Today, March 20, 2020, the Federal Reserve announced that it has amended the terms of its recently announced Money Market Mutual Fund Liquidity Facility (“MMLF”) so as to accept certain U.S. municipal short-term debt as eligible collateral and allow additional types of funds to sell eligible collateral to participating borrowers.  The expansion is intended to support the flow of credit to the economy by taking steps to enhance the liquidity and functioning of crucial state and municipal money markets.

As we reported previously, the MMLF – which was announced on Wednesday, March 18 – will provide secured, non-recourse advances to financial institutions to finance their purchase of certain higher-quality assets from money market mutual funds.  To be eligible collateral, U.S. municipal short-term debt must (i) have a maturity that does not exceed 12 months, and (ii) be rated in the top short-term or long-term rating category, as applicable, by at least two major rating agencies (or be rated as such by one agency if the debt is only rated by one rating agency).  Advances made under the MMLF that are secured by U.S. municipal short-term debt will be made at an interest rate equal to the primary credit rate offered to depository institutions by the relevant Reserve Bank, plus 25 basis points.

The amended MMLF also permits borrowing financial institutions to use eligible collateral purchased from Single State and Other Tax Exempt money market funds under SEC form N-MFP to secure advances.

Apart from these changes, the amended term sheet includes a statement that the MMLF will not accept as eligible collateral variable rate demand notes or tender option bonds (but the term sheet states that this collateral will be “considered in the future”).

For a comparison of the amended MMLF term sheet against the original term sheet of March 18, click here.