Municipal Liquidity Facility Term Sheet — Federal Reserve (May 11, 2020)

Summary

Municipal Liquidity Facility term sheet, effective May 11, 2020, for a facility authorized under Section 13(3) of the Federal Reserve Act. The Federal Reserve Bank of New York will lend to a special purpose vehicle (SPV) that buys Eligible Notes from states, cities, counties and Multi-State Entities. The Department of the Treasury will make an initial equity investment of $35 billion in the SPV, which can purchase notes up to $500 billion. The term sheet sets rating requirements as of April 8, 2020, a limit of 20% of general revenue for fiscal year 2017 and a 10 basis point origination fee. The SPV will cease purchasing on December 31, 2020, unless the Board and the Treasury Department extend the Facility; a Pricing Appendix lists spreads by rating.

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                                            Municipal Liquidity Facility

Effective May 11, 2020 1

Facility: The Municipal Liquidity Facility (“Facility”), which has been authorized under Section 13(3) of the
Federal Reserve Act, will support lending to U.S. states and the District of Columbia (together, “States”), U.S.
cities with a population exceeding 250,000 residents 2 (“Cities”), U.S. counties with a population exceeding
500,000 residents 3 (“Counties”), and Multi-State Entities. Under the Facility, the Federal Reserve Bank of
New York (“Reserve Bank”) will commit to lend to a special purpose vehicle (“SPV”) on a recourse basis. The
SPV will purchase Eligible Notes directly from Eligible Issuers at the time of issuance. The Reserve Bank will
be secured by all the assets of the SPV. The Department of the Treasury, using funds appropriated to the
Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security Act, will
make an initial equity investment of $35 billion in the SPV in connection with the Facility. The SPV will have
the ability to purchase up to $500 billion of Eligible Notes.

Eligible Notes: Eligible Notes are tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs),
bond anticipation notes (BANs), and other similar short-term notes issued by Eligible Issuers, provided that
such notes mature no later than 36 months from the date of issuance. In each case, a note’s eligibility is
subject to review by the Federal Reserve. Relevant legal opinions and disclosures will be required as
determined by the Federal Reserve prior to purchase.

Eligible Issuer: An Eligible Issuer is a State, City, or County (or, subject to Federal Reserve review and
approval, an entity that issues securities on behalf of the State, City, or County for the purpose of managing
its cash flows) or a Multi-State Entity. An Eligible Issuer that is not a Multi-State Entity must have been rated
at least BBB-/Baa3 as of April 8, 2020, by two or more major nationally recognized statistical rating
organizations (“NRSROs”). An Eligible Issuer that is not a Multi-State Entity and that was rated at least BBB-
/Baa3 as of April 8, 2020, but is subsequently downgraded, must be rated at least BB-/Ba3 by two or more
major NRSROs at the time the Facility makes a purchase. An Eligible Issuer that is a Multi-State Entity must
have been rated at least A-/A3 as of April 8, 2020, by two or more major NRSROs. A Multi-State Entity that
was rated at least A-/A3 as of April 8, 2020, but is subsequently downgraded, must be rated at least BBB-
/Baa3 by two or more major NRSROs at the time the Facility makes a purchase. Notwithstanding the
foregoing, if a State, City, County, or Multi-State Entity was rated by only one major NRSRO as of April 8,
2020, it may be an Eligible Issuer under the Facility if (i) the rating was at least BBB-/Baa3 (for a State, City, or
County) or A-/A3 (for a Multi-State Entity); (ii) the State, City, County, or Multi-State Entity is rated by at least
two major NRSROs at the time the Facility makes a purchase; and (iii) such ratings are at least BB-/Ba3 (for a
State, City, or County) or BBB-/Baa3 (for a Multi-State Entity).

Only one issuer per State, City, County, or Multi-State Entity is eligible; provided that the Federal Reserve
may approve one or more additional issuers per State, City, or County to facilitate the provision of assistance
to political subdivisions and other governmental entities of the relevant State, City, or County.

1
  The Board of Governors of the Federal Reserve System (“Board”) and Secretary of the Treasury may make
adjustments to the terms and conditions described in this term sheet. Any changes will be announced on the
Board’s website.
2
  Source: U.S. Census Bureau, Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2018, as of
April 6, 2020 (https://www.census.gov/data/tables/time-series/demo/popest/2010s-total-cities-and-towns.html).
3
  Source: U.S. Census Bureau, “Population, Population Change, and Estimated Components of Population Change:
April 1, 2010 to July 1, 2019 (CO-EST2019-alldata)” dataset as of April 6, 2020
(https://www.census.gov/data/datasets/time-series/demo/popest/2010s-counties-
total.html#par_textimage_739801612.)


                                                    Page 1 of 4
Multi-State Entity: A Multi-State Entity is an entity that was created by a compact between two or more
States, which compact has been approved by the United States Congress, acting pursuant to its power under
the Compact Clause of the United States Constitution.

