Federal Reserve Expands Eligibility for Its Municipal Liquidity Facility

June 5, 2020

On June 3, 2020, the Federal Reserve announced expanded eligibility for its Municipal Liquidity Facility (MLF), which was last described in our May 11, 2020, Client Alert Federal Reserve Releases Amended Term Sheet and Updated FAQs for Its Municipal Liquidity Facility. Under the new terms, a State that does not have at least two total counties or cities that meet the minimum population requirements (250,000 for cities and 500,000 for counties) will be able to identify a city or county (a Designated City or Designated County) to be an Eligible Issuer. Thus, a State with no city or county meeting the population requirements could designate a total of two cities or counties, and a State with only one such city or county could designate one Designated City or County. The FAQs attached as Attachment III, as described below, lists for each State the number of Designated Cities and Counties it may establish under the new terms. The FAQs also explains that a State with the authority to select only one Designated City or County must select either its most populous city that has less than 250,000 residents or most populous county that has less than 500,000 residents, and that a State with the authority to select two can select among the two cities or two counties with the largest population, but if choosing both a city and county must designate the most populous of each. 

Separately, each State’s Governor will also be able to designate as Eligible Issuers (i.e., direct borrowers) two issuers in the State whose revenues are generally derived from operating government activities (such as public transit, airports, toll facilities, and utilities).

Although we do not think it makes any substantive difference to the types of securities that are Eligible Notes, the revised term sheet attached as Attachment I adds to the definition of Eligible Notes a specific reference to “revenue anticipation notes.”

The Federal Reserve released a revised term sheet and FAQs for the MLF. The revised term sheet is attached as Attachment I. Attachment II highlights the differences between the new term sheet and the previous term sheet. The revised FAQs is attached as Attachment III and provides further information on pricing and procedures for issuers to express interest in using the MLF. Attachment IV highlights differences between the new FAQs and the previous FAQs. The Federal Reserve also provided a table listing the cities and counties eligible for the MLF, which is attached as Attachment V.

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