The Federal Reserve Board made two recent announcements regarding its proposed Term Asset-Backed Securities Loan Facility (TALF). Under the TALF as initially proposed, the Federal Reserve Bank of New York (New York Fed) will make up to $200 billion of loans to eligible borrowers. TALF loans will be secured by eligible collateral, consisting of U.S. dollar-denominated cash asset-backed securities (ABS), which, among other things, must have long-term credit ratings in the highest investment grade category. The TALF is intended to make credit available to consumers and small businesses on more favorable terms by facilitating the issuance of ABS and improving market conditions for ABS more generally.

On February 10, 2009, the Federal Reserve announced that it could expand the size of the TALF to as much as $1 trillion. This expansion would be supported by the Treasury’s provision of additional funds from the Troubled Asset Relief Program. The Federal Reserve also indicated that it could broaden the eligible collateral that would be pledged to secure TALF loans to encompass other types of newly-issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities.

On February 6, 2009, the Federal Reserve released a new term sheet and a revised set of questions and answers on the TALF. The new terms and conditions described in those releases relate primarily to pricing and structure of TALF loans, eligible collateral, eligible borrowers, and the procedures for obtaining TALF loans.

Borrowers may choose to pay either a fixed rate of interest or a floating rate of interest on TALF loans. The fixed interest rate will be 100 basis points over the 3-year LIBOR swap rate, and the floating rate of interest will be 100 basis points over the 1-month LIBOR. In addition, borrowers must pay the New York Fed an administrative fee of 5 basis points of the loan amount. Eligible collateral pledged to secure a TALF loan will be subject to a discount or "haircut" ranging from 5 percent to 16 percent, depending upon the type of credit exposure underlying the pledged ABS. For more information on collateral discounts, click here.

Any company organized in the U.S. that conducts significant business in the U.S., and any investment fund that is U.S.-organized and managed by an investment manager located in the U.S., is an eligible borrower. Each borrower seeking a TALF loan must be a customer of a primary dealer of government securities, and the primary dealer must have entered into a master loan and security agreement with the New York Fed as agent for the proposed borrower. The New York Fed intends to announce a monthly subscription date by which requests for TALF loans must be submitted through the primary dealer. A copy of the prospectus or other offering document for the collateral to be pledged to secure the TALF loans must be submitted along with the loan request. The loans will be disbursed on a loan settlement date. Procedures have been adopted to enable the closing of the issuance of the ABS to be pledged as collateral on the loan settlement date.

The New York Fed expects to announce the initial subscription date sometime in February. Participants will be given approximately two weeks before the initial subscription date to submit loan requests, and the initial loan settlement date will occur approximately two weeks after the initial subscription date.

The current term sheet and frequently asked questions for the TALF are available on the New York Fed website.

If you have any questions concerning the TALF, please contact the co-chairs of the Economic Stabilization and Recovery Initiative:

Dominic J. De Simone, Co-Chair, Economic Stabilization and Recovery Initiative

Thomas A. Hauser, Co-Chair, Economic Stabilization and Recovery Initiative

Prior TALF Alerts

January 6, 2009
Federal Reserve Announces Additional Details for its Term Asset-Backed Securities Loan Facility (TALF)

November 26, 2008
Federal Reserve and Treasury Announce Two New Programs To Boost Credit Availability

Prior EESA Alerts

February 13, 2009
Treasury Secretary Outlines New Financial Stability Plan

February 4, 2009
Significant New Restrictions on Executive Compensation for TARP Recipients

January 27, 2009
Special Inspector General of TARP to Begin Oversight Initiative

January 16, 2009
Treasury Department Issues Term Sheet and Announces February 13, 2009 Deadline for Subchapter S Corporations to Participate in the Capital Purchase Program

January 6, 2009
Federal Reserve Announces Additional Details for its Term Asset-Backed Securities Loan Facility (TALF)

December 12, 2008
Treasury Department Issues Closing Documents for Private Financial Institutions to Participate in the Capital Purchase Program

December 1, 2008
SEC Staff Issues Sample Guidance to CPP Participants Filing Proxy Statements

November 26, 2008
Federal Reserve and Treasury Announce Two New Programs To Boost Credit Availability

November 18, 2008
Treasury Department Issues Term Sheet and Announces December 8, 2008 Deadline for Private Financial Institutions to Participate in the Capital Purchase Program

November 14, 2008
Kashkari Details Future TARP Deployment Strategy

November 12, 2008
Treasury Secretary Details TARP Strategy 

November 7, 2008
Treasury Department Announces Solicitation Regarding Asset Management Services in Connection with EESA Capital Purchase Program

November 6, 2008
Beware: Is There a "Trojan Horse" in the Capital Purchase Program Securities Purchase Agreement?

October 23, 2008
Kashkari Testifies Before Senate Banking Committee

October 14, 2008
Treasury, Federal Reserve, and FDIC Joint Statement Capital Purchase Program

October 13, 2008
Remarks on TARP to Institute of International Bankers

October 7, 2008
Emergency Economic Stabilization Act of 2008/TARP

October 6, 2008
Employee Benefits and Executive Compensation Issues Connected to Emergency Economic Stabilization Act of 2008

October 6, 2008
Emergency Economic Stabilization Act of 2008


Copyright © 2009 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.