On Tuesday the Fed unveiled a program to to finance purchases of as much as $540 billion worth of money market mutual fund assets,
reports. The start date of the program will be announced by the end of the week.
Under the Money Market Investor Funding Facility
(MMIFF), the Federal Reserve Bank of New York will provide senior secured funding to a series of special purpose vehicles to facilitate a private-sector initiative to fund the purchase of assets such as certificates of deposits and commercial paper issued by highly rated institutions. The Fed will commit to lend each vehicle 90 percent of the purchase price of each eligible asset until maturity (see the Federal Reserve press release below, along with the program's terms and conditions).
is the sponsor and manager of the special purpose vehicles.
"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs," Fed officials said.
The program "should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments," they added.
The MMIFF marks the Fed's latest effort to boost liquidity in short-term debt markets. The new program follows previously announced initiatives such as the Commercial Paper Funding Facility and the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.
Federal Reserve Press Release
The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.
Under the MMIFF, authorized by the Board under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.
The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.
The attached term sheet describes the basic terms and operational details of the facility.
The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008 will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.
Money Market Investor Funding Facility (MMIFF)
Terms and Conditions
The MMIFF is intended to help restore liquidity to the money markets. The MMIFF will be a credit
facility provided by the Federal Reserve to a series of special purpose vehicles established by the private
sector (PSPVs) in accordance with the terms described below. Each PSPV will purchase eligible money
market instruments from eligible investors using financing from the MMIFF and from the issuance of
asset-backed commercial paper (ABCP). The MMIFF is authorized under section 13(3) of the Federal
Eligible Assets of a PSPV
A PSPV will purchase from eligible investors at amortized cost U.S. dollar-denominated certificates of
deposit, bank notes, and commercial paper with a remaining maturity of 90 days or less. Each PSPV
will only purchase debt instruments issued by ten financial institutions designated in its operational
documents. Each of these financial institutions will have a short-term debt rating of at least A-1/P-
1/F1 from two or more major nationally recognized statistical rating organizations (NRSROs).
PSPV Concentration Limit
At the time of a PSPVís purchase of a debt instrument issued by a financial institution, the debt
instruments of that financial institution may not constitute more than 15 percent of the assets of the
Eligible investors will include U.S. money market mutual funds and over time may include other money
Liabilities of a PSPV
Each PSPV will finance its purchase of an eligible asset by selling ABCP and by borrowing under the
MMIFF. The PSPV will issue to the seller of the eligible asset ABCP equal to 10 percent of the assetís
purchase price. The ABCP will have a maturity equal to the maturity of the asset and will be rated at
least A-1/P-1/F1 by two or more major NRSROs. The Federal Reserve Bank of New York (FRBNY)
will commit to lend to each PSPV 90 percent of the purchase price of each eligible asset until the
maturity of the asset. The FRBNY loans will be on an overnight basis and at the primary credit rate.
The loans will be senior to the ABCP, with recourse to the PSPV, and secured by all the assets of the
Downgrade or Default of an Eligible Asset
If the debt instruments of a financial institution held by a PSPV are no longer eligible assets due to a
short-term debt rating downgrade, the PSPV must cease all asset purchases until all of the PSPVís
assets issued by that financial institution have matured.
Upon a default of any asset held by a PSPV, the PSPV must cease all asset purchases and repayments
on outstanding ABCP. Proceeds from maturation of the PSPVís assets will be used to repay the
FRBNY and, upon maturation of all assets in the PSPV, any remaining available cash will then be used
to repay principal and interest on the ABCP. Any excess spread will be allocated as described below.
Termination and Wind-down Process
A PSPV will cease purchasing assets and will enter the wind-down process described below on April 30,
2009, unless the Board extends the MMIFF.
During the wind-down process, proceeds from the maturation of the assets of a PSPV on a given day
will be used first to repay principal and interest on the FRBNY loans and then to repay principal and
interest on the ABCP that matures on that day. A small fixed amount of any excess spread remaining
in the PSPV after completion of the wind-down process will be allocated proportionally among
investors in its ABCP; the FRBNY will receive any remaining excess spread.
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