This morning, the BDA hosted a conference call with the Muni Exec Committee to discuss the Feds initial outline of the Municipal Liquidity Facility and potential next steps for the BDA.
The call served as an overview of what was included in the fact sheet provided by the fed and a discussion of where more details are needed. Â The BDA plans to submit a letter to the Fed in response to the Municipal Liquidity Facility announcement in an effort to get answers and direction for member concerns.
These include:
- The biggest shortcoming in the facility is no direct access for issuers below the size thresholds. Currently only 24 cities and counties qualify. Will the Fed expand access?;
- States are generally able to manage the mechanics (disbursements, repayments, etc.) of being an intermediary between the Fed and local governments. However, states are not able to absorb the credit risk of onward lending to local governments;
- It is vital that the Fed explicitly absorb the credit risk associated with local governments below the size thresholds who access the facility indirectly through states; and
- Issuers should be permitted to pay all issuance costs from the proceeds of borrowing.
The BDA will continue to provide updates as they become available.
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