Today I want to to break down the information that I so far have gathered on the bailout money and the main areas that will affect you! If you want to read the whole thing you can download the 2 pager here.
Lets start with the small business measures…
This part of the bill is called the…
Small Business Interruption Loan
To provide continuity of employment through business interruptions, this provision would authorize the creation of a small business interruption loan program and appropriate $300 billion for the program.
The U.S. government would provide a 100% guarantee on any qualifying small business interruption loan.
Qualifying loan terms:
Eligible borrowers: Employers with 500 employees or less (phased out)
Loan amounts: 100% of 6 weeks of payroll, capped at $1540 per week per employee (approx. $80,000 annualized)
Borrower requirement: Employee compensation must be sustained for all employees for 8 weeks from the date the loan is disbursed.
Lender: U.S. financial institutions
Streamlined underwriting process: Lender verifies the previous 6-week payroll amount and later verifies that the borrower has paid 8 weeks of payroll from date of disbursement.
Authority for the Treasury Department to issue regulations establishing appropriate interest rate, loan maturity, and other relevant terms and conditions
This program will get $300 billion and fit for the small businesses, with pretty basic terms actually, again if you legit have been affected by the Corona then you should have no problem with abiding by those terms. I want to note that the above is NOT the SBA $50 billion program, that I am basically on a call back list along with several others from the community to get a call back from SBA offices once more info is released.
Next, if you carry a commercial policy there will be a clause in there for lost or interrupted business income which during a time like this is safe to assume the insurance companies will pay out 100% at least in the beginning, so best to get in early. You can also expect to have to prove to the insurance companies of just how this has affected your business.
Economic Impact Payments
This is the provision that will deal with paying out the two rounds of checks to individual taxpayers. First off this is going to come from the IRS so you must be paying taxes and it will be based on income level and family size, here are the bulletpoints on that.
This provision would authorize and appropriate funds for two rounds of direct payments to individual taxpayers, to be administered by the IRS and Bureau of the Fiscal Service.
$250 billion to be issued beginning April 6
$250 billion to be issued beginning May 18
Payment amounts would be fixed and tiered based on income level and family size. Treasury is modeling specific options.
Each round of payments would be identical in amount
This will break down to be somewhere in the $1k per check range per household, again not all households will get it.
Market Mutual Fund Liquidity Facility (MMLF)
Ok now lets change gears here and go through the revival of the MMLF program which is essentially covering the Mutual Fund market in order to stop a run on Mutual Funds from retail investors like we saw in 2008. This was released just yesterday.
he Federal Reserve Board on Wednesday broadened its program of support for the flow of credit to households and businesses by taking steps to enhance the liquidity and functioning of crucial money markets.
Through the establishment of a Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds.
Money market funds are common investment tools for families, businesses, and a range of companies. The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy.
The term sheet below details the types of assets, including unsecured and secured commercial paper, agency securities, and Treasury securities, that are eligible, as well as additional information. The MMLF program will purchase a broader range of assets, but its structure is very similar to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, that operated from late 2008 to early 2010. The MMLF is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The Department of the Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the MMLF from the Treasury's Exchange Stabilization Fund.
I want to also include the term sheet here copy/paste so you can see that….
Facility: To provide liquidity to Money Market Mutual Funds (“Funds”), the Federal Reserve Bank of Boston (“Reserve Bank”) would lend to eligible borrowers, taking as collateral certain types of assets purchased by the borrower from Funds (i) concurrently with the borrowing; or (ii) on or after March 18, 2020, but before the opening of the Facility.
Borrower Eligibility: All U.S. depository institutions, U.S. bank holding companies (parent companies incorporated in the United States or their U.S. broker-dealer subsidiaries), or U.S. branches and agencies of foreign banks are eligible to borrow under the Facility.
Funds: A Fund must identify itself as a prime money market fund under item A.10 of Securities and Exchange Commission Form N-MFP.
Advance Maturity: The maturity date of an advance will equal the maturity date of the eligible collateral pledged to secure the advance made under this Facility except in no case will the maturity date of an advance exceed 12 months.
Eligible Collateral: Collateral that is eligible for pledge under the Facility must be one of the following types:
1) U.S. Treasuries & Fully Guaranteed Agencies;
2) Securities issued by U.S. Government Sponsored Entities;
3) Asset-backed commercial paper that is issued by a U.S. issuer, is rated at the time purchased from the
Fund or pledged to the Reserve Bank not lower than A1, F1, or P1 by at least two major rating agencies
or, if rated by only one major rating agency, is rated within the top rating category by that agency; or
4) Unsecured commercial paper that is issued by a U.S. issuer, is rated at the time purchased from the
Fund or pledged to the Reserve Bank not lower than A1, F1, or P1 by at least two major rating agencies
or, if rated by only one major rating agency, is rated within the top rating category by that agency.
In addition, the facility may accept receivables from certain repurchase agreements.
Rate: Advances made under the Facility that are secured by U.S. Treasuries & Fully Guaranteed Agencies or Securities issued by U.S. Government Sponsored Entities will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made. All other advances will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made plus 100 bps.
Fees: There are no special fees associated with the Facility.
Collateral Valuation: The collateral valuation will either be amortized cost or fair value. For asset-backed and unsecured commercial paper, the valuation will be amortized cost.
Credit Protection by Department of the Treasury: The Department of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion as credit protection to the Reserve Bank.
Non-Recourse: Advances made under the Facility are made without recourse to the Borrower, provided the requirements of the Facility are met. For avoidance of doubt, borrowers under the MMLF will bear no credit risk.
Regulatory Capital Treatment: Separately and consistent with the purposes of the MMLF, the Board, the OCC, and FDIC will act to fully neutralize the impact of a depository institution holding company or depository institution’s participation in the facility for purposes of regulatory capital requirements, including risk-based capital and leverage requirements. The Board, OCC, and FDIC will fully exempt from risk-based capital and leverage requirements (i) any asset pledged to the MMLF and (ii) any asset purchased from a Fund on or after March 18, 2020 that the firm intends to pledge to the MMLF upon opening of the Facility.
Program Termination:No new credit extensions will be made after September 30, 2020, unless the Facility is extended by the Board of Governors of the Federal Reserve System.
I mean just read some of the language in what I put above, most of this will be non-recourse money I assume and I guess they are expecting this to be done by September 30th of this year?
We got a lot of acronyms flying here, we have the PDCF, MMLF, MMIFF, CPFF, TAF and unlimited repo. There is a lot to keep tabs on as money seems to be flying out the door.
PDCF= Primary Dealer Credit Facility
MMIFF= Money Market Investor Funding Facility
MMLF= Money Market Mutual Fund Liquidity Facility
CPFF= Commercial Paper Funding Facility
TAF= Term Auction Facility
My fear is what happens after all this injection, there should be a period of time where the markets need to go through price discovery and it will be very hard to do that with the habit of cheap and easy money for literally every institution in the US. Habits are habits no matter what it is, to provide something to business that is run by people for the next 6 months will form habits, these banks will once again be over leveraged with a new layer of debt, how does that sort itself out?
The simple answer is it re-calibrates in a way that isn’t good for retail and consumers but keeps the banks open and profiting. Remember just a few months ago we were talking about Jamie Dimons year end bonus, no claw backs on that, now we are entering into an unlimited forgiveness program for banks yet consumers are still on the hook for their monthly bills…
This is the game friends!
My goal has always been increase personal sovereignty and live by a code based on my respect of the US Constitution. My hope is that you will thrive during this uncertainty, the playbook is all the same on their end, they are rolling out the same programs just like last time. The big question is, will you sink or will you rise?