March 4, 2009
The Gibson, Dunn & Crutcher Financial Markets Crisis Group is closely tracking government responses to the turmoil that has catalyzed a dramatic and rapid reshaping of our capital and credit markets.
We are providing updates on key regulatory and legislative issues, as well as information on legal issues that we believe could prove useful as firms and other entities navigate these challenging times.
This update focuses on the launch of the Term Asset-Backed Securities Loan Facility ("TALF").
TALF in General
Yesterday, the Treasury Department and the Board of Governors of the Federal Reserve Bank jointly announced the launch date for the TALF. The TALF is designed to stimulate the "securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities" ("ABS"). The goal of TALF is to increase lending to consumers and small businesses on more favorable terms by encouraging investment in highly-rated ABS. Pursuant to the first phase of the TALF, the Federal Reserve Bank of New York will lend up to $200 billion to eligible borrowers with eligible collateral. As announced on February 10, 2009, and discussed in our previous client alert, an expansion of TALF, pursuant to which the Treasury and the Federal Reserve could lend up to $1 trillion and increase the types of eligible collateral, is under consideration and may be implemented in the future.
Change in Application of Executive Compensation Provisions
Under prior guidance for the program, a "sponsor" or "the applicable entity specified in forthcoming TALF certification documents" was to be subject to the onerous executive compensation restrictions passed as part of the American Recovery and Reinvestment Act. Under the TALF, a "sponsor" is one who "organizes and initiates an asset-backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuing entity."[1] Each sponsor was to be responsible for certifying compliance on an annual basis.
Under the revised guidance issued yesterday, no executive compensation requirements apply to program participants, including sponsors, underwriters and borrowers. This reversal appears to be based on concerns that the executive compensation requirements could chill participation in the program. Indeed, the TALF’s revised "Frequently Asked Questions" document cites as the basis for the decision "the goals of the TALF and the desire to encourage market participants to stimulate credit formation and utilize the facility."
Facility:
Among the key terms of the facility are the following:
The minimum amount of each loan is set at $10 million and there is no maximum amount. The amount will be determined based on the value of the collateral pledged, minus the required haircut. In order to encourage TALF loans tobe repaid and protect the government from being overburdened with ABS, borrowers are required to take a "haircut" and will receive a loan equal to a predetermined portion of the value of the collateral as of the date of the loan.[3] In the event that the a borrower defaults and the Federal Reserve repossesses the ABS collateral, it will be purchased at the value of the loan by a special purpose vehicle, which will be funded in part by $20 billion in TARP funds.
Eligible Collateral:
Eligible Borrowers:
Timing of TALF Loans
There will be monthly subscription and settlement dates upon which borrowers will be able to request one or more floating-rate and fixed-rate TALF loans by indicating the eligible collateral they wish to pledge. The key dates for the first two fundings are set forth below. The program will continue until December 31, 2009, unless it is extended by the Board of Governors of the Federal Reserve.
Date |
Announcement/Event |
March 3, 2009 |
TALF launch date announced; Publication of details for the first funding |
March 3-17, 2009 |
Marketing first funding to investors |
March 17, 2009 |
Subscriptions for first funding for TALF recorded |
March 24, 2009 |
Announcement of details of second funding |
March 24-April 7, 2009 |
Marketing second funding to investors |
March 25, 2009 |
First funds from the TALF disbursed |
April 7, 2009 |
Subscriptions for second funding for TALF recorded |
April 14, 2009 |
Second funds from the TALF disbursed |
Steps to Take Now
Entities interested in borrowing funds through the TALF must have or establish a customer account with a primary dealer. Primary dealers already have begun marketing TALF opportunities and will be able to provide information on the mechanics of how they will execute the program.
Sponsors interested in selling assets to an issuer and issuers interested in selling eligible ABS to a borrower might consider identifying transaction partners as soon as possible. Primary dealers, as agents of borrowers, are likely to have the most visibility into the market for entities seeking to partner in TALF transactions.
