The New York Federal Reserve rejected five bonds for the February Legacy CMBS TALF subscription period while accepting 51.

The five tranches rejected this month were: BACM 2007-1 A3; CGCMT 2006-C5 A4; LBUBS 2006-C6 A4; MSC 2007-HQ11 A3-1; and WBCMT 2007-C30 A3

Bank of America Merrill Lynch analysts said that at this juncture, after eight rounds they have no added clarity as to the NY Fed's rational for deciding what collateral to accept and what collateral to reject.

"We continue to believe that the odds favor the legacy TALF program expiring at the end of March as currently scheduled," analysts wrote in a research note released this afternoon.

Two of the bonds rejected for this month were previously rejected so a second rejection should not be a surprise, according to the analysts. However, one bond, which is  the LBUBS 2006-C6 A4, was accepted in the January subscription cycle, and there was no subsequent meaningful deterioration in credit quality, in analysts' view.

They still think that a possible explanation behind these choices is the Fed rejects certain tranches based on the fact that it already has too much exposure to certain deals or certain tranches within a deal.

"Our best guess is that the Fed is using a combination of concentration and credit risk metrics to decide what collateral is acceptable," they said.

Analysts also think that the Fed is biased toward accepting shorter average life bonds and those with simpler structures.

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