Term Asset-Backed Securities Loan Facility: Frequently Asked Questions

Effective February 6, 2009
General

Why is the Federal Reserve establishing the TALF?
The asset-backed securities (ABS) market has been under strain for some months. This strain accelerated in the third quarter of 2008 and the market came to a near-complete halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS rose to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and U.S. Small Business Administration (SBA)-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.

How will the TALF work?
Under the TALF, the Federal Reserve Bank of New York will provide non-recourse funding to any eligible borrower owning eligible collateral. On a fixed day each month, borrowers will be able to request up to two three-year TALF loans. Loan proceeds will be disbursed to the borrower, contingent on receipt by the New York Fed’s custodian bank (custodian) of the eligible collateral, an administrative fee, and margin, if applicable. As the loan is
non-recourse, if the borrower does not repay the loan, the New York Fed will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets. The New York Fed will publish a Master Loan and Security Agreement (MLSA) which will provide further details on the terms that will apply to borrowings under the TALF. The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA.

Eligible Borrowers

Who may borrow under the TALF?
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 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 an 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.

May a U.S. subsidiary of a foreign entity borrow from the TALF?
A U.S.-organized operating subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary conducts significant operations or activities in the United States and (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government. A U.S.-organized investment fund subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary is managed by an investment manager that has its principal place of business in the United States; (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government; and (iii) the investment manager of the U.S. subsidiary is not directly or indirectly controlled by a foreign government.

What is an “investment fund” for purposes of the TALF eligible borrower definition?
An investment fund is any type of pooled investment vehicle, including a hedge fund, a private equity fund, and a mutual fund, or any vehicle that primarily invests in eligible collateral and borrows from the TALF.

What types of investment funds are eligible borrowers?
Investment funds that are organized in the United States and managed by an investment manager that has its principal place of business located in the United States are eligible borrowers for purposes of the TALF. However, any investment fund that is controlled by a foreign government or is managed by an investment manager controlled by a foreign government is not an eligible borrower for purposes of the TALF.

Example
InvestcoBermuda is a “master” investment fund organized in Bermuda that makes joint investments on behalf of InvestcoUS, a U.S.-organized investment fund, and InvestcoCayman, a Cayman Islands-organized investment fund. InvestcoBermuda, InvestcoUS, and InvestcoCayman are all managed by an investment manager with its principal place of business in the United States. Only InvestcoUS is an eligible borrower because it is the only investment fund that is U.S.-organized. If, however, InvestcoBermuda establishes Newco, a subsidiary investment fund, in the United States and hires its U.S.-based investment manager to manage Newco, Newco would be an eligible borrower for purposes of the TALF.

What is the definition of “controlled” for purposes of the eligible borrower definition?
For purposes of the eligible borrower definition, a foreign government controls a company if, among other things, the foreign government owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company.

Can a newly formed investment fund borrow from the TALF?
Yes, so long as it satisfies all the eligible borrower requirements set forth above.

Eligible Collateral

What types of ABS are eligible collateral under the TALF?
Eligible collateral (eligible ABS) 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 small business 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.

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 must be auto loans, student loans, credit card loans, or small business loans fully guaranteed as to principal and interest by the SBA. The set of permissible underlying credit exposures of eligible ABS may be expanded over time. The underlying credit exposures must not include exposures that are themselves cash or synthetic ABS. The expected life for credit card or auto loan ABS cannot be greater than five years.

Eligible ABS must be cleared through the Depository Trust Company and, except for SBA Pool Certificates or Development Company Participation Certificates, 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.

What level of assurance will be required from the sponsor’s accountants that the ABS is TALF eligible?
An accounting firm retained by the sponsor shall provide a certification, in a form acceptable to New York Fed, indicating that the ABS is TALF eligible. The accounting firm must be a nationally recognized certified public accounting firm that is registered with the Public Company Accounting Oversight Board. An example of an acceptable form can be obtained from New York Fed by e-mailing the New York Fed Compliance Function at talf.compliance@ny.frb.org.

