Municipal Liquidity Facility Adds $500 Billion, Expands Issuers and Duration

The Federal Reserve Board (Board) recently announced that the Municipal Liquidity Facility (MLF) will purchase up to an additional $500 billion in short-term notes issued by eligible government entities, in efforts to help states and municipalities with cash flow stresses resulting from the COVID-19 pandemic.  The Board also expanded the number of entities eligible to participate in the MLF and revised eligibility requirements for short-term notes.  Originally announced on April 9, 2020, the MLF has been extended to last until December 31, 2020. 

The MLF generally bolsters the municipal securities market by purchasing short-term notes in order to provide local and state governments with needed funds.  The MLF started with the Treasury Department’s initial investment into the MLF’s special purpose vehicle (SPV) of $35 billion with funds from the CARES Act, with the ability of the SPV to purchase up to $500 billion of eligible notes. 

The MLF has strict eligibility requirements.  Only eligible short-term notes issued by multi-state entities, U.S. states, the District of Columbia, U.S. counties with a population exceeding 500,000 residents, and U.S. cities with a population exceeding 250,000 residents may be purchased through the MLF.  To participate, issuers must have had a certain investment grade rating supported by at least two major nationally recognized statistical rating organizations by April 8, 2020.  To be eligible for the MLF, offered notes must also meet certain requirements, including that the notes must mature no later than 36 months from the issuance date (compared to the previously announced maximum term of 24 months) and only tax anticipation notes, tax revenue anticipation notes, bond anticipation notes, or other short-term notes issued by eligible issuers are eligible for the MLF.

Further expansions of the MLF may be announced in the future.

Additional details regarding the program and eligibility for participants is located here.  The Federal Reserve Bank of New York also has provided an FAQ describing the MLF, which is available here.