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Fed launches primary market corporate credit facility

Kitco News

June 29 (Reuters) - The U.S. Federal Reserve on Monday kicked off a long-awaited program that enables it to purchase corporate bonds directly from companies that were highly rated before the pandemic, putting into place one of the last new programs created to stabilize financial markets in the wake of volatility sparked by the coronavirus.

Through the primary market corporate credit facility the Fed will support companies that need to raise capital to keep their businesses afloat during the crisis.

"By standing ready to provide credit to qualifying issuers of corporate bonds in periods of stress, the PMCCF serves as a funding backstop, supporting market liquidity and the availability of credit for large employers," the U.S. central bank said in a statement on Monday.

In contrast to the secondary market corporate credit facility (SMCCF), where the Fed purchases bonds directly in public markets after they are issued, the PMCCF requires companies that want to participate to apply for certification.

The relevant certification forms, other transaction documentation and related materials for the facility were released on Monday. The Fed also released a new term sheet for the facility, adding that pricing under the PMCCF program will be issuer-specific and informed by market conditions.

Prices on purchases will be subject to minimum and maximum spreads over comparable maturity Treasury securities, the Fed said.

Through the PMCCF, the Fed has two options to buy debt issued by a company. It can buy an entire new issue of bonds as the sole investor in a deal or it can buy portions of either syndicated loans or new bonds.

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