This morning, the Federal Reserve announced yet another use of its Section 13(3) lender-of-last-resort authority to create a new Money Market Investor Funding Facility (MMIFF) that is intended to complement its recently announced Commercial Paper Funding Facility (CPFF) and Asset Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF). The purpose of the new facility is to provide senior secured financing "to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors." The eligible investors in question are money market mutual funds (although the program may be extended to other money market investors) and the eligible assets are short-term certificates of deposit, bank notes and commercial paper issued by "highly rated financial institutions." The Federal Reserve notes that "money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments."
The Federal Reserve has issued a summary of the terms and conditions of the MMIFF, which contemplates that a series of special-purpose vehicles created by the private sector (PSPVs) would finance the purchase of eligible assets from eligible investors by selling asset-backed commercial paper (ABCP) to the eligible investor for 10% of the purchase price of the assets purchased and borrowing the remaining 90% of the purchase price from the Federal Reserve Bank of New York under the MMIFF. The MMIFF loans will be senior to the ABCP, will be secured by all of the assets of the PSPV, and will bear interest at the primary credit rate. The PSPV must cease buying eligible assets by April 30, 2009, unless the MMIFF is extended by the Federal Reserve.