Fed updates term sheet on Term Asset-Backed Securities Loan Facility (TALF); $100 billion in loans initially available

The Term Asset-Backed Securities Loan Facility (TALF) created March 23 by the Federal Reserve to help ensure a continued source of credit to businesses and consumers will initially make up to $100 billion in loans available, the central bank said in a release Tuesday that included updates to the facility’s term sheet.

The TALF was created in March to facilitate the issuance of asset‐backed securities (ABS), stabilize ABS markets, and support the availability of credit to households and businesses amid disruptions caused by the coronavirus pandemic. Businesses that are created or organized in the United States or under its laws, have significant operations in and a majority of their employees based in the United States, and maintain an account relationship with a primary dealer are eligible as TALF borrowers.

The term sheet states that TALF loans are, if all requirements are met, non-recourse loans, and each loan will have a maturity of three years. Eligible collateral includes U.S. dollar denominated cash (not synthetic) asset-backed securities (ABS) that have a credit rating in the highest long‐term or, if no long‐term rating is available, the highest short‐term investment‐grade rating category from at least two eligible nationally recognized statistical rating organizations (NRSROs) and do not have a credit rating below the highest investment‐grade rating category from an eligible NRSRO. (With the exception of commercial mortgage‐backed securities (CMBS), Small Business Administration (SBA) Pool Certificates, and Development Company Participation Certificates, eligible ABS must be issued on or after March 23, 2020.)

All or substantially all of the credit exposures underlying the eligible ABS must: (1) for newly issued ABS, except for collateralized loan obligations (CLOs), be originated by U.S.‐organized entities (including U.S. branches or agencies of foreign banks); (2) for CLOs, have a lead or a co‐lead arranger that is a U.S.‐organized entity (including a U.S. branch or agency of a foreign bank); and (3) for all ABS (including CLOs and CMBS), be to U.S.‐domiciled obligors or with respect to real property located in the United States or one of its territories.

Eligible collateral must be ABS where the underlying credit exposures are one of the following:

1)  Auto loans and leases;
2)  Student loans;
3)  Credit card receivables (both consumer and corporate);
4)  Equipment loans and leases;
5)  Floorplan loans;
6)  Premium finance loans for property and casualty insurance;
7)  Certain small business loans that are guaranteed by the Small Business Administration;
8)  Leveraged loans; or
9) Commercial mortgages.

The TALF was established with a termination date of Sept. 30, 2020; no new TALF loans will be issued after that date unless the Fed and Treasury secretary extend the facility.

The Fed also on Tuesday outlined the information it will publicly disclose for the TALF and the Paycheck Protection Program Liquidity Facility (PPPLF) on a monthly basis. The Fed said it will disclose: the name of each participant in both facilities; the amounts borrowed, interest rate charged, and value of pledged collateral; and the overall costs, revenues, and fees for each facility. (The disclosures are similar to those announced in April for the board facilities using funds provided under the Coronavirus Aid, Relief, and Economic Security Act [CARES Act], the agency said.)

Federal Reserve publishes updates to the term sheet for the Term Asset-Backed Securities Loan Facility (TALF) and announces information to be disclosed monthly for the TALF and the Paycheck Protection Program Liquidity Facility

TALF term sheetFAQ (via Federal Reserve Bank of New York)

RR: Fed adds to ‘aggressive efforts’ to limit job losses, incomes – and promote swift recovery (March 23, 2020)