Term Asset-Backed Securities Loan Facility: Terms and Conditions1 |
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| Effective July 2, 2009 |
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General Terms and Conditions
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Facility
The TALF is 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 businesses on more favorable terms by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally. General Terms and Conditions
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 or, in certain cases, five 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.
Eligible Collateral
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 eligible nationally recognized statistical rating organizations (NRSROs) and do not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. Eligible collateral will not include ABS that obtain such credit ratings based on the benefit of a third-party guarantee or ABS that an eligible NRSRO has placed on review or watch for downgrade. See the "Frequently Asked Questions” for further information regarding those NRSROs that are eligible under TALF for purposes of rating ABS. 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. All or substantially all of the underlying credit exposures must be auto loans, student loans, credit card loans, equipment loans, floorplan loans, insurance premium finance loans, small business loans fully guaranteed as to principal and interest by the U.S. Small Business Administration, receivables related to residential mortgage servicing advances (servicing advance receivables). For these purposes:
- Auto loans will include retail loans and leases relating to cars, light trucks, motorcycles and other recreational vehicles; commercial and government fleet leases; and commercial loans secured by vehicles and the related fleet leases and subleases of such vehicles to rental car companies. All or substantially all of the credit exposures underlying eligible auto loan ABS issued by a non-revolving trust must have been originated on or after October 1, 2007. Eligible auto ABS issued by a revolving (or master) trust must be issued to refinance existing auto ABS maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS. Eligible auto ABS may also be issued out of an existing or newly established master trust in which all or substantially all of the underlying exposures were originated on or after January 1, 2009. Eligible auto loan ABS must have an average life of no more than five years.
- Student loans will include federally guaranteed student loans (including consolidation loans) and private student loans. 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.
- Credit card receivables will include both consumer and corporate credit card receivables. Eligible credit card ABS issued by a revolving (or master) trust 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 credit card ABS must have an average life of no more than five years.
- Equipment loans will include retail loans and leases relating to business equipment. All or substantially all of the credit exposures underlying eligible equipment loan ABS must have been originated on or after October 1, 2007. Eligible equipment loan ABS must have an average life of no more than five years.
- Floorplan loans will include revolving lines of credit to finance dealer inventories. Eligible floorplan ABS issued by a revolving (or master) trust must be issued to refinance existing floorplan ABS maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS. Eligible floorplan ABS may also be issued out of an existing or newly established master trust in which all or substantially all of the underlying exposures were originated on or after January 1, 2009. Eligible floorplan ABS must have an average life of no more than five years.
- Insurance premium finance loans will include loans originated for the purposes of paying premiums on property and casualty insurance but will not include deferred payment obligations acquired from insurance companies. The issuer of the ABS must acquire ownership of each premium finance loan in its entirety (as opposed to merely a participation or beneficial interest). The securitization must include a back-up servicer obligated to service the loans upon the resignation or termination of the initial servicer. Eligible premium finance ABS issued by a revolving (or master) trust must be issued to refinance existing premium finance ABS maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS. Eligible premium finance ABS may also be issued out of an existing or newly established master trust in which all or substantially all of the underlying exposures were originated on or after January 1, 2009. Eligible premium finance ABS must have an average life of no more than five years.
- Small business 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. 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 servicing advance receivables will include receivables created by principal and interest, tax and insurance, and corporate advances made by Fannie Mae- or Freddie Mac-approved residential mortgage servicers under pooling and servicing agreements or similar servicing agreements. All or substantially all such mortgage servicing advances must have been advanced on or after January 1, 2007. Eligible servicing advance receivable ABS must have an average life of no more than five years.
