Summary of Term Asset-Backed Securities Loan Facility (TALF)

• Authority and Purpose.  TALF to be a Federal Reserve credit facility authorized under section 13(2) of the Federal Reserve Act.  Purpose is to facilitate issuance of asset backed securities (ABS) to provide liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards.
  
  
• Eligible Collateral.  The Term Sheet sets forth that eligible collateral will include U.S. dollar-denominated cash (e.g., not synthetic) ABS that have a long-term credit rating in the highest investment-grade rating category (e.g. triple-AAA) from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a long-term credit rating of below the highest investment-grade rating category from a major NRSRO.
  
  
• Eligible Asset Classes Limited to Auto Loans, Credit Card Loans, Small Business Loans.  The underlying credit exposures of eligible ABS initially must be auto loans, student loans, credit card loans, or small business loans guaranteed by the U.S. Small Business Administration.
  
  
• Assets Classes Could Be Expanded in Future. Treasury indicated that other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes, are not eligible at present for the TALF.  However, Treasury indicated it may expand eligible asset classes in future.
  
  
• Eligible Borrowers.  Participation in the TALF is open to all U.S. persons that own eligible collateral.   The Term Sheet defines a U.S. person as (1) a natural person that is a U.S. citizen, (2) a business entity that is organized under the laws of the United States or a political subdivision or territory thereof (including such an entity that has a non-U.S. parent company), or (3) a U.S. branch or agency of a foreign bank.
  
  
• Executive Compensation Requirement to Meet CPP Standards.   Originators of the credit exposures underlying eligible ABS must have agreed to comply with, or already be subject to, executive compensation standards consistent with the U.S. Treasury’s TARP guidelines applicable to its Capital Purchase Program.
  
  
• Transaction Structure.  Will be in the form of non-recourse loans secured by eligible collateral with a one-year term, with interest payable monthly. The term may be lengthened beyond one year if later appropriate. The term sheet states that any remittance of principal or interest on eligible collateral must be used immediately to pay interest due on, or reduce the principal amount of, the TALF loan.
  
  
• Not Subject to Mark to Market Requirements.  TALF loans will not be subject to mark-to-market or re-margining requirements. 
  
  
• Haircut.  The Term Sheet states that the Federal Reserve will lend an amount equal to the market value of the asset backed securities less a haircut and will be secured at all times by the asset backed securities.
  
  
• Establishment of TALF. The Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis to holders of newly issued AAA-rated asset backed securities for a term of at least one year.  The U.S. Treasury will allocate $20 billion from EESA funds to back the TALF.  The $20 billion will be in the form of credit protection to the Federal Reserve Bank of New York which will establish the facility.
  
  
• Termination Date. New loans must be made by December 31, 2009, unless the date is extended.