On June 10, 2009, the Federal Reserve Bank of New York ("FRBNY") issued revised Frequently Asked Questions ("FAQ") for the Term Asset-Backed Securities Loan Facility ("TALF"). The release supplements the information distributed on May 20th. Investor interest in the TALF has gradually increased. Of the $13.6 billion in asset-backed securities ("ABS") issued in May, $10.6 was financed through TALF.
The FRBNY also announced that the first subscription for loans collateralized by newly issued commercial mortgage-backed securities ("TALF CMBS") will take place on June 16th.
The revised FAQ addresses a clarification of definitions of "issuer" and "sponsor", the required documentation for SBA certificates, introduces an agreed upon procedures ("AUP") report for CMBS transactions and how payments are handled if the ABS collateral enters early amortization.
Please contact me with any questions about TALF and the latest release.
Definitions of "Issuer" and "Sponsor"
The "issuer" for purposes of the issuer certification for non-mortgage-backed ABS, in both public and private offerings of TALF eligible non-mortgage-backed ABS, will be the legal entity that issues the ABS. The "issuer" for purposes of the issuer certification for newly issued CMBS, in both public and private offerings of CMBS, will be the legal entity that serves as the depositor in the CMBS issuance.
The "sponsor" for purposes of the issuer certification and indemnity undertaking for non-mortgage-backed asset-backed securities ("ABS"), in both public and private offerings for TALF eligible non-mortgage-backed ABS, will be the legal entity that is the sponsor of the ABS issuance. The "sponsor" for purposes of the issuer certification and indemnity undertaking for CMBS, in both public and private offerings for TALF eligible CMBS, will be the legal entity that is a sponsor of the CMBS issuance and affiliated with the depositor. For both non-mortgage-backed ABS and CMBS, if the sponsor is a special purpose vehicle, the sponsor's direct or indirect ultimate parent must also execute the indemnity undertaking.
Required Documentation for SBA 7(a) Pool Certificates and SBA 504 Development Company Participation Certificates
With respect to SBA 7(a) Pool Certificates, no issuer certification, indemnity or offering document is required. However, the pool assembler that assembled the pool must execute an undertaking <http://www.newyorkfed.org/markets/SBA_7(a)_Pool_Certificates_Revised_Form_of_Undertaking.pdf> in connection with each SBA Pool Certificate CUSIP. An undertaking must be delivered to the FRBNY for each CUSIP no later than four business days prior to the TALF loan settlement date in order for a borrower to pledge that CUSIP as collateral for a TALF loan. Without an undertaking, the CUSIP cannot be used as collateral for a TALF loan regardless of whether it meets other TALF eligibility requirements.
With respect to SBA 504 Development Company Participation Certificates, no issuer certification, indemnity or undertaking is required. However, offering documents that contain either the security's weighted average life or includes a supplement disclosing the security's weighted average life must be delivered to the FRBNY's custodian for the TALF program on subscription day. If the CUSIP number corresponds to a new issuance, the offering document(s) submitted on subscription date may be preliminary, but the final offering document(s) must be provided to the custodian no later than 12 p.m. (New York time) three business days prior to the applicable TALF loan settlement date.
Agreed upon Procedures ("AUP") Report for CMBS Transactions
As a condition of the disbursement of the TALF loan, an accounting firm retained by the sponsor must provide a report on Agreed Upon Procedures on factual matters related to various eligibility criteria for newly issued CMBS (the "TALF AUP Report"). The accounting firm providing the report must be a nationally recognized certified public accounting firm that is registered with the Public Company Accounting Oversight Board. The TALF AUP Report is required to be issued in connection with the preliminary prospectus or offering document and for any pre-pricing supplement to the preliminary prospectus or offering document. The FRBNY acknowledges the sufficiency of the procedures set forth in the TALF AUP Report for its purposes. In addition, as a condition of the disbursement of the TALF loan, the accounting firm must provide to the FRBNY a copy of the report on Agreed Upon Procedures, including any supplements or updates to such report, that it delivers to the sponsor and the underwriter or initial purchaser in connection with the CMBS issuance (the "TALF Report (Industry)"). Additional guidance will be forthcoming specifying when the accounting firm must inform the FRBNY of the procedures to be performed in connection with the TALF Report (Industry) so that the FRBNY has a sufficient opportunity to review and acknowledge the sufficiency of such procedures.
Payments if the ABS Collateral Enters Early Amortization
In the case of revolving (or master) trusts, if an early amortization event (or an event by another name, such as early redemption event, that has the same effect) occurs with respect to an ABS that has been pledged as collateral for a TALF loan and principal payments on such ABS commence because of such occurrence or, if already commenced, the amount of such principal payments is adjusted because of such occurrence, then all of the principal payments received by the Custodian from such ABS shall be applied to repay the principal amount of, and any interest deficiency outstanding on, the TALF loan.