“TALF is Launched”

On March 3, 2009, the Federal Reserve Board and U.S. Department of Treasury launched the much-anticipated Term Asset-Backed Securities Lending Facility (TALF). The TALF is designed to jump start the securitization markets, which have been virtually closed since October 2008, and encourage private sector lending to consumers and businesses.

Commencing March 17, 2009 (Happy St. Patrick’s Day!), the Federal Reserve Bank of New York (FRBNY) will accept subscriptions for the initial funding of up to $200 billion of non-recourse, three-year loans to any “eligible borrower” owning “eligible collateral” consisting of certain AAA-rated asset backed securities (ABS) backed by newly and recently originated auto loans, credit card loans, student loans and SBA-guaranteed small business loans.

TALF may be expanded to provide up to $1 trillion of non-recourse lending for eligible borrowers holding other types of AAA-rated ABS. The FRBNY and the Treasury are analyzing the appropriate terms and conditions for including commercial mortgage-backed securities, and they anticipate that ABS backed by rental, commercial and government fleet leases, and ABS backed by small ticket equipment, heavy equipment and agricultural equipment loans and leases, will be eligible for the April funding of the TALF. Other types of securities under consideration include private-label residential mortgage-backed securities, non-auto floorplan loans and ABS backed by mortgage-servicer advances.

The TALF has undergone several changes since the program first was proposed in November 2008. This Stroock Special Bulletin describes the key provisions of the TALF, noting significant changes from earlier proposals, and highlights certain unanswered questions and open items.