COVID RESPONSE – FRB publishes updates to the term sheet for the TALF

May 12, 2020Federal 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

The program was to help ensure that US consumers and businesses remain able to access credit at affordable terms, TALF initially will make up to $100 billion of loans available. Loan term of three years, nonrecourse to a borrower, and fully secured by eligible ABS. CLO interest rate 150bps on 30-day average secured overnight financing rate (SOFR). TALF loans may be pre-payable, in whole or in part, at the option of the borrower.

Eligible Collateral

Eligible collateral includes US dollar denominated cash ABS with a credit rating in highest long-term investment-grade rating category, or, if not available, a short term category by at least two eligible nationally recognized statistical rating organizations (NRSROs). Do not have a credit rating below the highest investment-grade rating category from NRSRO. Eligible ABS must be issued from Mar. 23, 2020, exception to commercial MBS (CMBS).  The exception is CMBS, which will not be eligible where issued on or after March 23, 2020.

Cover SBA pool and development company participation certificates after January 1, 2019. Haircut scheduled on collateral ranges from 5% for credit cards to 22% leveraged loans.

Credit Exposures

All or substantially all the credit exposures underlying eligible ABS, to meet conditions. For newly issued ABS, except for collateralized loan obligations (CLOs), they should be originated by US organized entities including US branches or agencies of a foreign bank. For CLOs, have lead or co-lead arranger, that is US organized, or is a US branch of a bank. ABS (CLOs, CMBS), exposure is to US-domiciled obligors or real property located in US.

Excluded Structures

Excludes ABS with interest payment that step up or step down to set level on a set date. Underlying credit/collateral must not include exposures that are cash or synthetic ABS. Restriction on asset single borrower CMBS and commercial real estate CLOs (CRECLO). Also restrictions on CLO loan substitution, so only static CLOs will be eligible collateral.

Exposures to be ABS

Eligible collateral must be ABS, where underlying credit exposures are of certain types. Auto loans and leases; student loans; credit card receivables (consumer or corporate). Equipment loan and leases; floorplan loans; premium finance loans of some insurance. Small business loans guaranteed by SBA; leveraged loans; and commercial mortgages.

New Disclosure of Information

Fed will disclose the name of each participant in both TALF and PPPLF, amounts borrowed, the interest rate charged, the value of pledged collateral, overall costs, revenues, and fees. Similar to those announced in April, for the Fed facilities that utilize CARES Act funds.

NY Fed FAQ

Fed NY also issued FAQs on the TALF program, summarizing genesis, eligibility, details on TALF SPV lend on to borrowers, help liquidity, Treasury committed $10 Billion equity inv. All information will be disclosed on a monthly basis identifying also each material investor who owns 10% or more of any outstanding class of securities of an entity.

For more information, visit www.federalreserve.gov



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