As part of the U.S. government's Financial Stability Plan, the Department of the Treasury and the Federal Reserve Board just announced additional terms that would clarify the application of the Term Asset-Backed Securities Loan Facility (TALF).
The TALF, which is a component of the Consumer and Business Lending Initiative (CBLI), has the potential to generate up to $1 trillion of lending for businesses and households.
"The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain triple-A-rated ABS," said a press release Treasury Department's Web site. "These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy."
The announcement stated that the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain triple-A-rated ABS that are backed by newly and recently originated auto loans, credit card loans, student loans, and Small Business Administration (SBA)-guaranteed small business loans.
Additionally, issuers and investors in the private sector should start arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17. On March 25, those new securitizations will be funded by the program, which would, in turn, create new lending capacity for additional future loans.
The release further said that the program will hold monthly fundings through December 2009 or longer if the Federal Reserve Board extends the facility.
The Board also released revised terms and conditions for the facility and a revised set of frequently asked questions. These changes include lessening the interest rates and collateral haircuts for loans secured by ABS guaranteed by the SBA or backed by government-guaranteed student loans.
Aside from these, the modifications are warranted by the minimal credit risk on these assets as a result of the government guarantees and by making the TALF loan terms more attractive, they should encourage greater credit flows to small businesses as well as students.The Treasury Department also released a new white paper outlining efforts to unlock credit markets.
On Feb. 10, the Board and Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending.
According to the release, teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting CMBS and are evaluating a number of other types of triple-A-rated newly issued ABS for possible acceptance under the expanded program. The expanded program will remain focused on securities that will have the most macro-economic impact and can most effectively be included under TALF at a low and manageable risk to the government.
The Federal Reserve and Treasury now expect that the following assets will be eligible for the TALF's April funding: ABS backed by rental, commercial, and government vehicle fleet leases, and ABS backed by small ticket equipment, heavy equipment, as well as agricultural equipment loans and leases
The other securities under consideration include private-label RMBS, CLOs and CDOs, as well as other ABS not included in the initial rollout such as ABS backed by non-auto floorplan loans and ABS backed by mortgage-servicer advances.
Similar to the case for the current categories of newly originated loans, the TALF will combine public financing with private capital to encourage the private securitization of loans in the asset classes eligible under the expanded program.The release also stated that the Treasury and the Federal Reserve will seek legislation to offer the Federal Reserve the additional tools it will need to allow it to manage the level of reserves while offering the funding necessary for the TALF and for other key credit-easing programs, the release said.
To view the White Paper, Terms and Conditions, and Frequently Asked Questions, visit http://www.financialstability.gov/. Additional details of the TALF and the CBLI can be found at www.FinancialStability.gov.