On April 9, 2020, the Federal Reserve announced additional programs under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide up to $2.3 trillion in loans and other investments to support the U.S. economy. These actions include:

  • Supplying liquidity to financial institutions participating in the Small Business Administration’s Paycheck Protection Program (the “PPP”) (for more information on the PPP, see here);
  • Establishing a new $600 billion Main Street Lending Program, aimed to ensure credit flows to small and mid-sized businesses that were in good standing before the COVID-19 pandemic (the “Main Street Lending Program”) (for more information on the Main Street Lending Program, see here);
  • Announcing a $500 billion Municipal Liquidity Facility for states and municipalities;
  • Expanding the size of the Primary Market Corporate Credit Facility (the “PMCCF”) and the Secondary Market Corporate Credit Facility (the “SMCCF”), and the scope of the Term Asset-Backed Securities Loan Facility (the “TALF”), which will support up to $850 billion in credit to companies rated investment-grade as of March 22, 2020, the secondary market for investment-grade corporate debt, and holders of AAA-rated asset-backed securities, respectively (for more information on the TALF, see here).

The announcement of the various programs was accompanied by the publication of short-term sheets describing each program. This article focuses on the PMCCF and SMCCF, as described in the program term sheets that were published by the Federal Reserve on April 9, 2020. The PMCCF term sheet is available here and the SMCCF term sheet is available here. The Department of the Treasury will use funding from the $454 billion appropriated under Title IV, Section 4003(b)(4) of the CARES Act to provide $75 billion in equity to the PMCCF and SMCCF utilizing a special purpose vehicle (the “SPV”) operated by the Federal Reserve.

The PMCCF will serve as a funding backstop for corporate debt issued by eligible issuers and the SMCCF will provide liquidity to the market for outstanding corporate bonds. In addition to significantly upsizing the funds available under the PMCCF, SMCCF and TALF from the amounts initially announced on March 23, 2020, pursuant to the April 9 term sheets, the PMCCF and SMCCF may now purchase securities from companies with non-investment grade ratings.

The PMCCF, initially funded with $50 billion of equity from Treasury, will leverage its equity ten times when acquiring bonds or syndicated loans from investment grade issuers, and seven times when acquiring other eligible assets. The SMCCF, initially funded with $25 billion of equity from Treasury, will leverage its equity ten times when acquiring corporate bonds from investment grade issuers and ETFs whose primary investment objective is exposure to investment grade corporate bonds.  It will leverage its equity seven times when acquiring corporate bonds from issuers rated at below investment grade, and from three to seven times when acquiring other eligible assets, depending on risk.

PMCCF

Under the PMCCF, the SPV may purchase corporate bonds (i) directly from an issuer as the sole investor in a particular issuance or (ii) as a participant in a syndicated loan or bond offering.

Issuer Eligibility

To be eligible for purchase of its bonds or loans by the PMCCF, an issuer must be organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States. In addition, the issuer must have been rated at least BBB- / Baa3 as of March 22, 2020 by a nationally recognized statistical rating organization. If rated by multiple such organizations, the issuer must have had at least two ratings at such levels as of March 22, 2020. The issuer must not be an insured depository institution or depository holding company, each as defined in the Dodd-Frank Act. Notably, unlike with respect to certain of the other programs available under the CARES Act, the issuer must not have otherwise received support under the CARES Act or subsequent federal legislation.

Pricing

Interest rates of bonds issued solely to the PMCCF will be informed by market conditions, plus a facility fee of 100 basis points. With respect to syndicated bonds and loans, the PMCCF will receive the same pricing terms as other syndicate members, plus a facility fee of 100 basis points on its share of the syndication.

Certain Limitations

Debt issued to PMCCF must have a maturity of four years or less, and the PMCCF may purchase no more than 25% of any syndicated bond offering or loan. The maximum amount of bonds or loans borrowed by an issuer from the PMCCF may not exceed 130% of such issuer’s maximum outstanding bonds and loans on any date between March 22, 2019 and March 22, 2020. Issuers may approach PMCCF to refinance outstanding indebtedness beginning three months prior to its maturity date, and at any time to issue additional debt, provided the issuer’s rating is reaffirmed at BB-/Ba3 or above.

SMCCF

The SMCCF may purchase corporate bonds in the secondary market issued by eligible issuers at the date of purchase, including eligible corporate bond portfolios in the form of US-listed Exchange Traded Funds (ETFs) whose investment objective is to provide broad exposure to the market for US corporate bonds. The majority of the SMCCF’s ETF investments will be in ETFs whose primary exposure is to investment-grade corporate bonds, with the minority in ETFs with primary exposure to high-yield corporate bonds.