The underlying credit exposures must not include exposures that are themselves cash ABS or synthetic ABS. For credit card, auto lease, floorplan and equipment lease securitizations, the underlying exposures may include financial assets that represent an interest in or the right to payments or cash flows from another asset pool (intermediate securities) created in the normal course of business solely to facilitate the issuance of an ABS. In such cases, for purposes of determining whether the exposures underlying an ABS meet the eligibility requirements for TALF collateral, the credit exposures underlying the intermediate securities are considered to be the underlying exposures of the ABS itself. Transaction Structure and Pricing
The interest rate on TALF loans secured by ABS backed by federally guaranteed student loans will be 50 basis points over 1-month LIBOR. The interest rate on TALF loans secured by SBA Pool Certificates will be the federal funds target rate plus 75 basis points. The interest rate on TALF loans secured by SBA Development Company Participation Certificates will be 50 basis points over the 3-year LIBOR swap rate for three-year TALF loans and 50 basis points over the 5-year LIBOR swap rate for five-year TALF loans. For three-year TALF loans secured by other eligible fixed-rate ABS, the interest rate will be 100 basis points over the 1-year LIBOR swap rate for securities with a weighted average life less than one year, 100 basis points over the 2-year LIBOR swap rate for securities with a weighted average life greater than or equal to one year and less than two years, or 100 basis points over the 3-year LIBOR swap rate for securities with a weighted average life of two years or greater. For TALF loans secured by private student loan ABS bearing a prime-based coupon, the interest rate will be the higher of 1 percent and the rate equal to “Prime Rate” (as defined in the MLSA) minus 175 basis points. For other TALF loans secured by other eligible floating-rate ABS, the interest rate will be 100 basis points over 1-month LIBOR. Haircuts
Collateral haircuts are as follows:
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ABS Average Life (years) |
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Sector |
Subsector |
0-<1 |
1-<2 |
2-<3 |
3-<4 |
4-<5 |
5-<6 |
6-<7 |
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Auto |
Prime retail lease |
10% |
11% |
12% |
13% |
14% |
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Auto |
Prime retail loan |
6% |
7% |
8% |
9% |
10% |
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Auto |
Subprime retail loan |
9% |
10% |
11% |
12% |
13% |
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Auto |
Motorcycle/other recreational vehicles |
7% |
8% |
9% |
10% |
11% |
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Auto |
Commercial and government fleets |
9% |
10% |
11% |
12% |
13% |
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Auto |
Rental fleets |
12% |
13% |
14% |
15% |
16% |
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Credit Card |
Prime |
5% |
5% |
6% |
7% |
8% |
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Credit Card |
Subprime |
6% |
7% |
8% |
9% |
10% |
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Equipment |
Loans and leases |
5% |
6% |
7% |
8% |
9% |
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Floorplan |
Auto |
12% |
13% |
14% |
15% |
16% |
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Floorplan |
Non-auto |
11% |
12% |
13% |
14% |
15% |
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Premium Finance |
Property and casualty |
5% |
6% |
7% |
8% |
9% |
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Servicing Advances |
Residential mortgage |
12% |
13% |
14% |
15% |
16% |
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Small Business |
SBA loans |
5% |
5% |
5% |
5% |
5% |
6% |
6% |
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Student Loan |
Private |
8% |
9% |
10% |
11% |
12% |
13% |
14% |
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Student Loan |
Gov’t guaranteed |
5% |
5% |
5% |
5% |
5% |
6% |
6% |
For ABS benefiting from a government guarantee with average lives of five years and beyond, haircuts will increase by one percentage point for every two additional years (or portion thereof) of average life at or beyond five years. For all other ABS with average lives of five years and beyond, haircuts will increase by one percentage point for each additional year (or portion thereof) of average life at or beyond five years.
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Newly Issued CMBS
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Terms and conditions specific to newly issued CMBS follow below. Newly Issued CMBS
Eligible Collateral
Eligible collateral for a TALF loan will include U.S. dollar-denominated, cash (that is, not synthetic) commercial mortgage-backed pass-through securities issued on or after January 1, 2009 (each a “newly issued CMBS”) as to which all of the following conditions are satisfied as of its date of issuance (except as the context otherwise requires).
- Assets: The assets underlying the newly issued CMBS must satisfy the conditions described under “Qualifying Assets” below.
- Pooling and Servicing Agreements: The pooling and servicing agreement and other agreements governing the issuance of the newly issued CMBS and the servicing of its assets must satisfy the conditions described under “Pooling and Servicing Agreements” below.
- Current Ratings: As of the TALF loan closing date, the newly issued CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-Eligible Rating Agencies and must not have a credit rating below the highest investment-grade rating category from any TALF CMBS-Eligible Rating Agency. Eligible collateral will not include a newly issued CMBS that obtains such credit ratings based on the benefit of a third-party guarantee or a CMBS that a TALF CMBS-Eligible Rating Agency has placed on review or watch for downgrade. See the “Frequently Asked Questions” for further information regarding TALF CMBS-Eligible Rating Agencies.
