Since the Federal Reserve launched the Term Asset-Backed Securities Loan Facility back in March to jump start the moribund asset-backed securities market, close to $60 billion in securities have been issued. By comparison, the market from January through March saw only $20.5 billion in action, according to Thomson Reuters.
Clearly, TALF has been a success — at least if market volume is the measure.
THE “NORMALIZATION” OF THE MARKET
How things can change in 90 days. As investors come back into the market, more issuers are shunning government aid and launching deals on their own. With J.P. Morgan Chase & Co.’s $1.5 billion credit card loan-backed deal earlier this week, a total of $4.5 billion in securities were issued outside of the TALF program in June (compared with $16.4 under TALF). “This is all part of the normalization process of the asset-backed securities market,” explains Kent Wosepka, chief investment officer of the $50 billion taxable bond fund at Boston-based Standish Mellon Asset Management.
Andrew Faulkner, a structured finance practice lawyer at Skadden, Arps, Slate, Meagher & Flom in New York, says he hasn’t worked on any TALF deals this month, but has been busy with a number of non-TALF transactions.
LATER THIS SUMMER
Next, watch applications to the July and August deadline to see whether this trend proves to be sustainable. Beyond the government/nongovernment distinction, there aren’t significant differences between TALF and non-TALF deals. TALF requires that securities have maturities of less than three years — recent deals have come with shorter maturities anyway in this still-fragile market. But there are what Faulkner calls “hassles” in doing TALF deals, such as the requirement for getting two opinions from credit-rating agencies (which could be an issue for smaller issuers), providing indemnities and audits to the Fed, then the inconveniences of meeting rigid monthly application deadlines.
DON’T PRONOUNCE TALF DEAD JUST YET
While the asset-backed securities market is on the road to recovery, the government isn’t getting out of the game just yet. “People are still interested in doing TALF deals,” Faulkner says. “There will be issuers in the auto sector and it’s hard to say now that the TALF program will not be needed in other sectors of the ABS market.”
Xiang Ji (Nina) is the capital markets reporter at Institutional Investor, covering mergers and acquisitions, debt and capital markets from an institutional investor’s perspective. Xiang Ji was formerly with BusinessWeek in China covering the wider business world. Send email to capitalbeat@iimagazine.com.
