COVID-19 Update: Federal Reserve Announces Municipal Liquidity Facility


The Federal Reserve has announced the Municipal Liquidity Facility (the “MLF”) to provide liquidity to state and local governmental authorities affected by the COVID-19 pandemic.1  The MLF, which is established pursuant to the Federal Reserve’s emergency lending authority under Section 13(3) of the Federal Reserve Act,2 will lend up to $500 billion to “Eligible Issuers” through September 30, 2020, subject to extension.

Under the MLF, a Federal Reserve Bank will commit to lend funds to a special purpose vehicle (the “SPV”), on a full-recourse basis and secured by all assets of the SPV.  The SPV will also be funded by the Treasury Department, which will make an initial equity investment of $35 billion.3  The SPV is permitted to purchase up to $500 billion of short-term notes directly from states, cities and municipalities upon their issuance.4

This memorandum outlines the key terms of the MLF.

Eligible Issuers:

Eligible Notes:

Limitations:

Use of Proceeds:

Pricing, Fees and Other Terms:

Termination:


1       See Federal Reserve Takes Additional Actions to Provide Up to $2.3 Trillion in Loans to Support the Economy (Apr. 9, 2020), available here; see also Municipal Liquidity Facility Term Sheet (Apr. 9, 2020), available here.

2       Section 13(3) allows the Federal Reserve to take certain emergency actions in “unusual and exigent circumstances,” including by authorizing any Federal Reserve Bank to discount notes in any program or facility with “broad-based eligibility.”

3       The Treasury Department will use funds appropriated pursuant to Section 4027 of the CARES Act to make the equity investment. 

4       It is not clear whether the MLF contemplates the use of an agent dealer or other institution to assist in purchases. 

5       Eligible Issuers will be determined using U.S. Census Bureau data. 


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National Law Review, Volume X, Number 107