After months of questions and anticipation, the Federal Reserve Bank of New York has at last set the initial subscription date for the Term Asset-Backed Securities Loan Facility (“TALF”) to be Tuesday, March 17, 2009, and the initial loan settlement date to be Wednesday, March 25, 2009. Going forward monthly subscriptions will be scheduled on the first Tuesday of every month.

The TALF is intended to stimulate the securitization markets, and ultimately the underlying consumer and small business loan markets, by providing government financing for purchases by qualified investors of eligible AAA-rated asset-backed securities. Today the scope of the TALF is limited to financing of purchases of AAA-rated asset-backed securities backed by auto, credit card, student, and SBA-guaranteed loans. Under its current terms, up to $200 billion may be lent in the aggregate. The Federal Reserve Bank of New York and the Treasury currently anticipate that financing of AAA-rated asset-backed securities backed by vehicle-fleet and equipment leases will be eligible for the April funding of the TALF. The Treasury Department and the Federal Reserve also are considering the terms and conditions on which it would be appropriate to include AAArated asset-backed securities backed by commercial mortgage loans (CMBS) and other classes of commercial loans in the TALF. This expansion could lead to up to $1 trillion in total available funding under the TALF Program.

Any U.S. company that owns eligible collateral may borrow from the TALF, but only through primary dealers, as the borrowers must have executed a customer agreement authorizing the primary dealer, among other things, to execute the master loan and security agreement as agent for the borrower and to perform all actions required on their behalf.

TALF loans will be non-recourse, will have a three-year term with interest payable monthly, and shall be pre-payable in whole or in part at the option of the borrower. TALF loans will be in an amount equal to the value of the pledged asset-backed securities minus a collateral haircut.

The interest rates on TALF loans will be as follows1: see table

The initial collateral haircuts on TALF loans will be as follows: see table

For asset-backed securities benefiting from a government guarantee with average lives beyond five years, collateral haircuts will increase by one percentage point for every two additional years of average life beyond five years. For all other asset-backed securities with average lives beyond five years, collateral haircuts will increase by one percentage point for each additional year of average life beyond five years.  

Implementation of the TALF program is just beginning and we expect it to have modifications and refinements in the forthcoming weeks and months. Earlier this week, on March 3, 2009, the Federal Reserve Bank of New York revised the terms and conditions of TALF to remove the executive compensation restrictions that are imposed on recipients of government support from the Troubled Asset Relief Program or other government programs under the Emergency Economic Stability Act of 2008.