Earlier this month, the Board of Governors of the US Federal Reserve System (Federal Reserve) and the US Treasury Department announced the details of the Term Asset-Backed Securities Loan Facility (TALF). The general terms of the programme were announced in mid-February.

TALF aims to jump-start the stalled securitisation markets by providing non-recourse loans to hedge funds and other purchasers of certain AAA-rated asset-backed securities (ABS). These ABS would be backed by newly and recently originated automobile loans, credit card loans, student loans, and Small Business Administration-guaranteed small business loans, thereby reopening lending to consumers for automobiles, education and credit cards and to small businesses.

The first loans were made on 25 March 2009 with a maturity date of 26 March 2012. (For further details on TALF, click here.)

The most significant changes since the mid-February announcement include:

Under TALF, borrowers or issuers submit a subscription through one of the primary dealers recognised by the Federal Reserve Bank of New York (FRBNY). An eligible borrower includes any US company that owns eligible collateral and maintains an account relationship with a primary dealer. Any entity controlled by a foreign government or managed by an investment manager controlled by a foreign government will not be an eligible borrower. A foreign government is considered to control a company if, among other things, it owns, controls, or holds 25% or more of a class of voting securities of the company. The "issuer" for purposes of this issuer certification requirement, in both public and private offerings of TALF eligible ABS, will be the legal entity that issues the ABS.

Eligible collateral includes US dollar-denominated cash ABS that have a long-term credit rating in the highest investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSRO) and do not have a long-term credit rating below the highest investment-grade rating category from a major NRSRO.

In addition to any information required by applicable laws, the issuer and sponsor must ensure that the prospectus or other offering document of an ABS they represent as eligible collateral under TALF include a signed certification indicating, among other items, that:

Operationally, the FRBNY will:

The FRBNY has published a master loan and security agreement (MSLA), which provides additional details on all of the terms that will apply to borrowings under TALF. Borrowers are made parties to the MSLA by the relevant primary dealer acting on their behalf. While the MSLA can be amended in the FRBNY's sole discretion, so that it should be monitored by borrowers before each new borrowing, no amendment will affect the rights or obligations of a borrower or primary dealer in respect of a loan outstanding before the effectiveness of the amendment.

The FRBNY will announce the monthly TALF loan subscription and settlement dates. On each subscription date, borrowers will be able to request one or more floating rate and one or more fixed rate TALF loans by indicating for each loan the:

Loan proceeds will be disbursed to the borrower, contingent on receipt by the FRBNY's custodian bank of the eligible ABS collateral. In addition, the value of the collateral pledged to the FRBNY to secure TALF loans will be reported on the Federal Reserve's website.

The FRBNY will hold monthly subscriptions on the first Tuesday of every month until 31 December 2009. An eligible borrower may request an unlimited number of loans at each monthly subscription.

The coming months should generate activity throughout both the public and the private sector in response to the TALF. Bankers and investment managers would be well-served to keep abreast of the developments in these programmes and the impending creation of related investment products; it appears that opportunities have been generated for all sides of the market.