Alert 04.09.20
Treasury and Fed launch $600 Billion Main Street Lending Program
Loans of $25 million to $150 million now available for mid- to large-sized businesses
Alert
Alert
By Matthew Oresman,
04.21.20
On March 23, the Federal Reserve announced a series of efforts to address ongoing financial uncertainty in the face of COVID-19. One such effort is the establishment of the new Term Asset-Backed Securities Loan Facility (the TALF) authorized by Section 13(3) of the Federal Reserve Act. The facility is designed to support the flow of credit to consumers and businesses through securitization. The TALF will enable the issuance of asset-backed securities (ABS), including securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and other eligible assets.
The TALF will initially make up to $100 billion in loans available to eligible borrowers through a special purpose vehicle, with $10 billion in equity coming from the Department of the Treasury.
Under the TALF, holders of eligible AAA-rated ABS issued on or after March 23, 2020 and backed by newly and recently originated consumer and small business loans are eligible to borrow. The non-recourse loans have a term of three years and are fully securitized. Loan amounts are equal to the market value of the ABS minus a “haircut” linked to the perceived risk of the collateral. The haircut schedule and inform, available here, is consistent with the schedule used for the TALF established in 2008.
The TALF Program
Eligible Borrowers. All U.S. companies that own eligible collateral and that maintain a relationship with a primary dealer (i.e., a financial institution approved to trade securities with the federal government) are eligible to borrow under the TALF. A U.S. company is defined as “a business that is created or organized in the United States or under the laws of the United States and that has significant operations in and a majority of its employees based in the United States.”
Eligible Collateral. ABS with the following underlying credit exposures are eligible:
Eligible ABS must be issued on or after March 23, 2020. Ineligible collateral include, most notably, residential mortgages as well as commercial mortgage-backed securities issued on or after March 23, 2020. Also ineligible are ABS that bear interest payments that step up or step down to predetermined levels on specific dates and those with underlying credit exposures that are themselves cash ABS or synthetic ABS. The scope of covered collateral classes may be expanded in the future.
Terms and Conditions