On March 11, the Federal Reserve Bank of New York (FRBNY) released new documents relating to the Term Asset-Backed Securities Lending Facility (TALF), including, among others, a revised set of Frequently Asked Questions (FAQs) and a revised Master Loan and Security Agreement (MLSA). The revised documents do not include any information about proposed new asset classes, such as commercial mortgage-backed securities, but do provide information about certain changes to the program’s terms, including:
- an explanation in the FAQs that “if an eligible borrower posts eligible collateral there should be every expectation of financing” although the FRBNY “reserves the right not to fund in exceptional cases, such as upon revelation of materially adverse information about the borrower prior to settlement” which cases are “expected to be isolated and rare”;
- limitation of the FRBNY’s right to audit and inspect TALF borrowers so that it applies only to the extent relevant to such borrower’s TALF loans and collateral or its obligations under the MLSA;
- clarification that the non-recourse feature of a borrower’s TALF loan will not become inapplicable because the collateral is found to have been ineligible, unless the borrower knowingly breached a representation related to the eligibility of the collateral (and allowing the borrower to base its knowledge on its review of the offering materials for the collateral);
- removal of the concept of substitution of eligible collateral for deficient collateral from the MLSA;
- clarification that when calculating the FICO scores of auto loan or lease receivables for purposes of determining whether an auto asset-backed securities (ABS) deal is considered prime or subprime, receivables without a FICO score will be assigned the minimum FICO score of 300, instead of zero, and that commercial receivables may be included in the calculation in certain circumstances as long as no more than 15% of the trust’s receivables are commercial;
- clarification that eligible auto dealer floorplan ABS may also include ABS issued out of an existing or newly established floorplan master trust in which all or substantially all of the auto dealer floorplan lines of credit underlying the ABS were originated on or after January 1, 2009;
- clarification that none of the auditor’s attestation, the issuer certification or the indemnity undertaking will be required for Small Business Administration (SBA) Pool Certificates or Development Company Participation Certificates, but that pool assemblers will be required to deliver to the FRBNY an undertaking in connection with SBA Pool Certificates in the form found at
- statement that the regulatory capital treatment for TALF-financed ABS will be the same as that for ABS not financed by a TALF loan.
For more information about TALF, please see Katten’s Client Advisory on the topic.