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Term Asset-Backed Securities Loan Facility: Terms and Conditions1
Effective April 21, 2009
Current Terms and Conditions
The TALF is a Federal Reserve credit facility authorized under section 13(3)
of the Federal Reserve Act. The TALF is intended to make credit available to
consumers and businesses on more favorable terms by facilitating the issuance
of asset-backed securities (ABS) and improving the market conditions for ABS
The Federal Reserve Bank of New York (New York Fed) will make
up to $200 billion of loans under the TALF. TALF loans will have a term of
three years; will be non-recourse to the borrower; and will be fully secured
by eligible ABS. The U.S. Treasury Department will provide $20 billion of credit
protection to the Federal Reserve in connection with the TALF, as described
Eligible collateral will include U.S. dollar-denominated cash (that is, not
synthetic) ABS that have a credit rating in the highest long-term or short-term
investment-grade rating category from two or more major nationally recognized
statistical rating organizations (NRSROs) and do not have a credit rating below
the highest investment-grade rating category from a major NRSRO. Eligible collateral
will not include ABS that obtain such credit ratings based on the benefit of
a third-party guarantee or ABS that a major NRSRO has placed on review or watch
for downgrade. Eligible small business loan ABS also will include U.S. dollar-denominated
cash ABS that are, or 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. Eligible collateral will include only ABS that are
cleared through the Depository Trust Company.
All or substantially all of the
credit exposures underlying eligible ABS must be exposures to U.S.-domiciled
obligors. The underlying credit exposures of eligible ABS must be auto loans,
student loans, credit card loans, equipment loans, floorplan loans, small business
loans fully guaranteed as to principal and interest by the U.S. Small Business
Administration, or receivables related to residential mortgage servicing advances
(servicing advance receivables). Except for SBA Pool Certificates or Development
Company Participation Certificates, eligible ABS must be issued on or after
January 1, 2009.
For these purposes:
Auto loans will include retail loans and leases relating to cars, light
trucks, motorcycles and other recreational vehicles, as well as commercial,
government and rental fleet leases. All or substantially all of the credit
exposures underlying eligible auto loan ABS issued by a non-revolving trust
must have been originated on or after October 1, 2007. Eligible auto ABS
issued by a revolving (or master) trust must be issued to refinance existing
auto ABS maturing in 2009 and must be issued in amounts no greater than the
amount of the maturing ABS. Eligible auto ABS may also be issued out of an
existing or newly established master trust in which all or substantially
all of the underlying exposures were originated on or after January 1, 2009.
Eligible auto loan ABS must have an average life of no more than five years.
Student loans will include federally guaranteed student loans (including
consolidation loans) and private student loans. All or substantially all
of the credit exposures underlying eligible student loan ABS must have had
a first disbursement date on or after May 1, 2007.
Credit card receivables will include both consumer and corporate credit
card receivables. Eligible credit card ABS issued by a revolving (or master)
trust must be issued to refinance existing credit card ABS maturing in 2009
and must be issued in amounts no greater than the amount of the maturing
ABS. Eligible credit card ABS must have an average life of no more than five
Equipment loans will include retail loans and leases relating to business
equipment. All or substantially all of the credit exposures underlying eligible
equipment loan ABS must have been originated on or after October 1, 2007.
Eligible equipment loan ABS must have an average life of no more than five
Floorplan loans will include revolving lines of credit to finance dealer
inventories. Eligible floorplan ABS issued by a revolving (or master) trust
must be issued to refinance existing floorplan ABS maturing in 2009 and must
be issued in amounts no greater than the amount of the maturing ABS. Eligible
floorplan ABS may also be issued out of an existing or newly established
master trust in which all or substantially all of the underlying exposures
were originated on or after January 1, 2009. Eligible floorplan ABS must
have an average life of no more than five years.
Small business loans include loans, debentures or pools originated under
the SBA’s 7(a) and 504 programs, provided they are fully guaranteed
as to principal and interest by the full faith and credit of the U.S. government.
SBA Pool Certificates and Development Company Participation Certificates
must have been issued on or after January 1, 2008, regardless of the dates
of the underlying loans or debentures. The SBA-guaranteed credit exposures
underlying all other eligible small business ABS must have been originated
on or after January 1, 2008.
Eligible servicing advance receivables will include receivables created
by principal and interest, tax and insurance, and corporate advances made
by Fannie Mae- or Freddie Mac-approved residential mortgage servicers under
pooling and servicing agreements. All or substantially all mortgage servicing
advances must have been originated on or after January 1, 2007. Eligible
advance receivable ABS must have an average life of no more than five years.
The set of permissible underlying credit exposures of eligible ABS may be
expanded later to include commercial mortgages, non-Agency residential mortgages
and/or other asset classes. The underlying credit exposures must not include
exposures that are themselves cash or synthetic ABS. For credit card,
auto lease and equipment lease securitizations, the underlying exposures may
include financial assets that represent an interest in or the right to payments
or cash flows from another asset pool (intermediate securities) created in
the normal course of business solely to facilitate the issuance of an ABS. In
such cases, for purposes of determining whether the exposures underlying an
ABS meet the eligibility requirements for TALF collateral, the credit exposures
underlying the intermediate securities are considered to be the underlying
exposures of the ABS itself.
Eligible collateral for a particular borrower
must not be backed by loans originated or securitized by the borrower or by
an affiliate of the borrower.
