The Federal Reserve has acquired bonds of 86 companies led by WarnerMedia parent AT&T and including Comcast, Fox Corp. and Activision Blizzard in a first round of corporate debt purchases to buck up financial markets during the coronavirus pandemic. The move has helped lower interest rates for companies, including big media and entertainment groups, issuing debt to cushion themselves from COVID-19.
The bond buys in the secondary market – meaning not directly from the companies, which will come in a later phase – totaled $428 million with AT&T and United Health the biggest outlays at over $16 million each, according to documents on the Fed’s website, for purchases as of June 17.
Other household names included Coca-Cola Nike PayPal, Target, Campbell’s Soup, Boeing and Exxon Mobil.
The Fed unveiled the so-called Secondary Market Corporate Credit Facility (SMCCF) in late March to buy corporate bonds and develop a portfolio that tracks a broad market index it’s creating. The announcement helped, as stocks have rallied substantially overall since then despite some volatile days.
The move was aimed at strengthening confidence in the corporate bond market and the economy by ensuring that companies can borrow more and, Fed Chairman Jerome Powell has said, perhaps avoid laying off workers.
Neil Begley, senior VP at ratings agency Moody’s, which rates corporate debt, told Deadline the program helps provides liquidity and boosts demand for corporate bonds. Early in the crisis, most companies could still issue bonds, he said, but they were paying higher interest rates. “As the Fed came in, interest rates came down,” he said.
The Fed said 48% of the bonds bought were rated AAA, AA or A, the Fed said, while 48% were BBB rated, and the final 4% was rated BB – the latter being the high end of high yield, just below investment grade.
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