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    FED Updates Terms for Asset-Backed Securities Loan Facility

    May 12, 2020

    FED published additional information regarding borrower and collateral eligibility criteria for the Term Asset-Backed Securities Loan Facility (TALF). FED also outlined the information it will publicly disclose for the TALF and the Paycheck Protection Program Liquidity Facility (PPPLF) on a monthly basis. FED will disclose the name of each participant in both facilities; the amounts borrowed, interest rate charged, and value of pledged collateral; and the overall costs, revenues, and fees for each facility. The disclosures are similar to those announced in April for FED facilities that utilize CARES Act funds.

    TALF was announced on March 23 as part of an initiative to support the flow of credit to U.S. consumers and businesses. This credit facility is intended to help meet the credit needs of consumers and businesses by facilitating the issuance of asset‐backed securities and improving the market conditions for asset‐backed securities. TALF will serve as a funding backstop to facilitate the issuance of eligible asset‐backed securities on or after March 23, 2020. Under the TALF, the Federal Reserve Bank of New York will commit to lend to a special purpose vehicle on a recourse basis. TALF will initially make up to USD 100 billion of loans available. The loans will have a term of three years; will be non-recourse to the borrower; and will be fully secured by eligible asset‐backed securities. No new credit extensions will be made after September 30, 2020, unless TALF is extended by FED and the Department of the Treasury.

    Eligible collateral includes U.S. dollar denominated cash asset‐backed securities that have a credit rating in the highest long‐term or, if no long‐term rating is available, the highest short‐term investment‐grade rating category from at least two eligible nationally recognized statistical rating organization. It should not have a credit rating below the highest investment‐grade rating category from an eligible nationally recognized statistical rating organizations. With the exception of commercial mortgage‐backed securities, small business administration pool certificates, and Development Company Participation Certificates, eligible asset‐backed securities must be issued on or after March 23, 2020. To be eligible collateral, all or substantially all of the underlying credit exposures must be newly issued, except for commercial mortgage‐backed securities. 

    Eligible collateral must be asset‐backed securities where the underlying credit exposures are of auto loans and leases; student loans; credit card receivables (both consumer and corporate);  equipment loans and leases;  floor-plan loans; premium finance loans for property and casualty insurance; certain small business loans that are guaranteed by the small business administration; leveraged loans; or commercial mortgages.

     

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    Keywords: Americas, US, Banking, Term Asset Backed Securities Loan Facility, TALF, PPPLF, CARES Act, Small Business Administration, Credit Risk, Asset Backed Securities, COVID-19, FED

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