- Payment Terms: The newly issued CMBS must entitle its holders to payments of principal and interest (that is, must not be an interest-only or principal-only security). The newly issued CMBS must bear interest at a pass-through rate that is fixed or based on the weighted average of the underlying fixed mortgage rates. The newly issued CMBS must not be junior to other securities with claims on the same pool of loans.
- Issuer: The issuer of the newly issued CMBS must not be an agency or instrumentality of the United States or a government-sponsored enterprise.
Qualifying Assets
- Asset Types: Each newly issued CMBS must evidence an interest in a trust fund consisting of fully-funded, first-priority mortgage loans that are current in payment at the time of securitization, and not other CMBS, other securities or interest rate swap or cap instruments or other hedging instruments. A participation or other ownership interest in such a loan will be considered a mortgage loan and not a CMBS or other security if, following a loan default, the ownership interest is senior to or pari passu with all other interests in the same loan in right of payment of principal and interest. All mortgage loans must be fixed-rate loans. No mortgage loan may provide for interest-only payments during any part of its remaining term.
- Property Types: The security for each mortgage loan must include a mortgage or similar instrument on a fee or leasehold interest in one or more income-generating commercial properties. Each property must be located in the United States or one of its territories.
- U.S. Origination: 95 percent or more of the dollar amount of the credit exposures underlying the newly issued CMBS must be exposures that are originated by U.S.-organized entities or institutions or U.S. branches or agencies of foreign banks.
- Origination Dates: All mortgage loans must have been originated on or after July 1, 2008.
- In-Place Underwriting: All mortgage loans must have been underwritten or re-underwritten recently prior to the issuance of the newly issued CMBS, generally on the basis of then-current in-place, stabilized and recurring net operating income and then-current property appraisals.
Pooling and Servicing Agreements
The pooling and servicing agreement and other agreements governing the issuance of the newly issued CMBS and the servicing of its assets must contain provisions to the following effects.
- If the class of the newly issued CMBS is one of two or more time-tranched classes of the same distribution priority, distributions of principal must be made on a pro rata basis to all such classes once the credit support is reduced to zero as a result of both actual realized losses and “appraisal reduction amounts”.
- Control over the servicing of the assets, whether through approval, consultation or servicer appointment rights, must not be held by investors in a subordinate class of CMBS once the principal balance of that class is reduced to less than 25% of its initial principal balance as a result of both actual realized losses and “appraisal reduction amounts”.
- A post-securitization property appraisal may not be recognized for any purpose under such agreements if the appraisal was obtained at the demand or request of any person other than the servicer for the related mortgage loan or the trustee.
- The mortgage loan seller must represent that, upon the origination of each mortgage loan, the improvements at each related property were in material compliance with applicable law.
Loan Terms, Haircuts and Other Provisions
The general terms and conditions of the TALF program described above apply to TALF loans that are secured by a newly issued CMBS, except as modified by the following terms and conditions:
- The New York Fed expects collateral pools to be diversified with respect to loan size, geography, property type, borrower sponsorship and other characteristics, but will consider newly issued CMBS backed by nondiversified collateral on a case-by-case basis.
- The New York Fed will engage a collateral monitor and will reserve the right, until the issuance of the newly issued CMBS, to exclude specific loans from each pool. In addition, the New York Fed will retain the right to reject any newly issued CMBS as TALF loan collateral based on its risk assessment.
- The New York Fed expects the agreements governing the issuance of each newly issued CMBS and the servicing of its assets, and the terms and conditions of its underlying loans, to permit, and to provide in effect for, reporting that is sufficient to enable the New York Fed to monitor and evaluate its position as secured lender.
- Each TALF loan secured by a newly issued CMBS will have a three-year maturity or five-year maturity, at the election of the borrower. A three-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 3-year Libor swap rate. A five-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 5-year Libor swap rate.
- The collateral haircut for each newly issued CMBS with an average life of five years or less will be 15%. For newly issued CMBS with average lives beyond five years, collateral haircuts will increase by one percentage point for each additional year (or portion thereof) of average life beyond five years. No newly issued CMBS may have an average life beyond ten years.
- The average life of a newly issued CMBS will be the remainder of the original weighted average life determined by its issuer employing industry-standard assumptions.
