COVID-19

FHFA Extends Loan Processing Flexibilities for Fannie Mae and Freddie Mac Customers

 

On May 5, the Federal Housing Finance Agency (“FHFA”) extended loan origination flexibilities offered by Fannie Mae and Freddie Mac until at least June 30th. The extended flexibilities aim to help borrowers during the COVID-19 pandemic by facilitating loan closings and include: (1) alternative appraisals on purchase and rate term refinance loans; (2) alternative methods for verifying employment; and (3) expanding the use of power of attorney and remote online notarizations. Release.

Rating Agency Developments

 

On April 3, Moody’s published its Operating Company Securitizations. Methodology.

On April 3, KBRA published a report titled CMBS: Coronavirus (COVID-19): Multifamily Update – Bracing for Forbearance. Report.

On April 2, KBRA published a report titled Structured Credit: Coronavirus (COVID-19): KBRA U.S. BSL CLO Rating Sensitivity Analysis. Report.

On April 1, DBRS Morningstar published its U.S. Residential Mortgage-Backed Securities Model and Ratings. Methodology.

On March 31, DBRS Morningstar published its U.S. ABS General Ratings. Methodology.

SEC Announces Temporary Relief and Assistance to Market Participants

 

On March 26, the SEC announced temporary measures to assist market participants in response to COVID-19. The actions include i) temporary relief from Form ID notarization requirements through July 1, ii) extended filing deadlines for certain reports and forms required under Regulation A and Regulation Crowdfunding issuers, and iii) a temporary exemption, subject to certain conditions, for required filings for municipal advisors through June 30. Release

FHFA Suspends Foreclosures and Evictions for Enterprise-Backed Mortgages

 

On March 18, the Federal Housing Finance Agency (FHFA) and the U.S. Department of Housing and Urban Development (HUD) made a joint announcement to suspend all foreclosures and evictions for homeowners with mortgages backed by Freddie Mac and Fannie Mae for 60 days. The moratorium on evictions and foreclosures aim to provide relief for borrowers impacted by the coronavirus pandemic. FHFA Release. HUD Release. CFPB Release.

Federal Reserve Announces New Efforts to Stabilize U.S. Economy

 

On March 23, the Federal Reserve announced several new measures it will take in an effort to support and stimulate the economy during the COVID-19 pandemic. The Federal Open Market Committee will purchase Treasury securities and agency mortgage-backed securities (including commercial mortgage-backed securities). Several new credit facilities will be established to support the flow of credit – the Primary Market Corporate Credit Facility (PMCCF), the Secondary Corporate Credit Facility (SMCCF) and the Term Asset-Backed Securities Loan Facility (TALF). Certain existing credit facilities will be expanded to include additional securities – the Money Market Mutual Fund Liquidity Facility (MMLF) and the Commercial Paper Funding Facility (CPFF). The Federal Reserve also announced plans to create a Main Street Business Lending Program to facilitate lending to small businesses. Release.

SEC Announces Relief for Public Company Disclosure Report Filing Deadlines and Filing and Meeting Requirements under Investment Advisers Act

 

On March 25, the SEC announced a 45-day filing extension for certain public company disclosure reports due between March 1 and July 1. The SEC also announced certain filing and delivery requirement exemptions under the Investment Advisers Act of 1940 as well as additional time to hold in-person board meetings. Release.

Financial Measures Recently Introduced as a Result of COVID-19

 

Background and Context

On March 9 and 10, The Financial Policy Committee (“FPC“) met to discuss developments since its meeting on October 2, 2019 and the consequences of Covid-19.

Questions have arisen as to how the government, individuals and businesses can respond to the potentially devastating economic effects resulting from the expanding spread of the Covid-19 and the social lockdowns that are being implemented. In the summary and record of these meetings (available here), it is stated that:

“the FPC has taken action to respond to the financial stability risks associated with the economic disruption resulting from Covid‑19. These actions, taken in concert with actions taken by the Bank, the Monetary Policy Committee (MPC) and the Prudential Regulation Committee (PRC), have sought to reduce pressure on banks to restrict the provision of financial services, including the supply of credit and support for market functioning, and ensure that the financial system can be a source of strength for the real economy during this challenging period.”

The actions referred to above include the Bank of England’s (“BoE“) new Term Funding Scheme and the Covid Corporate Financing Facility.

Term Funding Scheme (“TFSME”)

Objective

This scheme was announced by HMRC on March 11 and seeks to ensure that the benefit of the cut in the bank rate is passed on to the economy. It aims to increase the availability of funding for banks which, in turn, will increase the amount available for lending, especially to small and medium sized enterprises.

By offering four-year funding at (or close to) the BoE’s bank rate, the TFSME seeks to “incentivize banks to provide credit to businesses and households to bridge through a period of economic disruption and provide additional incentives for banks to support lending to SMEs that typically bear the brunt of contractions in the supply of credit during periods of heightened risk aversion and economic downturn.”

Interest charged by the BoE will be equal to the bank rate plus a Scheme Fee, which is determined at the end of December 2020 based on the total net lending.

Eligibility

To qualify, the banks and building societies in question must be participants in the BoE Sterling Monetary Framework and signed up to access the Discount Window Facility. Further information on these tools is available here.

Participants will be able to make drawdowns during the Drawdown Period which will run from April 27, 2020 to April 30, 2021 and are to provide Net Lending Data in a form specified by the BoE on a quarterly basis.

Further information from the BoE is available here.

Covid Corporate Financing Facility (“CCFF”)

The CCFF aims to provide additional help to firms “to bridge through Covid‑19 related disruption to their cash flows.” It is to operate for 12 months and may continue as long as is required in order to help alleviate cash flow pressures.

Form of Assistance

Information made available by the BoE (here) explains that this is to take place by way of the purchase of short term debt in the form of commercial paper – an unsecured debt instrument issued by the company in question.

The commercial paper will be purchased under this facility (by the BoE through Covid Corporate Financing Facility Ltd) with the following characteristics:

  1. maturity of one week to twelve months;
  2. a credit rating of A-3 / P-3 / F-3 / R3 from at least one of Standard & Poor’s, Moody’s, Fitch and DBRS Morningstar as at March 1 2020 (where available); and
  3. issued directly into Euroclear and/or Clearstream,

Eligible Companies

It is explained by the BoE that to qualify under this facility, companies should be UK incorporated (including those with foreign-incorporated parents and with a genuine business in the UK), have significant employment in the UK or have their headquarters in the UK, although the BoE will also have regard to the amount of revenue generated in the UK and the number of customers based in the UK.

Importantly, and in addition to the above, companies wishing to benefit from the CCFF must demonstrate that it was in sound financial health immediately prior to the shock arrival of Covid-19. The BoE explains that the easiest way to demonstrate this is to have or acquire a rating which is either a short-term rating of A3/P3/F3/R3 or above, or a long-term rating of BBB-/Baa3/BBB- or above by at least one of the major credit ratings agencies.

Where the company does not have a credit rating, its bank should contact one of the major agencies to seek an assessment of credit quality. This should then be shared with the BoE and HM Treasury.

The names of issuers and securities purchased or eligible will not be made public.

Legislative Changes and Regulated Activities

With regards to the implementation of this facility, the Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020 was published on 20 March 2020. This amends the list contained in Part 1 of the Schedule to the Financial Services and Markets Act 2000 (Exemption) Order 2001 such that Covid Corporate Financing Facility Ltd is exempt from the general prohibition contained in section 19 of the Financial Services and Markets Act 2000 (which prohibits the performance of regulated activities in the UK unless carried out by an authorized or exempt person).