Security for Eligible Notes: Note security will be subject to review and approval by the Federal Reserve. The
source of repayment and security for Eligible Notes will depend on the applicable constitutional and statutory
provisions governing the Eligible Issuer and should be generally consistent with the source of repayment and
strongest security typically pledged to repay publicly offered obligations of the Eligible Issuer. Eligible Notes
issued by Eligible Issuers that are not Multi-State Entities will generally be expected to represent general
obligations of the Eligible Issuer, or be backed by tax or other specified governmental revenues of the
applicable State, City, or County. If the Eligible Issuer is an authority, agency, or other entity of a State, City,
or County, such Eligible Issuer must either commit the credit of, or pledge revenues of, the State, City, or
County, or the State, City, or County must guarantee the Eligible Notes issued by such issuer. If the Eligible
Issuer is a Multi-State Entity, the Eligible Notes will be expected to be parity obligations of existing debt
secured by a senior lien on the Multi-State Entity’s gross or net revenues.

Limit per State, City, County, and Multi-State Entity: The SPV may purchase Eligible Notes issued by or on
behalf of a State, City, or County in one or more issuances of up to an aggregate amount of 20% of the
general revenue from own sources and utility revenue of the applicable State, City, or County government for
fiscal year 2017. 4 The SPV may purchase Eligible Notes issued by a Multi-State Entity in one or more
issuances of up to an aggregate amount of 20% of the Multi-State Entity’s gross revenue as reported in its
audited financial statements for fiscal year 2019. States may request that the SPV purchase Eligible Notes in
excess of the applicable limit in order to assist political subdivisions and other governmental entities that are
not eligible for the Facility.

Pricing: The methodology for pricing is set forth in the attached Pricing Appendix.

Origination Fee: Each Eligible Issuer that participates in the Facility must pay an origination fee equal to
10 basis points of the principal amount of the Eligible Issuer’s notes purchased by the SPV. The origination
fee may be paid from the proceeds of the issuance.

Prepayment Right: With the approval of the SPV, Eligible Notes purchased by the SPV may be prepaid by the
Eligible Issuer at any time, in whole or in part, at par (or, in the case of Eligible Notes purchased at a
premium, par plus unamortized premium) plus accrued interest, prior to maturity.

Eligible Use of Proceeds: An Eligible Issuer may use the proceeds of Eligible Notes purchased by the SPV to
help manage the cash flow impact of income tax deferrals resulting from an extension of an income tax filing
deadline; deferrals or reductions of tax and other revenues or increases in expenses related to or resulting
from the COVID-19 pandemic; and requirements for the payment of principal and interest on obligations of
the Eligible Issuer or its political subdivisions or other governmental entities. An Eligible Issuer (other than a
Multi-State Entity) may use the proceeds of the notes purchased by the SPV to purchase similar notes issued
by, or otherwise to assist, political subdivisions and other governmental entities of the relevant State, City, or
County for the purposes enumerated in the prior sentence.




4
  Source: U.S. Census Bureau, 2017 State & Local Government Historical Datasets and Tables, as of April 6, 2020
(https://www.census.gov/data/datasets/2017/econ/local/public-use-datasets.html).


                                                   Page 2 of 4
Termination Date: The SPV will cease purchasing Eligible Notes on December 31, 2020, unless the Board and
the Treasury Department extend the Facility. The Reserve Bank will continue to fund the SPV after such date
until the SPV’s underlying assets mature or are sold.




                                                Page 3 of 4
                                 Municipal Liquidity Facility - Pricing Appendix

Tax-Exempt Eligible Notes: If interest on the Eligible Notes is excluded from gross income for federal income
tax purposes, pricing will be at a fixed interest rate based on a comparable maturity overnight index swap
(“OIS”) rate plus the applicable spread based on the long-term rating of the security for the Eligible Notes as
follows:

                           Rating*                       Spread (bps)
                           AAA/Aaa                       150
                           AA+/Aa1                       170
                           AA/Aa2                        175
                           AA-/Aa3                       190
                           A+/A1                         240
                           A/A2                          250
                           A-/A3                         265
                           BBB+/Baa1                     325
                           BBB/Baa2                      340
                           BBB-/Baa3                     380
                           Below Investment Grade        590
* To account for split ratings across different credit rating agencies, an average rating generally will be
calculated.
Taxable Eligible Notes: If interest on the Eligible Notes is not excluded from gross income for federal income
tax purposes, pricing will be at a fixed interest rate that is calculated by (i) first, adding the comparable
maturity OIS rate to the spread in the above table that would apply to such Eligible Notes if the Eligible Notes
were tax-exempt Eligible Notes, and (ii) second, dividing the sum calculated under clause (i) by 0.65.




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