What information must the issuer and sponsor include in the prospectus or other offering document of an ABS in order to represent that the ABS is eligible collateral for a TALF loan?
In addition to information required by applicable laws, the issuer and sponsor must ensure that the information included in a prospectus or other offering document of an ABS they represent as eligible collateral under the TALF includes a signed certification (the form of which will be available on the New York Fed TALF website) indicating, among other items, that (a) the ABS is TALF eligible, (b) an accounting firm retained by the sponsor has provided a certification, in a form acceptable to the New York Fed, that the ABS is TALF eligible, (c) the sponsor (or the relevant entity as specified in forthcoming TALF certification documents) has agreed to comply with the executive compensation requirements of the TALF and (d) the issuer and sponsor have executed an undertaking to the New York Fed indemnifying it from any losses it may suffer if such certifications are untrue.

What types of receivables are TALF eligible?
Auto-related receivables will include retail loans and leases relating to cars, light trucks, motorcycles and recreational vehicles (RVs), and will also include auto dealer floorplan loans. Commercial, government and rental fleet leases of cars, trucks and light trucks will not be eligible.

For TALF purposes, eligible credit card receivables include both consumer and corporate credit card receivables. Student loan receivables include federally guaranteed student loans (including consolidation loans) and private student loans. SBA loans include loans, debentures, or pools originated under the SBA’s 7(a) and 504 programs, provided they are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government and meet all other TALF eligibility requirements.

What does “all or substantially all” mean in the context of determining whether the credit exposures underlying an ABS meet the U.S.-domiciled obligors criteria?
“All or substantially all” in this context means 95 percent or more of the dollar amount of the credit exposures underlying the ABS.

What does “all or substantially all” mean in the context of determining whether the credit exposures underlying an ABS meet the date of origination criteria?
“All or substantially all” in this context means 85 percent or more of dollar amount of the credit exposures underlying the ABS.

Is there a minimum or maximum maturity limit for ABS that can collateralize TALF loans?
There is no minimum limit. If an ABS’s maturity is shorter than the 3-year maturity of the TALF loan, the TALF loan will mature upon maturity of the ABS collateral for that loan. The expected life for credit card or auto loan ABS cannot be greater than five years.

What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?
Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.

Why are there no loan origination date restrictions for credit card and dealer floorplan ABS?
Unlike auto and student loan ABS, which are backed by a fixed pool of loans, credit card and dealer floorplan ABS are backed by dynamic pools of receivables that constantly change as customers and vehicle dealerships draw on and repay their credit lines. The pools include both seasoned and recently originated receivables. Due to the quick turnover and revolving nature of the underlying pools, the refinancing of existing credit card and dealer floorplan ABS largely fund newly originated receivables, consistent with the policy goal of the TALF.

Are ABS that are rated in the highest investment grade rating category but are on review or watch for downgrade TALF eligible?
No, eligible ABS cannot be on review or watch for downgrade.

Are privately placed ABS eligible collateral for a TALF loan, provided they meet all of the eligibility requirements?
Yes.

Are AAA credit ratings achieved using a third-party guarantee applicable for TALF eligibility?
No, an eligible ABS must obtain the necessary highest investment grade ratings without the benefit of a third-party guarantee.

Does the requirement that eligible auto dealer floorplan and credit card ABS be issued to refinance existing ABS maturing in 2009 apply at the individual master trust level or at the issuer level?
The refinancing limitation applies at the issuer level rather than the individual trust level. For example, if an issuer has four master trusts with a total of $20 billion in ABS maturing in 2009, the maximum amount of TALF-eligible ABS the issuer could issue in 2009 is $20 billion; it may issue that $20 billion in ABS from one trust or from multiple trusts.

Are credit card ABS and auto dealer floorplan ABS that amortize in 2009 due to triggers related to the asset-backed commercial paper conduit that owns them included in the calculation of ABS maturing in 2009?
Yes.

