In order to properly address the impact of the Covid-19 crisis on today's capital markets, the Structured Finance Association ("SFA") is urging the Board of Governors of the Federal Reserve System and the U.S. Department of Treasury to "move as quickly as possible" to introduce a new version of the Term Asset-Backed Securities Loan Facility ("TALF") program to include important consumer credit products and remove impediments that would delay the speed with which the program can become fully operational. In a March 22nd letter to the Board of Governors of the Federal Reserve System and the U.S. Department of Treasury, the SFA proposed a new version of TALF, referred to as Solutions to Power the Advancement and Revitalization of Consumer Credit ("SPARCC"), which, notably, expands the categories of assets eligible to back ABS to include non-QM mortgage loans, unsecured personal loans and MSRs. The recommended changes include:
- Removing restrictions on ABS and eligible receivables that are not newly originated or issued.
- Expanding the types of ABS that are Eligible Collateral to include (i) non-qualified mortgage loans and other private label RMBS, (ii) unsecured consumer ABS loans originated by marketplace lenders and other consumer finance companies, (iii) mortgage servicing rights, (iv) credit risk transfer instruments including those recently issued by Fannie Mae and Freddie Mac, and (v) other assets including transportation-related ABS, including those collateralized by containers, rail cars, aircraft and shipping assets, whole-business securitizations, including restaurant and franchise securitizations, small business loan securitizations, device payment plan securitizations, renewable energy assets (such as solar loans), insurance premium finance agreements, consumer refinance loans, re-performing and seasoned performing mortgages, triple-net leases, and timeshares.
- Including the highest rated tranche in any securitization rather than just AAA, as long as the tranche is rated at least investment grade, subject to an appropriate haircut reflective of the lower rating, only requiring one rating agency to rate the ABS instead of two rating agencies and expanding the number of eligible rating agencies.
- Removing unnecessary operational delays like attestations from a nationally recognized accounting firm as to asset eligibility.
- Providing more flexibility in financing terms, including haircuts, terms and interest rates.
Please contact your Sheppard Mullin LLP representative if you have any questions regarding the TALF program.
As you are aware, things are changing quickly and there is no clear-cut authority or bright line rules. This is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand. This summary does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the Covid-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay and other issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.