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Showing posts with label
Term Asset-Backed Loan Facility.
Show all posts
Showing posts with label
Term Asset-Backed Loan Facility.
Show all posts
This morning I ran some searches in Westlaw Business' Registrations & Prospectuses database to try to gauge whether TALF is having an effect on asset-backed securitization. The asset-backed finance market has, famously, evaporated since the credit crisis began. In January of 2006, for example, WB records 99 asset-backed transactions. This January, there were 5. February, with 3 deals, marked the low water mark. In the last 30 days there have been 16 deals. 4 were already in process before TALF was announced and 5 aren't TALF elgible because they're backed by ineligible assets (mortgages, mostly).
That leaves nine deals that can be directly attributed to TALF: 5 auto loan pools, 2 credit card pools, and 2 student loan pools. These nine deals total about $11 billion.
Two of the auto loan deals are being originated by large car dealerships (World Omni Financial and CarMAx Auto Financing).
An article in this weekend's Washington Post set off an ado by reporting that the Federal Reserve is circumventing the executive compensation restrictions in the American Recovery and Reinvestment Act (HR 1). The Fed is distributing money through special purpose entities so that TARP money isn't, technically, coming from the government. Whether you're fer or agin you have to wonder why its being done this way.
Section 111(a)(3) of HR 1 applies executive compensation limits to any entity receiving "financial assistance" under TARP. The New York Fed has decided that financial assistance depends on intent. The TALF program, for instance, is intended to stimulate consumer auto lending. Therefore, ABS sponsors participating in the program aren't being bailed out - people who buy cars are.
The New York Fed explains that "Executive compensation restrictions are targeted towards ensuring that executives of institutions that receive government support are not unjustly enriched at the taxpayers’ expense. Given the goals of the TALF and the desire to encourage market participants to stimulate credit formation and utilize the facility, the restrictions will not be applied to TALF sponsors."
This appears to be a straightforward question of Congressional intent. So, why not just ask Congress? Why all the sneaking around? My guess is that the Fed is afraid to raise the issue at all. Even if Congress did draft too broadly, chances are no one is going to have the nerve to face the public wrath that would flow from loosening executive compensation restrictions in the bailout law.
Yesterday, Nissan Auto Recievables filed an 8-K attaching as exhibit 1.1 what appears to be the first TALF-specific underwriting agreement. Bank of America Securities is the underwiter. Section 7 of the agreement "Conditions of the Obligations of the Underwriter" contains a number of TALF-related obligations and there is an attached "Form of TALF Undertaking."
In the roundup column of Westlaw Business' Legal Currents they mention the advent of TALF-specific prospectuses. To be a TALF-eligible investment asset-backed securities must have been issued since January 1st, be rated triple-A, and be backed by a pool of either credit card or auto loan payments.
Not many asset-backed deals have been registered or issued since January 1st. I used Westlaw Business' Registrations and Prospectuses search to find out which were TALF-eligible:
Citibank: 3 billion, credit card receivables, AAA
Nissan: 2.5 billion, auto loan receivables, AAA
Ford: 2.2 billion, auto loan receivables, AAA
Harley Davidson: 5 billion, auto loan receivables, AAA
AMEX: 50 billion, credit card receivables, AAA
Chase: shelf filed, credit card receivables, expected AAA
Honda: 1.3 billion, auto loan receivables, AAA
Four of these seven issuers have produced TALF-specific prospectuses with TALF-related risk factors and an attached "Certificate of TALF Eligibility." Three of the four are auto companies (and the fourth is Citibank).
Citibank
Nissan
Harley Davidson
Ford
The New York Fed is about to start handing out money to anyone smart/dumb/crazy enough to invest in the asset-backed securities market. The idea is that giving big investors money to buy securities backed by car loans, credit card repayments or small business loans will create a market for those ABS securities. If a market develops, credit card and auto loan writers will have incentive to write more loans because they'll be able to package them and sell them to investors. So, the money starts with the big investors (hedge funds, pension funds, etc.) and eventually trickles down to you so you can buy a car.
The way regulations currently stand, there's a possibility that we'll never know who got the money or what they bought. If the securities are being sold in big blocks at an auction run by the NY Fed there won't be any obligation to register them and if the buyers are non-public investors like hedge funds there won't be any obligation to disclose the terms of the transaction.
Today's the day that investors start applying to participate in the New York Fed's upcoming auction of triple-A rated asset securitizations through the Term Asset-Backed Securities Loan Facility (TALF - am I the only one who can has to check every time because I can't remember what TALF stands for?). According to the very handy TALF Cheat Sheet from Morrison & Forester, TALF loans are available to buy ABS secured by credit card loans, auto loans and Small Business Administration loans.
ABS financing is almost completely moribund. According to Thomson Reuters' 4th Q '08 Debt Capital Markets league table ABS deals are down 82% since the beginning of last year. TALF is supposed to get that ABS market humming again. So, the stakes are high for the New York Fed. As Reuters reports, they have rejigged the TALF master agreement to make it easier on investors. But, as Westlaw Business points out, caution is still warranted when entering the ABS market.
Investors will be applying to participate in an auction for asset-backed securities issued since January. The auction winners will get loans under TALF.
The New York Fed has revised the Master Agreement and accompanying documentation for the Term Asset-Backed Securities Loan Facility. They have also released marked-up versions showing the changes from the original documents released last week.
