arrangements that are satisfactory to the Federal Reserve; or
- The issuer otherwise provides security satisfactory to the Federal Reserve.
The maximum amount of commercial paper a single issuer may sell to the SPV will be the average amount of commercial paper the issuer had outstanding in the month of August 2008, less any amount of the issuer’s outstanding commercial paper held by investors other than the SPV.
The SPV will cease purchasing commercial paper on April 30, 2009, unless the Board agrees to extend the facility. The Federal Reserve will continue to fund the SPV after such date until the SPV’s underlying assets mature.