Term Asset-Backed Securities Loan Facility: Terms and Conditions1
|Effective December 19, 2008|
The Federal Reserve Bank of New York (New York Fed) will make up to $200 billion of loans under the TALF. TALF loans will have a term of three years; will be non-recourse to the borrower; and will be fully secured by eligible ABS. The U.S. Treasury Department will provide $20 billion of credit protection to the Federal Reserve in connection with the TALF, as described below.
All or substantially all of the credit exposures underlying eligible ABS must be exposures to U.S.-domiciled obligors. The underlying credit exposures of eligible ABS initially must be auto loans, student loans, credit card loans, or small business loans guaranteed by the U.S. Small Business Administration. For these purposes, auto loans will include retail loans and leases relating to cars, light trucks, or motorcycles, and will include auto dealer floorplan loans; student loans will include Federally guaranteed student loans (including consolidation loans) and private student loans. The set of permissible underlying credit exposures of eligible ABS may be expanded later to include commercial mortgages, non-Agency residential mortgages, or other asset classes. The underlying credit exposures must not include exposures that are themselves cash or synthetic ABS.
Eligible ABS must be issued on or after January 1, 2009. All or substantially all of the underlying credit exposures of eligible auto loan ABS must have been originated on or after October 1, 2007. All or substantially all of the underlying credit exposures of eligible SBA-guaranteed loan ABS must have been originated on or after January 1, 2008. All or substantially all of the underlying credit exposures of eligible student loan ABS must have had a first disbursement date on or after May 1, 2007. Eligible credit card ABS must be issued to refinance existing credit card ABS maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS.
Eligible collateral for a particular borrower must not be backed by loans originated or securitized by the borrower or by an affiliate of the borrower.
Transaction Structure and Pricing
TALF loans will be pre-payable at the option of the borrower, but substitution of collateral during the term of the loan will not be allowed. Any remittance of principal on eligible collateral must be used immediately to reduce the principal amount of the TALF loan.
Borrowers will be able to choose either a fixed or floating interest rate on TALF loans. The New York Fed will set the interest rates on TALF loans so as to provide borrowers an incentive to purchase eligible ABS at yield spreads higher than in more normal market conditions but lower than in the highly illiquid conditions that have prevailed during the recent turmoil in the financial markets. The New York Fed also will assess a non-recourse loan fee at the inception of each loan transaction.
The New York Fed will reserve the right to reject any request for a loan, in whole or in part, in its discretion. In this regard, the New York Fed will develop and implement procedures to identify for further scrutiny potentially high-risk ABS that a borrower proposes to pledge to the New York Fed under the TALF.
Roles of Primary Dealers
and Custodian Bank
Role of the U.S. Treasury Department
Executive Compensation Requirements
1The Federal Reserve reserves the right to review and make adjustments to these terms and conditions – including size of program, pricing, loan maturity, and asset and borrower eligibility requirements – consistent with the policy objectives of the TALF.