Federal Reserve Publishes Additional Detail on TALF

On Wednesday, May 20, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced further details on the Term Asset-Backed Securities Loan Facility (“TALF”).  The Board’s announcement contains key documents and forms, including the Master Loan and Security Agreement; updated FAQs and a blackline reflecting changes made against the version published on May 12, 2020; and an initial list of TALF Agents.

The announcement states that the first subscription date for TALF loans will be June 17, 2020, and that the first loan closing date will be June 25, 2020.  The updated FAQs require that sponsors or issuers of proposed asset-backed securities (“ABS”) for the TALF provide certain information to the Federal Reserve Bank of New York (“FRBNY”) at least three weeks in advance of the applicable subscription date.  The FAQs also note that there will be approximately two TALF loan subscription dates per month.

The updated FAQs contain extensive details on how the FRBNY will operate the TALF.  Among other new details and changes to the previous FAQs, the FAQs now:

  • Clarify that there is no unique regulatory capital treatment or relief for a depository institution or bank holding company holding ABS financed by a TALF loan;
  • Expressly state that the compensation, stock repurchase, and capital distribution restrictions in section 4003(c)(3)(A)(ii) of the CARES Act do not apply to the TALF;
  • Specify that only ABS tranches that are not junior to any other class of securities backed by the same pool of assets are eligible for TALF;
  • Require that ABS eligible collateral entitle their holders to payments of both principal and interest;
  • Add the new restriction that ABS issued or sponsored by entities that have received specific support in the form of Treasury direct loans, loan guarantees, or investments under section 4003(b)(1)-(3) of the CARES Act are not eligible for TALF (the Main Street Lending Program has a similar restriction such that applicants are not eligible for the Main Street Lending Program if they received specific support under section 4003(b)(1)-(3); there is no prohibition on an entity borrowing under the Main Street Lending Program and also serving as an issuer or sponsor of eligible ABS under TALF);
  • Describe how the FRBNY will review collateral for TALF eligibility, including that the FRBNY may reject ABS as collateral even if the ABS satisfy these eligibility standards;
  • Set the minimum TALF loan amount at $5 million; and
  • Provide significant detail on information and data requirements, certification and documentation requirements, the loan subscription and closing process, and a range of post-closing issues.

These updates follow the Board’s publication of a revised TALF term sheet and extensive FAQs on May 12, 2020 (see our blog post on this announcement).  The updates also come one day after Federal Reserve Chairman Powell and Treasury Secretary Mnuchin testified before the Senate Banking Committee on the Quarterly CARES Act Report to Congress.  During this testimony, Chairman Powell stated that he anticipates that the four not-yet-operational Federal Reserve liquidity facilities – the Main Street Lending Program, Municipal Liquidity Facility, Primary Market Corporate Credit Facility, and the TALF – would be operational by the end of May or early June 2020.

No new TALF loans will be made after September 30, 2020, unless the Board and Treasury Secretary extend the facility.

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