Must a credit card or auto dealer floorplan ABS issuer issue eligible ABS concurrent with the maturation of the ABS the eligible ABS is refinancing?
No. Issuers may pre-fund their maturing ABS with eligible ABS up to three months in advance. Issuers also have the option to refinance ABS that matured in 2009 in bulk on any date up to December 31, 2009.

How will the issuance limits on credit card ABS and dealer floorplan ABS be enforced?
Issuers of credit card ABS and auto floorplan ABS must state in their prospectuses that the aggregate amount of eligible ABS they have issued does not exceed the amount of their 2009 ABS maturities. Issuers may issue ABS in excess of their 2009 maturities; however, these excess amounts will not be eligible collateral for TALF loans.

For ABS backed by SBA loans, are explicit credit ratings required?
U.S. dollar-denominated cash ABS backed by loans, debentures, or pools under the SBA’s 7(a) and 504 programs will be eligible as long as all of the underlying credit exposures, or the ABS themselves, are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. These securities do not require an explicit credit rating.

Can a company that originates loans securitize them, acquire the AAA-rated tranche of the securitization, and finance it using the TALF?
No, 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.

How is "affiliate of the borrower" defined for purposes of determining eligible collateral?
An affiliate of a borrower means any company that controls, is controlled by, or is under common control with the borrower. For this purpose, a person or company controls a company if, among other things, it (1) owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company; or (2) consolidates the company for financial reporting purposes.

May investors borrow against ABS they already own?
Yes, an investor may borrow against any eligible ABS. Eligible ABS must be issued on or after January 1, 2009, but need not be issued on the same day the investor borrows from the TALF.

Operational Mechanics

How does an entity participate in the TALF program?
An eligible borrower must be a customer of a primary dealer and must have executed a customer agreement authorizing the primary dealer, among other things, to execute the master loan and security agreement (MLSA) as agent for the borrower and to perform all actions required on their behalf. The MLSA will provide further details on the requirements that will apply to the entities seeking to borrow from the New York Fed under the TALF.

What is the TALF process from subscription to settlement?
Prior to each subscription date, each primary dealer will collect from prospective eligible borrowers the amount of each borrower’s loan request, the interest rate format desired by the borrower (that is, fixed or floating; borrowers may request one of each), the CUSIPs of the ABS the borrower expects to deliver and pledge to the New York Fed, and the prospectuses and/or offering documents of the ABS expected to be pledged. On the subscription date each primary dealer will submit this information to the New York Fed’s custodial agent for review and will also submit to the New York Fed an aggregate loan request amount for all its customers that seek a fixed-rate TALF loan, and an aggregate loan request amount for all its customers that seek a floating-rate TALF loan.

No fewer than two business days before the loan settlement date, the custodian will send a confirmation to the primary dealer listing each borrower’s loan amount and the ABS expected to be delivered on the loan settlement date. The confirmation will also include the administrative fee and margin (the dollar amount of the haircut), if applicable, to be collected by the primary dealer and paid on the loan settlement date.

On the loan settlement date, the borrower or its agent will deliver against payment the ABS collateral, administrative fee and applicable margin to the New York Fed’s settlement account at the custodian.

How will the process work if a new ABS issue closes on the same day as the TALF loan settlement date?
The borrower must remit the margin to the New York Fed’s settlement account at the custodian in order for the issuer to receive the full purchase price of the purchase by the investor/borrower. If the borrower is allocated less than expected of the new ABS issue, the borrower must inform the New York Fed through its primary dealer by a specified date so that an adjustment may be made to the margin and administrative fee prior to the loan settlement date.

Must an eligible borrower own the ABS it plans to pledge as collateral for a TALF loan at the time it subscribes for the loan?
An eligible borrower need not own the ABS on the subscription date. However, in order for the primary dealer and custodian to perform their due diligence, the borrower must inform the primary dealer by the subscription date of the CUSIP of the ABS it intends to deliver as collateral on the loan settlement date.

