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Dreher Tomkies LLP
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TERM ASSET BACK SECURITIES LOAN FACILITY IS EXPANDED

On December 19, 2008, the Federal Reserve Board released revised terms and conditions regarding the assets that qualify for the Term Asset Backed Loan Facility (“TALF”). The Federal Reserve Board clarified that auto loans eligible for TALF will include retail loans and leases relating to cars, light trucks or motorcycles and will include auto dealer floor plan loans. Recent testimony by the Interim Assistant Secretary for Financial Stability, Neel Kashkari, also indicated that the TALF may be expanded over time to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.

The TALF is a facility that is designed to help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (“ABS”) collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration. Under the TALF, the Federal Reserve Bank of New York (“FRBNY”) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS that are backed by newly and recently originated consumer and small business loans. The United States Treasury Department, under the Troubled Assets Relief Program of the Emergency Economic Stabilization Act of 2008 (also known as the $700 billion bailout) will provide $20 billion in credit protection to the FRBNY. Eligible collateral for the TALF includes ABS that have a long-term credit rating in the highest investment-grade rating category (e.g., AAA) from two or more nationally recognized statistical rating organizations (“NRSRO”) and do not have a long-term credit rating below the highest investment-grade rating category from a major NRSRO. Eligible small business ABS will also include U.S. dollar-denominated cash ABS for which all of the underlying credit exposures are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. According to the Board of Governors of the Federal Reserve System, the TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.

The revised terms and conditions, as well as Interim Assistant Secretary Kashkari’s testimony, may have been in response to industry comment that the TALF was not broad enough to inject needed liquidity into the ABS market

  • Michael Tomkies