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Legacy CMBS
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Terms and conditions specific to legacy CMBS follow below.  Legacy CMBS
Eligible Collateral
Eligible collateral for a TALF loan will include U.S. dollar-denominated, cash (that is, not synthetic) CMBS issued before January 1, 2009 (each a “legacy CMBS”) as to which all of the following conditions are satisfied.
- Assets: The assets underlying the legacy CMBS must satisfy the conditions described under “Qualifying Assets” below.
- Current Ratings: As of the TALF loan subscription date, the legacy CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-eligible rating agencies and must not have a credit rating below the highest investment-grade rating category from any TALF CMBS-eligible rating agency. Eligible collateral will not include a legacy CMBS that obtains such credit ratings based on the benefit of a third-party guarantee or a legacy CMBS that a TALF CMBS-eligible rating agency has placed on review or watch for downgrade. See the “Frequently Asked Questions” for further information regarding TALF CMBS-eligible rating agencies.
- Original Seniority: Upon issuance, the legacy CMBS must not have been junior to other securities with claims on the same pool of loans.
- Payment Terms: The legacy CMBS must entitle its holders to payments of principal and interest (that is, must not be an interest-only or principal-only security). Each legacy CMBS must bear interest at a pass-through rate that is fixed or based on the weighted average of the underlying fixed mortgage rates.
- Issuer: The issuer of the legacy CMBS must not be an agency or instrumentality of the United States or a government-sponsored enterprise.
Qualifying Assets
- Asset Types: Each legacy CMBS must evidence an interest in a trust fund consisting of fully-funded mortgage loans and not other CMBS, other securities or interest rate swap or cap instruments or other hedging instruments. A participation or other ownership interest in such a loan will be considered a mortgage loan and not a CMBS or other security if, following a loan default, the ownership interest is senior to or pari passu with all other interests in the same loan in right of payment of principal and interest.
- Property Types: The security for each mortgage loan must include (or, if payments due under the loan have been defeased, the security for the loan or its predecessor must have previously included) a mortgage or similar instrument on a fee or leasehold interest in one or more income-generating commercial properties. As of the TALF loan subscription date, at least 95 percent of the properties, by related loan principal balance, must be located in the United States or one of its territories.
Loan Terms, Haircuts and Other Conditions
The general terms and conditions of the TALF program described above apply to TALF loans that are secured by a legacy CMBS, except as modified by the following terms and conditions:
- The New York Fed will retain the right to reject any legacy CMBS as TALF loan collateral based on its risk assessment. In assessing risk, the New York Fed will engage a collateral monitor and will pay particular attention to legacy CMBS mortgage pools with large historical losses, concentrations of loans that are delinquent, in special servicing or on servicer watch lists or concentrations of subordinate-priority mortgage loans, and legacy CMBS mortgage pools that are not diversified with respect to loan size, geography, property type, borrower sponsorship and other characteristics.
- Each TALF loan secured by a legacy CMBS will have a three-year maturity or five-year maturity, at the election of the borrower. A three-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 3-year Libor swap rate. A five-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 5-year Libor swap rate.
- The TALF loan amount for each legacy CMBS will be the lesser of the dollar purchase price on trade date or the market price as of subscription date of the CMBS less the base dollar haircut (from par) indicated below. A legacy CMBS will not be eligible collateral for a TALF loan if either its dollar purchase price or market price as of subscription date is less than its base dollar haircut. The base dollar haircut for each legacy CMBS with an average life of five years or less will be 15% of par. For legacy CMBS with average lives beyond five years, base dollar haircuts will increase by one percentage point of par for each additional year (or portion thereof) of average life beyond five years.
- The weighted average life of a legacy CMBS will be calculated on the basis of (1) the current composition of the mortgage pool, as reflected in recent servicer and trustee reports, (2) the entitlement of the legacy CMBS to distributions (including, if applicable, its position in a time-tranched sequence of classes), (3) the assumption that “anticipated repayment dates” are maturity dates, and (4) a 0% CPR and the absence of future defaults. For this purpose, loans in default or special servicing will be considered as if they had not defaulted, and previously-modified loans will be considered according to their terms as modified.
TALF loans for legacy CMBS will be required to fund recent secondary market transactions between unaffiliated parties that are executed on an arm’s length basis at prevailing market prices.
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