Today, the Federal Reserve Board announced the expansion of the Term Asset Backed Securities Loan Facility (TALF) to include “certain high-quality commercial mortgage-backed securities [or legacy CMBS] issued before January 1, 2009” beginning in July.
Earlier this month, the Federal Reserve announced that it would expand the range of eligible TALF collateral to include newly issued CMBS and securities backed by insurance premium finance loans, but this is the first addition of a legacy asset to the list of eligible TALF collateral. In March, the Federal Reserve announced that it would evaluate the merits of expanding the “list of eligible collateral for TALF loans to include certain legacy securities.” The Federal Reserve anticipates that the inclusion of legacy CMBS in the facility will “restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions.”
The Federal Reserve also included in its release links to the legacy CMBS term sheet and to its frequently asked questions regarding the inclusion of legacy CMBS in the facility. The announcement also included a link to the Federal Reserve’s revised guidance for “newly issued asset-backed securities and CMBS.” The creation of the TALF was announced last November.
In order to be “eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages” and meet certain criteria as outlined in the related term sheet “designed to protect the Federal Reserve and the Treasury from credit risk.” Both eligible newly issued and legacy CMBS “must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and must not have a rating below triple-A from any of these rating agencies.” The Federal Reserve is presently “formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve’s credit programs.