Is there a penalty if an investor fails to provide a security on settlement date?
No, although the New York Fed expects the ABS collateral identified by CUSIP in the confirmation sent to the primary dealer by the custodian to be delivered on the loan settlement date. Should any portion of expected ABS collateral not be received on settlement date, that portion of the loan will be cancelled and the administrative fee will not be refunded.

When will the TALF become operational?
The initial TALF subscription date is expected to be announced in February 2009, contingent on completion of the work necessary to operationalize the TALF.

Over what time period will the TALF operate?
The facility will cease making loans on December 31, 2009, unless the Board of Governors extends the facility.

Will there be a set schedule for TALF subscription and loan settlement dates?
Yes, the New York Fed will publish a schedule of the monthly TALF subscription and loan settlement dates. The initial TALF subscription and loan settlement dates will be announced in February.

What will be the length of time between the announcement of terms and subscription date?
To allow market participants sufficient time to prepare to participate in the initial TALF loan subscription, the terms for the initial subscription will be announced approximately two weeks before the subscription date. The initial loan settlement date will occur approximately two weeks after the initial subscription date. Based on experience with the initial subscription, the Federal Reserve will review the term announcement and loan settlement timeframes and announce a more detailed future TALF schedule.

Will there be a limit on how often an eligible borrower can borrow?
No, an eligible borrower may request loans at each monthly subscription, although it will only be permitted one fixed rate and one floating rate loan each month.

What is the minimum loan amount that can be requested by an individual borrower?
A borrower must request a minimum of $10 million for each fixed and floating rate loan.

Is there a maximum TALF loan amount?
No.

What is the maturity of a TALF loan?
TALF loans have a three-year maturity.

May a borrower pledge more than one security as collateral for a single loan?
Yes, a borrower may pledge any combination of eligible ABS as collateral for a single TALF loan. However, a fixed rate ABS must be pledged against a fixed rate loan and a floating rate ABS against a floating rate loan.

Will prepayment of the loan be permitted?
Yes. A borrower may prepay a TALF loan in full or in part at any time. If a borrower makes a partial prepayment, collateral securing its loan will be released on a pro-rata basis, taking into consideration minimum ABS denominations.

Are there any penalties associated with prepayment of a TALF loan?
No.

May a borrower substitute collateral during the term of its loan?
No, collateral substitution is not permitted.

If the ABS collateral supporting a TALF loan is sold, can the TALF loan be transferred with that collateral?
A borrower may assign all of its obligations with respect to a TALF loan to another eligible borrower with the prior consent of the New York Fed.

No assignments will be consented to after December 31, 2009, unless it shall be determined, at the Federal Reserve’s sole discretion, that unusual and exigent circumstances exist in the financial markets.

How are principal payments on eligible collateral allocated between the borrower and repayment of principal on the TALF loan?
Any remittance of principal on eligible collateral must be used immediately to reduce the principal amount of the TALF loan in proportion to the original loan-to-value ratio. For example, if the original loan-to-value ratio was 90 percent, 90 percent of any remittance of principal on the ABS must immediately be repaid to the New York Fed.

What happens if a borrower does not repay its loan?
In the event a borrower fails to pay required principal or interest on its TALF loan, the New York Fed will enforce its rights in the collateral.

Is there a grace period associated with a borrower’s obligation to pay interest on a TALF loan?
Yes, a borrower has a grace period of 30 days during which to pay interest on a TALF loan if the net interest on the pledged ABS is not sufficient to cover the interest payment associated with the loan. After the grace period, if the loan remains delinquent, the New York Fed will enforce its rights to the TALF loan collateral.

When a borrower elects to surrender the collateral in satisfaction of a loan, can it do so by surrendering specific collateral or is the entire pool of collateral surrendered?
The entire pool of collateral must be surrendered. A borrower that desires to effect a collateral surrender must make a request through its primary dealer.

Will there be a separate facility for each ABS asset class?
No. Borrowers with eligible ABS of all asset types will receive loans from the same facility.

