The new Term Asset-Backed Securities Loan Facility (TALF) program, which is intended to address the liquidity crisis caused by the coronavirus (COVID-19) global pandemic through non-recourse lending collateralized by issuances of eligible asset-backed securities (ABS), was created by the US Treasury Department and the Federal Reserve Bank of New York (the New York Fed). The purpose of the program is to encourage new consumer and small business lending by supporting issuance of eligible ABS.
The agencies published several important updates and clarifications to the terms of TALF on June 15, 2020. These include the following:
- TALF borrowers are required to certify that they are not otherwise able to secure adequate credit accommodations. The updates clarify that this certification may be based on disruptions either in the ABS markets, or in the ABS financing markets (such as the repo markets). TALF agents are not required to conduct additional diligence with respect to this certification. In addition, short-term financing prior to a TALF loan settlement date is expressly permitted.
- Foreign governments are prohibited as material investors in TALF borrowers. The updates clarify that a foreign government is not a material investor of a pension plan established for the benefit of its employees, so long as the foreign government does not own, directly or indirectly, 10% or more of any outstanding class of securities of the plan or any investment manager of the plan.
- A TALF agent is required to conduct due diligence on borrowers and the collateral sufficient to satisfy its obligations under the program. The updates clarify in a number of respects the scope of due diligence that is expected.
- A TALF agent is required to have a conflicts of interest plan that provides for escalation of conflicts of interest and its plans to manage them. The updates clarify in a number of respects the expectations for an effective conflicts of interest plan, and also provide that if a conflict that has been escalated is effectively mitigated by its plan, a loan request will not be denied solely because of the conflict.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Charles Sweet and Reed Auerbach, or any of the following Morgan Lewis lawyers:
Patrick J. Lampe
Philip W. Russell
Jeffrey D. Weinstein
Theresa D. Kradjian
Reed D. Auerbach
Cory E. Barry
Mark R. Riccardi
Paul R. St. Lawrence
Charles A. Sweet