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Fed Expands Scope Of Municipal Bailout Facility After Criticism It Excluded Many Majority-Black Cities

Courtesy of ZeroHedge View original post here.

With a heated political debate currently raging over the fate of insolvent US states, with Democrats' demands that any further bailouts include funding for cash-strapped states and cities meeting opposition in Senate Majority Leader Mitch McConnell who last said he was open to allowing states to declare bankruptcy – rather than sending governors more federal money to deal with their own ballooning deficits – and president Trump chiming in today with a "question" if there should be a bailout for mostly "poorly run, in all cases Democrat run" states, moments ago the Fed may have made that particular bailout discussion moot, when after the close the Federal Reserve announced it was expanding the scope and duration of the moral hazard blanket the Municipal Liquidity Facility, a $500 billion emergency lending program aimed at providing short-term credit to state and local governments.

After encountering criticism that many large, majority-black U.S. cities wouldn’t qualify for the program, the central bank lowered the population thresholds under which counties and cities would be eligible to sell short-term debt to the facility. The new levels are at least 500,000 for counties and 250,000 for cities.

"The new population thresholds allow substantially more entities to borrow directly from the MLF than the initial plan announced on April 9. The facility continues to provide for states, cities, and counties to use the proceeds of notes purchased by the MLF to purchase similar notes issued by, or otherwise to assist, other political subdivisions and governmental entities. The expansion announced today also allows participation in the facility by certain multistate entities", the Fed said in Monday's statement.

Additionally, the Fed extended the maturity criteria of eligible debt: after the revision, eligible notes must mature no later than 36 months from the date of issuance, an increase from the previously announced 24-month maximum term. In addition, and in keeping with lowering the credit standards for what it deems appropriate collateral, the Fed announced that eligible issuers must have had an investment grade rating as of April 8, 2020 from at least two major nationally recognized statistical rating organizations. In other words, any upcoming downgrades to junk will not be a gating factor for future bailouts.

The termination date for the facility has been extended to December 31, 2020 in order to provide eligible issuers more time and flexibility.

The Fed also said it was considering expanding the MLF to allow a limited number of governmental entities that issue bonds backed by their own revenue to participate directly in the MLF as eligible issuers.

"The Federal Reserve will continue to closely monitor conditions in primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments."

And since at this point it has become virtually impossible to keep track of all the various bailout facilities and programs launched by the Fed, we will let readers familiarizes themselves with the terms of the Fed's latest moral hazard expansion which can be found below.

 


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