What fees are associated with the TALF?
On each loan’s settlement date, the borrower must pay to the New York Fed’s settlement account an administrative fee equal to 5 basis points of the loan amount, which will cover the New York Fed’s fees associated with the facility.

Haircuts and Rates

What is the initial haircut schedule for each asset type?
Under the TALF, the New York Fed will lend to each borrower an amount equal to the value of the pledged ABS minus a haircut. Preliminary collateral haircuts are as follows:

ABS Expected Life (years)

Sector

Subsector

0-1

1-2

2-3

3-4

4-5

5-6

6-7

Auto

Prime retail lease

10%

11%

12%

13%

14%

Auto

Prime retail loan

6%

7%

8%

9%

10%

Auto

Subprime retail loan

9%

10%

11%

12%

13%

Auto

Floorplan

12%

13%

14%

15%

16%

Auto

RV/motorcycle

7%

8%

9%

10%

11%

Bank Card

Prime

5%

5%

6%

7%

8%

Bank Card

Subprime

6%

7%

8%

9%

10%

Retail Card

Prime

6%

7%

8%

9%

10%

Retail Card

Subprime

7%

8%

9%

10%

11%

Student Loan

Private

8%

9%

10%

11%

12%

13%

14%

Student Loan

Gov’t guaranteed

5%

5%

5%

6%

7%

8%

9%

Small Business

SBA loans

5%

5%

5%

5%

6%

7%

8%

For ABS with expected lives beyond seven years, haircuts will increase by one percentage point for each additional year of expected life beyond seven years.

Will the haircuts be the same for all borrowers for the same assets?
Haircuts will vary across asset classes and securities’ expected lives, but not across borrowers.

What spreads will be offered on the TALF loans on the first subscription date?
Borrowers will be able to choose either a fixed or a floating rate on each TALF loan. The interest rate on floating-rate loans will be 100 basis points over 1-month LIBOR. The interest rate on fixed-rate loans will be 100 basis points over the 3-year LIBOR swap rate. Interest rates will be set two days prior to each TALF loan settlement date.

How are the interest rates on TALF loans determined?
The interest rates on TALF loans are set with a view to providing borrowers an incentive to purchase newly issued eligible ABS at yield spreads higher than in more normal market conditions but lower than in the highly illiquid market conditions that have prevailed during the recent credit market turmoil.

Will the interest rate spread and haircuts change from month to month?
The Federal Reserve will periodically review and, if appropriate, adjust the TALF interest rate spread and haircuts for new loans, consistent with the policy objectives of the TALF.

Other

What is the primary dealer’s role?
The MLSA will specify a primary dealer’s roles and responsibilities, including the agency functions to be performed on behalf of its customers. Among other duties, the primary dealer shall:

  • Collect from its customers the amount of each borrower’s fixed and/or floating rate loan request, the CUSIPs of the ABS the borrower expects to deliver and pledge against the loan, and the prospectuses and/or offering documents of the ABS expected to be pledged;
  • Submit one aggregate loan request amount on behalf of its customers for a fixed rate TALF loan, and another for a floating rate TALF loan in the form and manner specified by the New York Fed;
  • On the subscription date, submit a file to the custodian containing a detailed breakdown of the loan requests which will include the identity of the individual borrowers, the amount of each borrower’s loan request, and the material information collected above;
  • Work with its customers to resolve any discrepancies identified by the custodian;
  • Collect from its customers and deliver to the custodian the administrative fee and any applicable margin required to be delivered to the custodian on the loan settlement date;
  • Periodically receive from the custodian the portion of the distributions on the collateral that are to be paid to its customers and disburse such payments in accordance with the instruction of its customers (i.e, borrowers) and provide any applicable tax report to borrowers; and
  • Receive, or forward, notices on behalf of its customers.

In addition, a primary dealer will be required to apply its internal customer identification program and due diligence procedures (“Know Your Customer” program) to each borrower and represent that each borrower is eligible. A primary dealer will be required to provide the New York Fed with information sufficient to describe the dealer’s customer risk assessment methodology. All primary dealers planning to participate in the TALF must contact the New York Fed Compliance Function at talf.compliance@ny.frb.org for further guidance.

