The Board of Governors of the Federal Reserve System (the “Federal Reserve”), through the Federal Reserve Bank of New York (the “Reserve Bank”), is in the process of launching a new CARES Act lending program, known as the Municipal Liquidity Facility (the “MLF”), for state and local governments affected by COVID-19 pandemic.

The Municipal Liquidity Facility is designed to help state and local governments improve cash management challenges resulting from the COVID19 mitigation measures, including significantly reduced tax collection revenue.  The facility will purchase up to $500 billion of short term notes from eligible issuers.

Originally, eligible issuers included U.S. states (including the District of Columbia), U.S. counties with a population of at least two million residents, and U.S. cities with a population of at least one million residents.  An April 27, 2020 update expanded eligibility to U.S. counties with a population of at least 500,000 residents, and U.S. cities with a population of at least 250,000 residents.

The Federal Reserve Bank of New York issued a Notice of Interest form on May 15, 2020 for Eligible Issuers to express an interest in selling their notes through the Facility.   Filling out the notice of interest is the initial step for an Eligible Issuer to provide eligibility information to the SPV for review.

Pennsylvania counties listed as eligible issuers include Allegheny, Bucks, Chester, Delaware County, Lancaster and Montgomery County.  Each Eligible Issuer has an allocated amount of note borrowing capacity as detailed HERE.

On May 11, 2020 a term sheet was released.  The details are below and can be found HERE (current as of 5/26/2020).

Facility Overview

  • Authorized under Section 13(3) of the Federal Reserve Act
  • Under the Facility, the Federal Reserve Bank of New York (“Reserve Bank”) will commit to lend to a special purpose vehicle (“SPV”) on a recourse basis.  The administrative agent has been named as BLX Group LLC (“BLX”) for the execution phase of the program.
  • SPV will purchase Eligible Notes directly from Eligible Issuers at the time of issuance.
  • The Reserve Bank will be secured by all the assets of the SPV. The Department of the Treasury, using funds appropriated to the
    Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security Act, will make an initial equity investment of $35 billion in the SPV in connection with the Facility. The SPV will have
    the ability to purchase up to $500 billion of Eligible Notes.

Eligible Notes

  • Tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar short-term notes issued by Eligible Issuers if,
  • Such notes mature no later than 36 months from the date of issuance.
  • In each case, a note’s eligibility is subject to review by the Federal Reserve.

Relevant legal opinions and disclosures will be required as determined by the Federal Reserve prior to purchase.

Eligible Issuer

  • An Eligible Issuer is a State, City, or County (or, subject to Federal Reserve review and approval, an entity that issues securities on behalf of the State, City, or County for the purpose of managing its cash flows) or a Multi-State Entity. An Eligible Issuer that is not a Multi-State Entity must meet certain ratings to be eligible.
  • Only one issuer per State, City, County, or Multi-State Entity is eligible; provided that the Federal Reserve may approve one or more additional issuers per State, City, or County to facilitate the provision of assistance
    to political subdivisions and other governmental entities of the relevant State, City, or County

Multi-State Entity

A Multi-State Entity is an entity that was created by a compact between two or more States, which compact has been approved by the United States Congress, acting pursuant to its power under the Compact Clause of the United States Constitution

Security for Eligible Notes

The source of repayment and security for Eligible Notes will depend on the applicable constitutional and statutory provisions governing the Eligible Issuer and should be generally consistent with the source of repayment and strongest security typically pledged to repay publicly offered obligations of the Eligible Issuer (represent obligations of eligible issue, be backed by tax or other governmental revenues, commitment of credit, pledge of revenues, etc based on type of issuer).

Limits per Issuer Eligible for Purchase by (SPV)

  • State, City, or County in one or more issuances of up to an aggregate amount of 20% of the general revenue from own sources and utility revenue of the applicable State, City, or County government for fiscal year 2017.
  • Multi-State Entity in one or more issuances of up to an aggregate amount of 20% of the Multi-State Entity’s gross revenue as reported in its
    audited financial statements for fiscal year 2019.
  • States may request that the SPV purchase Eligible Notes in excess of the applicable limit in order to assist political subdivisions and other governmental entities that are not eligible for the Facility.

Origination Fee

Each Eligible Issuer that participates in the Facility must pay an origination fee equal to 10 basis points of the principal amount of the Eligible Issuer’s notes purchased by the SPV. The origination fee may be paid from the proceeds of the issuance.

Prepayment Rights

With the approval of the SPV, Eligible Notes purchased by the SPV may be prepaid  at any time, in whole or in part, at par (or, in the case of Eligible Notes purchased at a premium, par

Eligible Use of Proceeds

  • Support the management of the cash flow impact of income tax deferrals resulting from an extension of an income tax filing deadline;
  • Deferrals or reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic; and
  • Requirements for the payment of principal and interest on obligations of
    the Eligible Issuer or its political subdivisions or other governmental entities.
  • An Eligible Issuer (other than a Multi-State Entity) may use the proceeds of the notes purchased by the SPV to purchase similar notes issued
    by, or otherwise to assist, political subdivisions and other governmental entities of the relevant State, City, or County for the purposes enumerated in the prior bullets plus unamortized premium) plus accrued interest, prior to maturity.

Termination Date

The SPV will cease purchasing Eligible Notes on December 31, 2020, unless the Board and the Treasury Department extend the Facility. The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.

Pricing methodology information can be found HERE.

Please reach out to with questions.

We are in this together,

Brinker Simpson & Company, LLC

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).