This alert updates and replaces an April 10, 2020, alert based on an April
27 Federal Reserve Board announcement that expanded the scope and duration
of the Municipal Liquidity Facility (MLF). Any capitalized terms used in
this alert and not otherwise defined herein have the meaning provided under
the previous alert.
On April 27, the Federal Reserve Board announced an expansion of the scope
and duration of the new Municipal Liquidity Facility (MLF) announced on
April 9. The MLF provides up to $500 billion in lending to states and
municipalities to help manage cash flow stresses caused by the COVID-19
pandemic. In addition to its announcement, the Federal Reserve also
revised MLF term sheet
Frequently Asked Questions (FAQs)
in response to ongoing inquiries relating to the MLF from potential
Eligible Issuers and their representatives. The following is a summary of
the pertinent changes to the MLF.
- The population thresholds for cities and counties to qualify as Eligible
Issuers has decreased to (i) U.S. counties with a population of at least
500,000 residents and (ii) U.S. cities with a population of at least
250,000 residents. The decrease in the population thresholds for cities and
counties enables substantially more cities and counties to borrow directly
from the MLF than did the initial plan announced on April 9.
- The definition of Eligible Issuer has expanded to include Multi-State
Entities. A Multi-State Entity is an entity created by a compact between
two or more U.S. states, which compact has been approved by the U.S.
Congress, acting pursuant to its power under the Compact Clause of the U.S.
- Eligible Notes are permitted to have a term up to 36 months rather than
the term of 24 months in the initial release.
- The termination date of the MLF was extended to Dec. 31, 2020, from Sept.
30, 2020, to provide Eligible Issuers more time and flexibility.
- Eligible Issuers that are states, cities or counties must have been rated
at least BBB-/Baa3 as of April 8, 2020, by two or more nationally
recognized statistical rating organizations (NRSROs). States, cities or
counties rated at least BBB-/Baa3 as of April 8, 2020, but subsequently
downgraded, must be rated at least BB-/Ba3 by two or more major NRSROs at
the time the MLF makes a purchase.
- Eligible Issuers that are Multi-State Entities must have been rated at
least A-/A3 as of April 8, 2020, by two or more major NRSROs. Multi-State
Entities rated at least A-/A3 as of April 8, 2020, but subsequently
downgraded, must be rated at least BBB-/Baa3 by two or more major NRSROs at
the time the MLF makes a purchase.
- Security for Eligible Notes will be subject to review and approval by the
Federal Reserve. Specifically, Eligible Notes issued by states, cities or
counties will generally be expected to represent general obligations of the
Eligible Issuer, or be backed by tax or other specified government revenues
of the applicable Eligible Issuer. If the Eligible Issuer is an authority,
agency or other entity of a state, city or county, such Eligible Issuer
must either commit the credit of, or pledge revenues of, the state, city or
county, or the state, city or county must guarantee the Eligible Note
issued by such Eligible Issuer. If the Eligible Issuer is a Multi-State
Entity, the Eligible Notes will be expected to be parity obligations of the
existing debt secured by a senior lien on the Multi-State Entity's gross or
- As provided in the FAQs, each Eligible Issuer must also provide a written
certification that it is unable to secure adequate credit accommodations
from other banking institutions and that it is not insolvent. Further
information on required legal opinions and certificates will be determined
and publicly announced prior to commencement of the MLF.
In addition to the above modifications, the Federal Reserve is considering
further expansion of the definition of Eligible Issuers to include a
limited number of other governmental entities that provide essential public
services on behalf of states, cities or counties that issue bonds backed by
their own revenue. Any decision to include such additional Eligible Issuers
would be publicly announced at a future date.
More guidance regarding the MLF is expected in the near future.
McGuireWoods continues to monitor all new information released by the
Department of Treasury and Federal Reserve.
If you have any questions regarding the Municipal Liquidity Facility,
please feel free to contact your primary public finance attorney at
McGuireWoods or any of the following attorneys: for Illinois, Kay McNab;
for Georgia, Ken Neighbors; for Maryland, Alan Cason and Cheryl Guth; for
New York, John Semeniak; for North Carolina, Mary Nash Rusher and Lisa
Williams; and for Virginia, Arthur Anderson, Mike Graff, T.W. Bruno and