[2] Please see the FAQ published by the Federal Reserve for a complete table of interest rates at
http://www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf
[3] Please see the FAQ published by the Federal Reserve for a complete table of initial collateral haircuts at
http://www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf
Gibson Dunn has assembled a team of experts who are prepared to meet client needs as they arise in conjunction with the issues discussed above. Please contact Michael Bopp (202-955-8256, mbopp@gibsondunn.com) in the firm’s Washington, D.C. office or any of the following members of the Financial Markets Crisis Group:
Public Policy Expertise
Mel Levine – Century City (310-557-8098, mlevine@gibsondunn.com)
John F. Olson – Washington, D.C. (202-955-8522, jolson@gibsondunn.com)
Amy L. Goodman – Washington, D.C. (202-955-8653, agoodman@gibsondunn.com)
Alan Platt – Washington, D.C. (202- 887-3660, aplatt@gibsondunn.com)
Michael Bopp – Washington, D.C. (202-955-8256, mbopp@gibsondunn.com)
Securities Law and Corporate Governance Expertise
Ronald O. Mueller – Washington, D.C. (202-955-8671, rmueller@gibsondunn.com)
K. Susan Grafton – Washington, D.C. (202- 887-3554, sgrafton@gibsondunn.com)
Brian Lane – Washington, D.C. (202-887-3646, blane@gibsondunn.com)
Lewis Ferguson – Washington, D.C. (202- 955-8249, lferguson@gibsondunn.com)
Barry Goldsmith – Washington, D.C. (202- 955-8580, bgoldsmith@gibsondunn.com)
John H. Sturc – Washington, D.C. (202-955-8243, jsturc@gibsondunn.com)
Dorothee Fischer-Appelt – London (+44 20 7071 4224, dfischerappelt@gibsondunn.com)
Alan Bannister – New York (212-351-2310, abannister@gibsondunn.com)
Adam H. Offenhartz – New York (212-351-3808, aoffenhartz@gibsondunn.com)
Mark K. Schonfeld – New York (212-351-2433, mschonfeld@gibsondunn.com)
Financial Institutions Law Expertise
Chuck Muckenfuss – Washington, D.C. (202- 955-8514, cmuckenfuss@gibsondunn.com)
Christopher Bellini – Washington, D.C. (202- 887-3693, cbellini@gibsondunn.com)
Amy Rudnick – Washington, D.C. (202-955-8210, arudnick@gibsondunn.com)
Dhiya El-Saden – Los Angeles (213-229-7196, delsaden@gibsondunn.com)
Rachel Couter – London (+44 20 7071 4217, rcouter@gibsondunn.com)
Corporate Expertise
Howard Adler – Washington, D.C. (202- 955-8589, hadler@gibsondunn.com)
Richard Russo – Denver (303- 298-5715, rrusso@gibsondunn.com)
Dennis Friedman – New York (212- 351-3900, dfriedman@gibsondunn.com)
Stephanie Tsacoumis – Washington, D.C. (202-955-8277, stsacoumis@gibsondunn.com)
Robert Cunningham – New York (212-351-2308, rcunningham@gibsondunn.com)
Joerg Esdorn – New York (212-351-3851, jesdorn@gibsondunn.com)
Wayne P.J. McArdle – London (+44 20 7071 4237, wmcardle@gibsondunn.com)
Stewart McDowell – San Francisco (415-393-8322, smcdowell@gibsondunn.com)
C. William Thomas, Jr. – Washington, D.C. (202-887-3735, wthomas@gibsondunn.com)
Private Equity Expertise
E. Michael Greaney – New York (212-351-4065, mgreaney@gibsondunn.com)
Private Investment Funds Expertise
Edward Sopher – New York (212-351-3918, esopher@gibsondunn.com)
Jennifer Bellah Maguire – Los Angeles (213-229-7986, jbellah@gibsondunn.com)
Real Estate Expertise
Jesse Sharf – Century City (310-552-8512, jsharf@gibsondunn.com)
Alan Samson – London (+44 20 7071 4222, asamson@gibsondunn.com)
Andrew Levy – New York (212-351-4037, alevy@gibsondunn.com)
Fred Pillon – San Francisco (415-393-8241, fpillon@gibsondunn.com)
Dennis Arnold – Los Angeles (213-229-7864, darnold@gibsondunn.com)
Michael F. Sfregola – Los Angeles (213-229-7558, msfregola@gibsondunn.com)
Andrew Lance – New York (212-351-3871, alance@gibsondunn.com)
Eric M. Feuerstein – New York (212-351-2323, efeuerstein@gibsondunn.com)
David J. Furman – New York (212-351-3992, dfurman@gibsondunn.com)
Crisis Management Expertise
Theodore J. Boutrous, Jr. – Los Angeles (213-229-7804, tboutrous@gibsondunn.com)
Bankruptcy Law Expertise
Michael Rosenthal – New York (212-351-3969, mrosenthal@gibsondunn.com)
David M. Feldman – New York (212-351-2366, dfeldman@gibsondunn.com)
Oscar Garza – Orange County (949-451-3849, ogarza@gibsondunn.com)
Craig H. Millet – Orange County (949-451-3986, cmillet@gibsondunn.com)
Thomas M. Budd – London (+44 20 7071 4234, tbudd@gibsondunn.com)
Gregory A. Campbell – London (+44 20 7071 4236, gcampbell@gibsondunn.com)
Janet M. Weiss – New York (212-351-3988, jweiss@gibsondunn.com)
Matthew J. Williams – New York (212-351-2322, mjwilliams@gibsondunn.com)
J. Eric Wise – New York (212-351-2620, ewise@gibsondunn.com)
Tax Law Expertise
Arthur D. Pasternak – Washington, D.C. (202-955-8582, apasternak@gibsondunn.com)
Paul Issler – Los Angeles (213-229-7763, pissler@gibsondunn.com)
Executive and Incentive Compensation Expertise
Stephen W. Fackler – Palo Alto (650-849-5385, sfackler@gibsondunn.com)
Charles F. Feldman – New York (212-351-3908, cfeldman@gibsondunn.com)
Michael J. Collins – Washington, D.C. (202-887-3551, mcollins@gibsondunn.com)
Sean C. Feller – Los Angeles (213-229-7579, sfeller@gibsondunn.com)
Amber Busuttil Mullen – Los Angeles (213-229-7023, amullen@gibsondunn.com)
© 2009 Gibson, Dunn & Crutcher LLP
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