Issuer and Seller Eligibility

To be eligible for purchase of its bonds or loans by the SMCCF, an issuer must meet the same qualifications as described above with respect to the PMCCF. In addition, the institution from which the SMCCF purchases securities must be organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States.

Pricing

The SMCCF will purchase bonds in the secondary market at fair market value. It will avoid purchasing shares of ETFs which trade at prices that materially exceed the estimated net asset value of the underlying portfolio.

Certain Limitations

Corporate bonds purchased by SMCCF must have a remaining maturity of five years or less at the time of purchase. The SMCCF may purchase no more than 10% of an issuer’s maximum bonds outstanding on any date between March 22, 2019 and March 22, 2020, and will not purchase shares of a particular ETF if after such purchase it would hold more than 20% of such ETF’s outstanding shares.

In addition to the limitations described above with respect to each facility, the maximum amount of securities that the PMCCF and SMCCF may purchase on a combined basis with respect to any one issuer is 1.5% of the combined potential size of both facilities ($11.25 billion, based on the combined maximum facility size of up to $750 billion).

Each facility will cease purchasing bonds and loans on September 30, 2020, unless the programs are extended by the Federal Reserve and Treasury. The Federal Reserve Bank will continue to fund each facility after such date, until its holdings mature or are sold.

What’s Next?

The Federal Reserve is using its emergency powers and moving quickly to provide aid to businesses under the CARES Act. As a result, the terms of the PMCCF and SMCCF are not as detailed as they might be under less exigent circumstances and the term sheets posted by the Federal Reserve on April 9 contemplate that the Federal Reserve and the Secretary of the Treasury may make adjustments to program terms. We will continue to monitor additional or modified information about the PMCCF and SMCCF as it becomes available.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. We will continue to evaluate the CARES Act, related regulations and any subsequent legislation to provide our clients guidance in real time. Please visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of Andrew Bettwy Andrew Bettwy

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both…

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both lenders and borrowers in a wide range of transactions involving multiple industries and diverse debt capital structures, including acquisition financings, recapitalizations, multiple lien and subordinated debt financings, debtor-in-possession and exit financings, and private placements.

Andrew has represented several leading financial institutions while at Proskauer, including Bank of America, Citibank, CoBank, Credit Suisse, Imperial Capital, Jefferies Finance and Lazard Capital Markets.

Andrew is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Photo of Karen J. Garnett Karen J. Garnett

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and…

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and interpreting federal securities laws and regulations, including requirements governing public company registration, reporting and disclosure.

Karen joined Proskauer following almost 24 years on the staff of the U.S. Securities and Exchange Commission. Most recently, she was an Associate Director in the Division of Corporation Finance, where she led the disclosure review program. Karen routinely provided guidance on a broad range of complex transactions and disclosure matters. She oversaw the work of several industry-focused review teams and has significant expertise in disclosure relating to REITs and commodity pools. As a senior officer, Karen helped develop many of the Division’s policies and procedures, and she worked closely with staff across the SEC on matters involving broker-dealers, investment companies, and novel financial products.

Photo of Jeffrey A. Horwitz Jeffrey A. Horwitz

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member of our Executive Committee. Jeff is a general corporate and securities lawyer with broad-based experience in mergers and acquisitions, cross-border transactions, and long-term joint ventures. He is regularly engaged to advise boards, management teams and investors on strategic matters, from litigation to personnel to transactions. Jeff is also the head of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Jeff counsels clients on the full range of their activities, from seed capital to public offerings, acquisitions and operational matters, often acting as outside general counsel. He represents major financial institutions, sovereign wealth funds, private equity and family offices in sophisticated financial and other transactions. He represented Merrill Lynch Global Private Equity in connection with its equity participation in the $33 billion acquisition of HCA in what was then the largest LBO ever. He has handled deals aggregating nearly $200 billion in value, including tender offers, “going-private” transactions, IPOs, restructuring and structured finance transactions, and mergers and acquisitions in industries as diverse as biotechnology and aerospace, retail and cable television, and education and scrap metal. He regularly handles transactions outside the U.S., including Europe, the Middle East, Asia, Latin America, Australia, South Africa and India.

