Barclays Urges Fed to Detail TALF Bid Acceptance Process
The Federal Reserve received $2.3bn of loan requests under the legacy commercial-backed security (CMBS)-eligible Term Asset-Backed Securities Loan Facility (TALF) in August, more than three times the subscriptions in July. Uncertainty around the Fed's methods for accepting and rejecting bids, however, may dampen interest going forward, according to a securitized research report by Barclays Capital. "The results of the August TALF funding for legacy CMBS revealed a slightly more cautious Fed/collateral monitor than we expected," Barclays Capital analysts said in the report. "On the surface, 97% of loan requests were accepted, a high number, but the results were skewed by a high percentage of second- and third-pay (triple-A) bonds as collateral." Last cash flow dupers, which BarCap said would have the largest systemic effect on commercial real estate markets, account for 105 TALF-eligible bonds. The fed granted only 16 of the 19 loan requests for these bonds. BarCap said the standards the Fed uses to determine which requests to honor remains unclear but is most likely multidimensional, as a simple delinquency screen would be inefficient. But few details on the process and a general uncertainty of what types of bonds will be accepted makes it difficult for investors to anticipate. A lack of clarity may fuel investor uncertainty, BarCap said, which could lead to lower TALF demand and higher spreads. "[W]ider spreads and lower than previously expected participation in the program could lead to higher systemic risk concerns for the commercial real estate sector, as the positive feedback loop that appeared to be emerging may be challenged," the analysts said. "We suggest that more clarity in the acceptance/rejection process could offset these concerns." Write to Diana Golobay.