The Federal Reserve and the Treasury Department have extended the Term ABS Loan Facility (TALF) for newly issued ABS and legacy CMBS until March 31, 2010 and, if needed, might consider further extensions.
Bank of America/Merrill Lynch anlaysts believe this extension relieves near-term concerns about the effect of the TALF's removal on spreads as well as the ability of some lenders to access the ABS markets.
"The TALF program has improved liquidity and, consequently, has led to lower spreads in related ABS markets by attracting both TALF and cash investors," BofA/Merrill analysts wrote.
TALF buyers have increased demand for transactions and have offered a back-stop to wider spreads, according to analysts.
In this financial and economic environment, the loss of TALF buyers would probably raise concerns about liquidity and, therefore, lead to wider spreads. But, analysts do not think the market would move to levels seen earlier in the year. Additionally, some issuers would not be able to access the ABS market at economical levels without having TALF, they pointed out.
Currently, the Federal Reserve and Treasury have no plans to expand the types of collateral eligible under TALF. Most of the consumer and commercial ABS markets are already covered by the program.
The Federal Reserve also offered added clarification on the types of floorplan arrangements that qualify under TALF.
Specifically, analysts noted eligible receivables for auto floorplan ABS include revolving lines of credit used to finance dealer inventories of cars, light trucks, and motorcycles as well as, subject to a 5% ceiling of the total pool of receivables, other types of floorplan receivables.
The eligible receivables for non-auto floorplan ABS include: revolving lines of credit used to finance dealer inventories of, among others, recreational vehicles, motorcycles, trailers, boats and sports vehicles; agricultural, construction, or manufacturing equipment, manufactured housing, large appliances, and electronic equipment and, subject to a limit of 5%, revolving lines of credit used to finance dealer inventories of cars and trucks and receivables arising under revolving or non-revolving asset-based lending facilities and loans secured by accounts receivable of the type that have been included in floorplan ABS issued previously.
Non-auto floorplan ABS may be backed by a mixed type of inventory. The 5% limitation can be reached by placing a value of zero on receivables that is over 5%. Additionally, ineligible receivables are limited to 5%. Any ineligible receivables transferred to the issuers must be treated as having a value and balance of zero,
Thus far, $1.25 billion of TALF eligible floorplan deals have been issued and $1.04 billion have been pledged for TALF loans, BofA/Merrill noted.
The haircut for auto floorplan transactions ranges between 12% and 16%, while they range between 11% and 15% for non-auto floorplan deals.