Any U.S. company that owns eligible collateral may borrow from the TALF provided
the company maintains an account relationship with a primary dealer. An
entity is a U.S. company if it is (1) a business entity or institution that
is organized under the laws of the United States or a political subdivision
or territory thereof (U.S.-organized) and conducts significant operations or
activities in the United States, including any U.S.-organized subsidiary of
such an entity; (2) a U.S. branch or agency of a foreign bank (other than a
foreign central bank) that maintains reserves with a Federal Reserve Bank;
(3) a U.S. insured depository institution; or (4) an investment fund that is
U.S.-organized and managed by an investment manager that has its principal
place of business in the United States. An entity that satisfies any
one of the requirements above is a U.S. company regardless of whether it is
controlled by, or managed by, a company that is not U.S.-organized. Notwithstanding
the foregoing, a U.S. company excludes any entity, other than those described
in clauses (2) and (3) above, that is controlled by a foreign government or
is managed by an investment manager, other than those described in clauses
(2) and (3) above, that is controlled by a foreign government.
Transaction Structure and Pricing
Credit extensions under the TALF will be in the form of non-recourse loans
secured by eligible collateral. TALF loans will have a three-year term, with
interest payable monthly. TALF loans will not be subject to mark-to-market
or re-margining requirements.
TALF loans will be pre-payable in whole or in part at the option of the borrower,
but substitution of collateral during the term of the loan generally will not
be allowed. Any remittance of principal on eligible collateral must be used
immediately to reduce the principal amount of the TALF loan in proportion to
original loan-to-value ratio (e.g., if the original loan-to-value ratio was
90 percent, 90 percent of any remittance of principal must immediately be repaid
to the New York Fed).
The interest rate on TALF loans secured by ABS backed
by federally guaranteed student loans will be 50 basis points over 1-month
Libor. The interest rate on TALF loans secured by SBA Pool Certificates will
be the federal funds target rate plus 75 basis points. The interest rate on
TALF loans secured by SBA Development Company Participation Certificates will
be 50 basis points over the 3-year Libor swap rate. For TALF loans secured
by other eligible fixed-rate ABS, the interest rate will be 100 basis points
over the 1-year Libor swap rate for securities with a weighted average life
less than one year, 100 basis points over the 2-year Libor swap rate for securities
with a weighted average life greater than or equal to one year and less than
two years, or 100 basis points over the 3-year Libor swap rate for securities
with a weighted average life of two years or greater. For
TALF loans secured by other eligible floating-rate ABS, the interest rate will
be 100 basis points over 1-month Libor. The New York Fed also will assess an
administrative fee equal to 5 basis points of the loan amount on the settlement
date of each loan transaction.
For collateral priced at a premium to par the
borrower will make an additional principal payment calculated to adjust for
the average reversion of market value toward par value as the ABS matures.
Initial collateral haircuts are as follows:
Average Life (years)
Prime retail lease
Prime retail loan
Motorcycle/other recreational vehicles
Commercial and government fleets
Loans and leases
For ABS benefiting from a government guarantee with average lives beyond five
years, haircuts will increase by one percentage point for every two additional
years of average life beyond five years. For all other ABS with average lives
beyond five years, haircuts will increase by one percentage point for each
additional year of average life beyond five years.
The New York Fed will announce monthly TALF loan subscription and settlement
dates. On each subscription date, borrowers will be able to request one or
more floating-rate and one or more fixed-rate TALF loans by indicating for
each loan the eligible ABS collateral they expect to pledge, the desired loan
amount and the desired interest rate format (fixed or floating). Loan proceeds
will be disbursed to the borrower, contingent on receipt by the New York Fed’s
custodian bank of the eligible ABS collateral. The minimum size for each TALF
loan will be $10 million.
The New York Fed will reserve the right to reject any request for a loan,
in whole or in part, in its discretion. In this regard, the New York Fed will
develop and implement procedures to identify for further scrutiny potentially
high-risk ABS that a borrower proposes to pledge to the New York Fed under
Roles of Primary Dealers and Custodian Bank
Each borrower must use a primary dealer, which will act as agent for the borrower,
to access the TALF and must deliver eligible collateral to the New York Fed’s
Role of the U.S. Treasury Department
The New York Fed will create a special purpose vehicle (SPV) to purchase and
manage any assets received by the New York Fed in connection with any TALF
loans. The New York Fed will enter into a forward purchase agreement with the
SPV under which the SPV will commit, for a fee, to purchase all assets securing
a TALF loan that are received by the New York Fed at a price equal to the TALF
loan amount plus accrued but unpaid interest. The U.S. Treasury’s Troubled
Assets Relief Program (TARP) will purchase subordinated debt issued by the
SPV to finance the first $20 billion of asset purchases. If more than $20 billion
in assets are purchased by the SPV, the New York Fed will lend additional funds
to the SPV to finance such additional purchases. The New York Fed’s loan
to the SPV will be senior to the TARP subordinated loan and secured by all
the assets of the SPV.
The facility will cease making new loans on December 31, 2009, unless the Board
extends the facility.
1The Federal Reserve reserves
the right to review and make adjustments to these terms and conditions – including
size of program, pricing, loan maturity, collateral haircuts, and asset and
borrower eligibility requirements—consistent with the policy objectives
of the TALF.