Federal Reserve Bank of New York Announces Additional Details Regarding Commercial Paper Funding Facility
October 17, 2008
On October 14, 2008, the Federal Reserve Bank of New York provided further details regarding the implementation of the recently announced commercial paper funding facility:
- Effective Date. The facility will become operational on October 27, 2008. Issuers must register by October 23, 2008 in order to sell commercial paper to the special purpose vehicle. The registration period commences on Monday October 20, 2008 at which point issuers will be able to obtain registration materials, including wire instructions and a registration form at http://www.newyorkfed.org/markets/cpff.html. Issuers that have not registered by the deadline must register two business days in advance of their intended use of the facility.
- Registration Fee. A 10-basis-point facility fee must be paid by each issuer upon registration. Note that the fee is based on the maximum amount of an issuer's commercial paper the special purpose vehicle may own (even if the issuer does not intend to see its maximum allowable amount).
- Pricing. The commercial paper purchased will be discounted based on a rate equal to a spread over the three-month overnight index swap rate on the day of purchase. The special purpose vehicle will not purchase interest-bearing commercial paper. The spread for unsecured commercial paper will be 100 basis points per annum and the spread for asset-backed commercial paper will be 300 basis points per annum. For unsecured commercial paper, a 100 basis points per annum unsecured credit surcharge must be paid on each trade execution date.
- Limits. The maximum amount of a single issuer's commercial paper the special purpose vehicle may own at any time will be the greatest amount of U.S.-dollar denominated commercial paper the issuer had outstanding on any day between January 1 and August 31, 2008. The special purpose vehicle will not purchase additional commercial paper from an issuer whose total commercial paper outstanding to all investors (including the special purpose vehicle) equals or exceeds the issuer's limit.
- Ratings. The commercial paper must be rated at least A-1/P-1/F1 by a major nationally recognized statistical rating organization and, if rated by multiple major nationally recognized statistical rating organizations, must be rated at least A-1/P-1/F1 by two or more such rating organizations.
- Rather than purchasing the commercial paper directly from eligible issuers, the special purpose vehicle will purchase through the New York Fed's primary dealers.
- Commercial paper purchased will settle in accordance with the standard settlement times established by DTC.
- PIMCO will serve as asset manager and State Street Bank and Trust Company will serve as custodian and administrator.
- Under the program, issuers may repurchase outstanding commercial paper from investors and finance that repurchase by selling commercial paper to the special purpose vehicle through the New York Fed's primary dealers.
- The special purpose vehicle will not purchase commercial paper with an extendable maturity.
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See a copy of the Federal Reserve Bank of New York’s press release, terms and conditions and FAQ.
For background materials and additional information regarding these matters, please refer to the following Davis Polk newsflash: Federal Reserve Board Announces Creation of Commercial Paper Funding Facility.
If you have any questions regarding this newsflash, please call your Davis Polk contact.
Davis Polk & Wardwell