Leading our Private Equity Real Estate group, he works with a team of 75 lawyers from across the firm advising on complex transactions and disputes relating to real estate, and particularly hotels. Jeff has handled virtually every type of matter, and has worked with virtually every major player in these industries, including transactions for nearly 3,500 hotels comprising more than 275,000 rooms and involving more than $12 billion. His experience, both in and outside the U.S., extends to hotel and casino development and construction; portfolio and single-property acquisitions; sales and restructurings; financings; management; marketing; reservations systems; litigation counseling and strategic planning; and ancillary services. This breadth of work is key to executing complex and sophisticated transactions, such as the $2.9 billion acquisition of Fairmont Raffles by AccorHotels and its investments in Huazhu, Banyan Tree Hotels & Resorts, Brazil Hotel Group, sbe Entertainment and 21c Museum hotels, among others.

As a senior member of our Entertainment Group, Jeff represents The Broadway League (the national trade association for Broadway theatre), the Tony Awards®, and various other joint venture events and producers. In the media industry, Jeff has advised on the acquisition and sale of television, radio, newspaper and magazine properties, and the acquisition and sale of advertising, promotion and marketing agencies, and related joint ventures. He also advises rights holders, including our long-time clients The Leonard Bernstein Office and The Balanchine Trust. He leads our team representing TSG Entertainment in film-slate financing deals.

Jeff also frequently represents start-up and development-stage companies, as well as established “traditional” businesses, in online, Internet-related or technology businesses. He has handled organizational and structuring matters, venture capital and other equity placements, restructurings (from “down” rounds to recapitalizations to M&A solutions). He has both company-side and investor experience.

As a frequent speaker at real estate and hospitality events, Jeff regularly presents about hotel management agreements at The Hotel School at Cornell’s SC Johnson College of Business, NYU’s Jonathan M. Tisch Center of Hospitality, and on M&A and investment matters at lodging investment conferences around the world, including the NYU Hospitality Industry Investment Conference in New York, Americas Lodging Investment Summit in Los Angeles, the International Hotel Investment Forum in Berlin and the Hotel Investment Conference Asia-Pacific in Hong Kong.

Jeff is a member of the American Hotel & Lodging Association (AHLA) Hospitality Investment Roundtable, ULI (and its Hotel Development Council) and the Advisory Board of the Cornell Center for Real Estate and Finance and has served as a member of the Editorial Board of the Cornell Hotel and Restaurant Administration Quarterly and a member of the Advisory Board of the Cornell Center for Hospitality Research. He is a director of The New York Hospitality Council, Inc., a not-for-profit forum for hospitality industry leaders, and is a member of the Real Estate Capital Policy Advisory Committee of The Real Estate Roundtable. He also has served as a director of the America-Israel Chamber of Commerce, and as a member of the French-American Chamber of Commerce in the U.S. and the American Society of Corporate Secretaries. He was the Chairman of the Board of Labyrinth Theater Company and a director of The Jewish Community Center in Manhattan for more than 15 years, a member of the Executive Committee of the Lawyers’ Division of UJA-Federation for more than five years and an officer of the Henry Kaufmann Foundation for more than a dozen years. He currently serves as Chairman of the Board of The American Playwriting Foundation and Building for the Arts and is a member of the Board of Directors of StreetSquash and The George Balanchine Foundation. He also served as a Vice Chair of the Associates’ Campaign for The Legal Aid Society.

Jeff has been with the firm for his entire career and lives in Manhattan and Connecticut.

Photo of Yuval Tal Yuval Tal

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers…

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers & acquisitions (public and private, debt and equity), long-term joint ventures, private equity real estate and corporate and real estate finance. He advises clients on the full range of their activities including any form of financing, operational matters and commercial transactions. He advises sponsors and funds on the structuring, execution, entering into, restructuring and exiting of investments. Yuval is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Yuval has decades of experience representing clients on complex, first in kind transactions.  Yuval’s strength is providing original, workable and practical solutions that get the deal done. Qualified in New York, Hong Kong and Israel, Yuval has negotiated transactions in six continents and has particular experience representing Asian clients and clients based outside of Asia in inbound and outbound transactions. Yuval has worked in various industries including real estate, hospitality, entertainment, sports, financial services, technology and life sciences.

