Opportunity to Buy TALF Issues Drawing to a Close

Banks and investors met last week with a flurry of securities sales to gear up for the last opportunity to buy issues under the Troubled Asset-Backed Loan Facility (TALF) program on March 4, according to Deutsche Bank. And despite some uneven pricing, the secondary market for asset-backed securities (ABS) also appears steadied, both in spreads and issuance, amid the exit. The Federal Reserve launched TALF to stimulate lending by allowing private investors to purchase securities with a matching government investment. Under TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200bn. The US Treasury Department agreed to kick-in $20bn of credit protection to the FRBNY through the Troubled Asset Relief Program (TARP). Even though there was some softening in prices, the secondary market absorbed the supply shock last week, according to Deutsche, when the investors began stockpiling capital for the last TALF cycle. The Wall Street Journal reported a slew of TALF-eligible bonds, including a $667.2m bond offering from the lender CIT Group (CIT). At the end of January, FRBNY received requests through TALF for $1.45bn of government loans to buy securities backed by commercial mortgages. The reach of the program into legacy commercial mortgage-backed securities (CMBS) aimed to aid price discovery and provide liquidity for the commercial mortgage market, which faces a credit crisis of its own. The research firm Realpoint reported last week the delinquent unpaid balance of CMBS increased to $45.9bn in January, a 326% increase from a year ago. The same week the credit rating agency Moody’s put $6.2bn of commercial real estate-linked credit default obligations (CDOs) on review for a possible downgrade. But a report on a year of the Financial Stability Plan at the beginning of February, the Treasury said the expected impact of stabilization efforts on the federal deficit was reduced from more than $550bn, likely down to below $120bn. The report states securitization markets have reopened, partly due to TALF – which has helped lower spreads and improve ABS issuance. The deadline for the last round of TALF issuance is March 4. The end of the program is boosting sales of ABS, according to a report from Bloomberg. “What we are seeing in the last couple of rounds are issuers in non-traditional asset classes and weaker issuers looking to fund as much as they can before the window closes,” James Grady, a managing director at Deutsche Asset Management in New York, told Bloomberg. Write to Jon Prior.

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