On Tuesday, May 12, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced additional details regarding the Term Asset-Backed Securities Loan Facility (“TALF”). The TALF is a financial crisis-era liquidity facility designed to help meet the credit needs of consumers and businesses by facilitating the issuance of asset-backed securities (“ABS”).
The Board’s announcement contains a revised term sheet and extensive FAQs, which describe how the Federal Reserve Bank of New York will operate the TALF. We have prepared a blackline of this term sheet against the previous TALF term sheet published on April 9, 2020. The term sheet and FAQs, along with a to-be-published Master Loan and Security Agreement, will constitute the terms and conditions applicable to each TALF loan. The FAQs cover borrower eligibility, eligible ABS, eligible underlying assets for ABS, master trust requirements, credit ratings, and haircuts for ABS collateral, among other topics. The FAQs also note that ABS whose underlying assets are Small Business Administration loans originated under the Paycheck Protection Program will be eligible for the TALF.
In addition, the Board’s announcement describes the information that it will disclose on a monthly basis regarding the TALF and the Paycheck Protection Program Liquidity Facility (“PPPLF”). This information will include the names of TALF and PPPLF borrowers and other participants, amounts borrowed, interest rate charged, and value of collateral pledged, among other details about individual participants and the program generally. The disclosure will identify each borrower’s “material investors,” defined as any person directly or indirectly owning 10% or more of any class of securities in the entity.
These updates follow the Board’s re-establishment of the TALF on March 23, 2020. The Board published an initial term sheet then and a revised term sheet on April 9, 2020. The Board accepted comments on the TALF through April 16, 2020. (See here for our client alert on the Board’s initial establishment of the TALF and other credit facilities.)
The announcement comes on the same day that Board Vice Chair for Supervision Quarles testified before the Senate Banking Committee and that the Federal Reserve Bank of New York (“FRBNY”), which also will administer the TALF, announced that the Secondary Market Corporate Credit Facility has begun purchasing exchange-traded funds. The FRBNY has not provided a launch date for the TALF.