As an international M&A lawyer, Yuval has many years of experience dealing with complicated, non-customary transactions involving parties from different countries, cultures and legal systems.  He has represented private equity, family offices, corporations and individuals in structuring, restructuring, managing and disposing of investments in Asia, Europe and the United States.  He is typically called upon to strategize and structure complex transactions that do not follow a prescribed form or pattern. Yuval’s experience enables him to forsee future issues and clients have commented on his “ability to think seven moves ahead of the competition”. Yuval is also well known for his ability to broker deals between opposing parties in order to get the deal done, irrespective of the legal, business or practical obstacles. His efforts have earned him recognition by Legal 500Chambers Asia Pacific and IFLR1000, where clients have referred to his “ability to play the honest broker to all parties involved, and to bridge the different cultures, legal systems and language barriers and to continually solve the unsolvable, is what allowed us to get this difficult deal done” and another stated “he was completely invested in the deal in a way lawyers seldom are, and his creativity and efforts allowed us to bridge considerable gaps between the parties and find common ground”.

As co-head of our Hospitality, Gaming & Leisure Group, Yuval has worked on virtually any kind of transaction, including mixed-use development and construction, acquisition and sale, restructuring and public offerings of real estate, hotel and casino companies. He has completed numerous high profile transactions involving the buying, selling and combining Asian and Western based hotel operating companies, including AccorHotels’ [EPA:AC]  US$2.9 billion acquisition of Fairmont, Raffles and Swissôtel brands, its acquisition of Tribe, Australia’s first integrated modular hotel brand, Accor’s long-term alliance with Huazhu Hotels Group (also known as China Lodging Group [Nasdaq: HTHT]) and its strategic partnership with Singapore-based Banyan Tree Holdings [SGX:B58]. He also advised Formosa International Hotels’ sale and resulting joint venture with Intercontinental Hotels Group with respect to the Regent brand.  His real estate and hospitality work has included transactions for properties from China to India to the United States to Australia. He also has many years of experience with hotel licensing, franchising and management.

Yuval’s broader Private Equity Real Estate experience includes working on The Recording Academy’s (The Grammys) deal to develop Grammy Museums in China, a public/private deal to finance an office building in Delhi, India; the acquisition of hotels in Bangkok by a large Japanese institutional investor and a joint venture between a Hong Kong developer and an Asian based private equity fund for the acquisition and redevelopment of a property in Kowloon into a mixed use property including co-living and co-working properties.

Yuval is a member of the Steering Committee of the Asian Hospitality Development Council of the Urban Land Institute (ULI) and has recently been appointed to the Law 360 2020 Hospitality Editorial Board. He is a regular speaker at real estate and hospitality related conferences such as the Hotel Investment Conference Asia-Pacific in Hong Kong.

Prior to rejoining Proskauer in 1999, Yuval practiced law in Israel, representing Israeli clients in transactions in Europe and the United States and European and U.S.-based clients in transactions in Israel. He handled transactions for major publicly traded Israeli companies such as Clal (Israel) Ltd., LifeWatch, Kitan Consolidated Ltd., Orckit Communications Ltd., ECI Telecom Ltd., Scitex Corporation Ltd. and Tecnomatix Technologies Ltd. Since joining Proskauer, Yuval has continued to represent Israeli clients on a wide range of corporate and securities matters.

Photo of Lily C. Desmond Lily C. Desmond

Lily Desmond is a senior counsel in the Corporate Department and a member of The Capital Markets Group. Lily concentrates her practice on capital markets transactions, including the representation of issuers, underwriters and selling security holders in domestic and international public and private…

Lily Desmond is a senior counsel in the Corporate Department and a member of The Capital Markets Group. Lily concentrates her practice on capital markets transactions, including the representation of issuers, underwriters and selling security holders in domestic and international public and private debt and equity offerings. Lily also advises clients on corporate governance matters, periodic reporting and other general corporate matters.

Lily’s ongoing pro bono and social responsibility practice includes support of Read Ahead, the Flatbush Avenue Business Improvement District and the Veterans Assistance Project. She is a Member of the International Human Rights Committee of the New York City Bar Association.

Photo of Susan Goldfarb Susan Goldfarb

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring…

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring transactions that require bankruptcy remote special purpose entities.

Susan has significant experience drafting and negotiating financing documents for secured and unsecured loans, receivables financing, syndicated loans, loan modifications, restructuring transactions, equipment finance loan documents, loan assumptions and lease assumptions. In addition, she routinely drafts and negotiates enforceability, non-consolidation, true sale and other reasoned legal opinions.

Susan’s pro bono work primarily involves assisting not-for-profit organizations obtain federal and state tax-exempt status. She has obtained tax exempt status for companies that provide maternal health care and operate a pre-school and primary school in Uganda, conduct medical missions in Myanmar, operate a summer camp for LGBTQ youth, and provide services, resources and support to teenage mothers.

Photo of Lauren Richburg Lauren Richburg

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending…

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending transactions.