The Federal Reserve today released revised terms and conditions and frequently asked questions detailing operational aspects of the Term Asset-Backed Securities Loan Facility (TALF). TALF, which the Federal Reserve authorized on November 25, 2008, will enable U.S. investors in certain asset-backed securities (ABS) to fund their purchases of ABS issued on or after January 1, 2009 through a non-recourse credit facility funded by the Federal Reserve Bank of New York and secured by the ABS. Eligible ABS must be rated the highest ratings category by at least two nationally recognized statistical ratings organizations (NRSROs), and cannot be rated less than the highest ratings category by any NRSRO. In addition, ABS must consist of securities backed by automobile loans or leases, credit card loans, student loans or small business loans guaranteed by the Small Business Administration. Furthermore, eligible ABS cannot consist of securities issued by the prospective TALF borrower (or any of its affiliates). Because the debt issued under TALF is non-recourse to the borrower, in the event of a default by the borrower, the Federal Reserve will enforce its rights as secured party in the ABS and sell the ABS to a special purpose vehicle established specifically for TALF, which will manage the assets.

The guidance issued today clarifies certain points of the program (including the category of eligible collateral) and alters previously disclosed terms, such as extending the maturity from one to three years and providing for all eligible borrowers to participate, and no longer requiring participation through an auction process.