Alert October 21, 2008

FRB Announces Creation of Money Market Investor Funding Facility

The FRB announced the creation of the Money Market Investor Funding Facility (“MMIFF”), which is designed to support a private-sector initiative providing liquidity to investors in U.S. money market instruments.  Under the MMIFF, the Federal Reserve Bank of New York (the “FRBNY”) will provide senior secured funding to a series of special purpose vehicles established by the private sector (“PSPVs”) that will purchase from eligible investors at amortized cost eligible money market instruments.  Eligible investors initially will consist only of U.S. money market mutual funds.  The FRB announcement did not state whether a money market fund must maintain a stable net asset value or share price to be eligible.  Money market instruments eligible for purchase by PSPVs will include U.S. dollar-denominated certificates of deposit, bank notes, and commercial paper with a remaining maturity of 90 days or less.  A PSPV will finance the purchase of each eligible asset by (a) issuing asset-backed commercial paper that is rated at least A‑1/P-1/F1 by two or more major nationally recognized statistical rating organizations (“NRSROs”) in an amount equal to 10% of the purchase price and (b) obtaining a loan equal to 90% of the purchase price from the FRBNY.  Each PSPV will only purchase debt instruments issued by ten financial institutions designated in its operational documents.  Each of these financial institutions must have a short-term debt rating of at least A-1/P-1/F1 from two or more major NRSROs.  Each PSPV will cease purchasing assets and will enter a winding down process on April 30, 2009, unless the FRB extends the MMIFF.  The FRB has issued a term sheet describing the basic terms and operational details of the facility, which is available at