Fed will start buying corporate bonds now

Marco Green
June 16, 2020

Lenders are now able to register through the Boston Fed, which will administer it.

The program, aimed at helping small and medium-sized businesses stay afloat during the coronavirus pandemic, will make loans available through third-party banks to companies with up to 15,000 employees or up to $5 billion in annual revenue.

The central bank also sought feedback on Monday on a proposal to expand the program to allow nonprofit organizations to borrow under the program as well.

"Lenders can find the necessary registration documents on the program site and are encouraged to begin making Main Street program loans immediately", the Boston Fed said.

The programme has taken time to set up and presents new challenges to the Fed, such as how to lend to companies that don't have official designations from ratings companies.

The corporate bond purchases will be based on an index that is "made up of all the bonds in the secondary market that have been issued by USA companies that satisfy the facility's minimum rating, maximum maturity, and other criteria", the Fed said on Monday.

The Fed plans on supplementing the secondary market purchases with purchases directly from issuers through a Primary Market Corporate Credit Facility, which is not yet live. The Fed is also suggesting that it implement financial thresholds in the proposed nonprofit loan facility based on an organization's operating performance, liquidity and ability to repay debt. The Fed said it intends to finalize term sheets for nonprofits very soon after the comment period ends.

The central bank said it would be transparent about the lenders and borrowers participating in the Main Street program, reporting the names of lenders and business borrowers, the amounts borrowed and interest rates charged, along with other details.

Other reports by Click Lancashire

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