As revenues fell and without access to capital markets, companies initially relied on cash buffers and drew down relatively expensive bank-funded credit lines.4 Markets quickly priced in dire outcomes from the unfolding credit crunch. As one illustration, nearly $ billion of high-yield bonds—or about 40 percent of outstanding issues—were trading at distressed levels in mid-March.5 Considering that corporate bonds typically include cross-default provisions—where a default on one bond issue triggers defaults on all of a company’s outstanding debt—the total amount of public bond claims that could have entered bankruptcy was several multiples of this amount. With widespread financial disruptions threatening to spill over into the real economy and putting millions of jobs at risk, a bold and aggressive policy response was required.6 Enter the Corporate Credit Facilities On March 23, the Federal Reserve, with support from the U.S. Department of the Treasury, announced a broad set of emergency lending facilities, including the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF)—together, the CCFs. The ultimate goal of these facilities was to provide a bridge for U.S. companies and their employees to the other side of the pandemic shock. To achieve this goal, it was critical to provide broad support for both the primary market—where companies https://www.newyorkfed.org/newsevents/speeches/2020/sin201020  1/5  20/10/2020  The Federal Reserve’s Corporate Credit Facilities: Why, How, and For Whom - FEDERAL RESERVE BANK of NEW YORK  access credit—and the secondary market—where the debt of large U.S. companies trades.

15 Using face value of ICE BofA Investment Grade and High Yield Indices. 16 Nina Boyachenko, Anna Kovner, and Or Shachar (2020), It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities, Federal Reserve  Bank of New York Staff Reports No. 935, July 2020. 17 Anna Kovner and Antoine Martin (2020), The Official Sector’s Response to the Coronavirus Pandemic and Moral Hazard, Liberty Street Blog, Federal Reserve Bank of New  York. https://www.newyorkfed.org/newsevents/speeches/2020/sin201020  4/5  20/10/2020  The Federal Reserve’s Corporate Credit Facilities: Why, How, and For Whom - FEDERAL RESERVE BANK of NEW YORK  18 Simon Gilchrist and Egon Zakrajsek (2012), Credit Spreads and Business Cycle Fluctuations, American Economic Review, American Economic Association. The authors  decompose bond spreads into the underlying fundamental risk of the bond and the price of risk (the excess bond premium or credit market sentiment), and find that the excess bond premium forecasts employment. They argue that this relationship is because the excess bond premium captures the supply of credit. 19 This analysis—which looks at the tails of the distribution rather than the average employment forecast—follows Adams, Adrian, Boyarchenko and Giannone (2020) to  construct the one-year-ahead conditional distribution of unemployment based on a quantile regression of the one-year-ahead conditional distribution of the forecast error for the unemployment rate and non-farm payrolls. Unemployment and payroll forecasts are sourced from the August 2020 Survey of Professional Forecasters. https://www.newyorkfed.org/newsevents/speeches/2020/sin201020  5/5