The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
Regional & Community Outreach connects the Bank to Main Street via structured dialogues and two-way conversations on small business, mortgages, and household credit.
Economic Education improves public knowledge about the Federal Reserve System, monetary policy implementation, and promoting financial stability through the Museum and programs for K-16 students and educators, and the community.
Term Asset-Backed Securities Loan Facility: Terms and Conditions1
Effective February 6, 2009
Current Terms and Conditions
The TALF will be a Federal Reserve credit facility authorized under section 13(3)
of the Federal Reserve Act. The TALF is intended to make credit available
to consumers and small businesses on more favorable terms by facilitating the
issuance of asset-backed securities (ABS) and improving the market conditions
for ABS more generally.
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
Eligible collateral will include U.S. dollar-denominated cash (that is, not
synthetic) ABS that have a credit rating in the highest long-term or short-term
investment-grade rating category from two or more major nationally recognized
statistical rating organizations (NRSROs) and do not have a credit rating below
the highest investment-grade rating category from a major NRSRO. Eligible
collateral will not include ABS that obtain such credit ratings based on the
benefit of a third-party guarantee or ABS that a major NRSRO has placed on
review or watch for downgrade. Eligible small business loan ABS also
will include U.S. dollar-denominated cash ABS that are, or for which all of
the underlying credit exposures are, fully guaranteed as to principal and interest
by the full faith and credit of the U.S. government. Eligible collateral
will include only ABS that are cleared through the Depository Trust Company.
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 fully guaranteed as to principal and interest by the
U.S. Small Business Administration. For these purposes, auto loans will
include retail loans and leases relating to cars, light trucks, recreational
vehicles, 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, and/or other asset classes. The underlying
credit exposures must not include exposures that are themselves cash or synthetic
Except for SBA Pool Certificates or Development Company Participation Certificates,
eligible ABS must be issued on or after January 1, 2009. All or substantially
all of the credit exposures underlying eligible auto loan ABS (except auto
dealer floorplan ABS) must have been originated on or after October 1,
2007. All or substantially all of the credit exposures underlying eligible
student loan ABS must have had a first disbursement date on or after May 1,
2007. SBA Pool Certificates and Development Company Participation Certificates
must have been issued on or after January 1, 2008, regardless of the dates
of the underlying loans or debentures. The SBA-guaranteed credit exposures
underlying all other eligible small business ABS must have been originated
on or after January 1, 2008. Eligible credit card and auto dealer floorplan
ABS must be issued to refinance existing credit card and auto dealer floorplan
ABS, respectively, maturing in 2009 and must be issued in amounts no greater
than the amount of the maturing ABS.
Eligible auto loan ABS and credit card ABS must have an expected life of
no more than five years.
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.
Any U.S. company that owns eligible collateral may borrow from the TALF, provided
the company maintains an account relationship with a primary dealer. An
entity is a U.S. company for purposes of the TALF if it is (i) a business entity
or institution that is organized under the laws of the United States or a political
subdivision or territory thereof (U.S.-organized) and conducts significant
operations or activities in the United States (regardless of whether any such
entity has a parent company that is not U.S.-organized), including any U.S.-organized
subsidiary of such an entity; (ii) a U.S. branch or agency of a foreign bank
(other than a foreign central bank) that maintains reserves with a Federal
Reserve Bank; or (iii) an investment fund that is U.S.-organized and managed
by an investment manager that has its principal place of business in the United
States. Notwithstanding the foregoing, a U.S. company excludes any entity
that is controlled by a foreign government or is managed by an investment manager
controlled by a foreign government.
Transaction Structure and Pricing
Credit extensions under the TALF will be in the form of non-recourse loans
secured by eligible collateral. TALF loans will have a three-year term,
with interest payable monthly. TALF loans will not be subject to mark-to-market
or re-margining requirements.
TALF loans will be pre-payable in whole or in part at the option of the borrower,
but substitution of collateral during the term of the loan generally will not
be allowed. Any remittance of principal on eligible collateral must be
used immediately to reduce the principal amount of the TALF loan in proportion
to the loan’s original loan-to-value ratio (e.g., if the original loan-to-value
ratio was 90 percent, 90 percent of any remittance of principal must immediately
be repaid to the New York Fed).
Borrowers will be able to choose either a fixed or
floating interest rate on TALF loans. The fixed interest rate will be
100 basis points over the 3-year Libor swap rate, and the floating interest
rate will be 100 basis points over 1-month Libor. The New York Fed also will
assess an administrative fee equal to 5 basis points of the loan amount on
the settlement date of each loan transaction.
Preliminary collateral haircuts are as follows:
Expected Life (years)
Prime retail lease
Prime retail loan
For ABS with expected lives beyond seven years, haircuts will increase by
one percentage point for each additional year of expected life beyond seven
The New York Fed will announce monthly TALF loan subscription and settlement dates. On
each subscription date, borrowers will be able to request one floating-rate
and one fixed-rate TALF loan by indicating for each loan the eligible ABS collateral
they expect to pledge, the desired loan amount, and the desired interest rate
format (fixed or floating). Loan proceeds will be disbursed to the borrower,
contingent on receipt by the New York Fed’s custodian bank of the eligible ABS
collateral. The minimum size for each TALF loan will be $10 million.
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
Each borrower must use a primary dealer, which will act as agent for the borrower,
to access the TALF and must deliver eligible collateral to the New York Fed’s
Role of the U.S. Treasury Department
The New York Fed will create a special purpose vehicle (SPV) to purchase and manage
any assets received by the New York Fed in connection with any TALF loans. The
New York Fed will enter into a forward purchase agreement with the SPV under which
the SPV will commit, for a fee, to purchase all assets securing a TALF loan
that are received by the New York Fed at a price equal to the TALF loan amount plus
accrued but unpaid interest. The U.S. Treasury’s Troubled Assets
Relief Program (TARP) will purchase subordinated debt issued by the SPV to
finance the first $20 billion of asset purchases. If more than
$20 billion in assets are purchased by the SPV, the New York Fed will lend additional
funds to the SPV to finance such additional purchases. The New York Fed’s
loan to the SPV will be senior to the TARP subordinated loan and secured by
all the assets of the SPV.
Executive Compensation Requirements
The sponsor, as such term is defined in 17 C.F.R. § 229.1101 (Regulation AB),
of the eligible ABS (or the applicable entity specified in forthcoming TALF
certification documents) must have agreed to comply with, or already be subject
to, the executive compensation requirements in section 111(b) of the Emergency
Economic Stabilization Act of 2008.
The facility will cease making new loans on December 31, 2009, unless the Board
extends the facility.
1The Federal Reserve reserves the right to review and make adjustments to these terms and conditions – including size of program, pricing, loan maturity, collateral haircuts, and asset and borrower eligibility requirements – consistent with the policy objectives of the TALF.