The Federal Reserve Board, through the powers granted to it under Section 13(3) of the Federal Reserve Act, established the Commercial Paper Funding Facility (CPFF) to improve liquidity in the short-term commercial paper market. The CPFF became operational on October 27, 2008 and has already provided over $250 billion in short-term financing to issuers that would otherwise have had to tap into their back-up credit lines. The CPFF provides issuers with a less expensive alternative to recent high overnight interest rates caused by a severe contraction in the commercial paper market.

Banks, as lenders, are reaping additional benefits of the CPFF program. The U.S. accounting rules allow the off-balance sheet treatment of guarantees and other loan commitments provided by the banks. The banks do not have to record the loans on their balance sheets until the issuer taps into their line of credit. Through an issuer’s use of the CPFF program, the banks avoid the need for additional capital requirements on commitments they would otherwise have to fulfill.

To facilitate the issuance of commercial paper under the CPFF program, the Federal Reserve has set up a special purpose vehicle (SPV). The SPV will be funded by the New York Fed using monies received from the U.S. Treasury.1

The following terms and conditions apply to each issuer that participates in the CPFF program2:

Eligible Issuers

Only U.S. issuers are eligible to sell commercial paper to the SPV. U.S. issuers with a foreign parent may also sell commercial paper to the SPV. However, a foreign issuer with a U.S. parent is not an eligible issuer.


Issuers must register with the CPFF at least two business days prior to participation in the fund. At the time of registration, the issuer must pay a fee based on the total amount of commercial paper the issuer is allowed to sell to the SPV (the “Issuer Limit”), even if the issuer does not intend to sell the total amount of the Issuer Limit to the SPV. Cadwalader has the Federal Reserve’s registration materials and can assist clients with the registration process.

Eligible Commercial Paper

Commercial paper eligible for purchase by the SPV must have the following characteristics:unsecured or asset-backed;

  • U.S. dollar-denominated;
  • non-interest bearing;
  • a three-month maturity; and
  • rated at least A-1/P-1/F1 by a nationally recognized statistical rating organization, or NRSRO (if rated by multiple NRSROs, rated at least A-1/P-1/F1 by two or more of such NRSROs).

The SPV will purchase eligible commercial paper from issuers through the New York Fed’s primary dealers. Issuers may not sell commercial paper directly to the SPV. The SPV will not purchase outstanding commercial paper held by investors. However, an issuer may repurchase commercial paper from investors and sell it to the SPV, through the primary dealers, using financing from the SPV.

Issuer Limit

The total amount of commercial paper that may be sold to the SPV by any single issuer shall not exceed the maximum amount of U.S. dollar-denominated commercial paper the issuer had outstanding on any day between January 1 and August 31, 2008.3 The total amount of commercial paper outstanding to all investors, including the SPV, may not exceed the Issuer Limit. In calculating the Issuer Limit, the issuer must include extendable commercial paper.

Purchase Price

The SPV will purchase commercial paper at a discount based on a rate equal to the spread over the three-month overnight index swap (OIS) rate on the date of purchase. The spread for unsecured commercial paper will be 100 basis points (1.00%) per annum. Unsecured commercial paper will also be subject to a surcharge of 100 basis points per annum on the initial trade execution date and on each subsequent trade execution date.4 The spread for asset-backed commercial paper will be 300 basis points (3.00%) per annum. The CPFF daily lending rates will be posted on the New York Fed’s website each day at 8:00 a.m. ET. The rates will also be published on the BLOOMBERG PROFESSIONAL® service on the CPFF page.


The SPV will not purchase any commercial paper after April 30, 2009, subject to the Board of Governors of the Federal Reserve System extending the program. The Fed will continue to fund the SPV and will hold commercial paper purchased on or before April 30, 2009 until maturity.