How do sponsors comply with the executive compensation requirements of the TALF?
In order for ABS to be eligible collateral for a TALF loan, the sponsor of the securitization that issues the ABS (or the applicable entity specified in forthcoming TALF certification documents) must be in compliance with the executive compensation requirements of the TALF. The chief executive officer (“CEO”) or other authorized representative of the sponsor or other applicable entity must complete the executive compensation certification form which will be available on the New York Fed’s website and submit it to the New York Fed before the sponsor or entity’s ABS can be offered as eligible collateral.

In order to remain compliant with the executive compensation requirements, each sponsor or applicable entity must certify compliance on an annual basis. The annual certification process will require the signature of the company's CEO or authorized representative as well as the company's auditor.

If a sponsor or applicable entity fails to certify its compliance annually, its securities will not be accepted as eligible collateral on subsequent TALF subscription dates.

Will borrowers have to satisfy the executive compensation requirements?
No.

What is the legal basis for the TALF?
The TALF is authorized under section 13(3) of the Federal Reserve Act, which permits the Federal Reserve Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations.

What is Treasury's role in the TALF?
The U.S. Treasury’s Troubled Assets Relief Program (TARP) will purchase $20 billion of subordinated debt in an SPV created by the New York Fed. The SPV will purchase and manage any assets received by the New York Fed in connection with any TALF loans. Residual returns from the SPV will be shared between the New York Fed and the U.S. Treasury.

How will the Federal Reserve report lending under the TALF?
Balance sheet items related to the TALF will be reported on the H.4.1 weekly statistical release entitled “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks.” There will be an explanatory cover note on the release when items are added.

What measures have been put in place to protect the TALF against credit losses and fraud?
The Federal Reserve and the Treasury have structured the TALF to minimize credit risk for the U.S. government to the maximum extent possible, consistent with achieving the program’s purpose of encouraging lending to consumers and small businesses. Examples of the structural features of the TALF that minimize credit risk include the following: (i) investors are required to supply risk capital in the form of haircuts; (ii) the TALF haircut methodology is risk sensitive across asset class and maturity; and (iii) the TALF only accepts collateral that has received two credit ratings in the highest investment-grade rating category or that is fully U.S. government-guaranteed.

The New York Fed also has designed a number of measures to discourage fraudulent activity associated with the TALF. The New York Fed has established a compliance framework that includes a borrower acceptance standard, an assurance program related to borrower eligibility requirements, on-site inspection rights over borrowers, and the right to reject a borrower for any reason. The New York Fed has also retained the right to review all loan files held by the custodian pertaining to each borrower. Furthermore, the New York Fed is establishing a telephone and internet-based hotline for reporting of fraudulent conduct or activity associated with the TALF.

In addition, an ABS issuer must provide a certification in connection with the prospectus that the ABS is TALF eligible, that a nationally recognized certified independent accounting firm has certified that the ABS is TALF eligible, and that the issuer has not made any untrue statements of material fact to an NRSRO to obtain the credit rating of the ABS. If the collateral provided for a TALF loan or a borrower who has participated in the program is found to be ineligible, the non-recourse feature of the loan becomes inapplicable. If the collateral is ineligible, the borrower must either replace the collateral with other eligible collateral or repay the loan. If the borrower is ineligible, the borrower must repay the loan. Moreover, as indicated above, to assist the New York Fed in screening borrowers, primary dealers are required to apply their internal customer identification program and due diligence procedures to each borrower and escalate information relating to those borrowers assessed as high risk to the New York Fed.

Where should questions regarding the TALF be directed?
Questions should be directed to the New York Fed’s Public Affairs department: 212-720-6130 or via email to TALF@ny.frb.org. An investor call is scheduled for Thursday, February 12, 2009, at 3pm, with a call-in number of 1-866-216-6835 (participant code: 296081). A selection of questions received in advance via email will be addressed during that call.

FAQs: December 19, 2008 ››