Certain Commercial Mortgage-backed Securities to Become Eligible Collateral
In addition to the previous announcement that commercial mortgage-backed securities (CMBS) issued on or after January 1, 2009 are eligible collateral under the TALF, the Federal Reserve has announced that certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (legacy CMBS) will become eligible collateral.
To be eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages, must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk, as outlined in the terms and conditions which can be found here: http://newyorkfed.org/markets/talf_cmbs_terms.html.
Key Terms:
- As of the TALF loan subscription date, at least 95 percent of the underlying properties on which mortgages are held, by related loan principal balance, must be located in the United States or one of its territories.
- The New York Fed will engage a collateral monitor to assess the risk of proposed CMBS collateral.
- In determining whether a particular pool of loans is TALF-eligible, the collateral monitor will give heavy consideration to the following mortgage pool characteristics:
o historical losses,
o concentrations of loans that are delinquent,
o have special servicing or on servicer watch lists or concentrations of subordinate-priority mortgage loans,
o lack of diversification with respect to loan size, geography, property type, and borrower sponsorship. - Borrower may elect a three-year or five-year maturity. A three-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 3-year Libor swap rate. A five-year TALF loan will bear interest at a fixed rate per annum equal to 100 basis points over the 5-year Libor swap rate.
- The New York Fed may limit the volume of TALF loans secured by legacy CMBS, and is considering whether to allocate such volume via an auction or other procedure.
It should be noted the New York Fed is in the process of establishing additional requirements for legacy CMBS, which Troutman Sanders will continue to monitor and report.
The New York Fed released details of the next TALF subscription date, which will be June 2, with loan settlement dates on June 9. As always, interested borrowers may obtain a pre-certification review by the New York Fed in advance of the next subscription date by having their primary dealer submit their name and details of the loan desired.
Collateral haircuts applicable to the June operation are as follows:
|
ABS Average Life (years)
|
||||||||
|
Sector
|
Subsector
|
0-1
|
>1-2
|
>2-3
|
>3-4
|
>4-5
|
>5-6
|
>6-7
|
|
Auto
|
Prime retail lease
|
10%
|
11%
|
12%
|
13%
|
14%
|
|
|
|
Auto
|
Prime retail loan
|
6%
|
7%
|
8%
|
9%
|
10%
|
|
|
|
Auto
|
Subprime retail loan
|
9%
|
10%
|
11%
|
12%
|
13%
|
|
|
|
Auto
|
Motorcycle/other recreational vehicles
|
7%
|
8%
|
9%
|
10%
|
11%
|
|
|
|
Auto
|
Commercial and government fleets
|
9%
|
10%
|
11%
|
12%
|
13%
|
|
|
|
Auto
|
Rental fleets
|
12%
|
13%
|
14%
|
15%
|
16%
|
|
|
|
Credit Card
|
Prime
|
5%
|
5%
|
6%
|
7%
|
8%
|
|
|
|
Credit Card
|
Subprime
|
6%
|
7%
|
8%
|
9%
|
10%
|
|
|
|
Equipment
|
Loans and leases
|
5%
|
6%
|
7%
|
8%
|
9%
|
|
|
|
Floorplan
|
Auto
|
12%
|
13%
|
14%
|
15%
|
16%
|
|
|
|
Floorplan
|
Non-auto
|
11%
|
12%
|
13%
|
14%
|
15%
|
|
|
|
Premium Finance
|
Property and casualty
|
5%
|
6%
|
7%
|
8%
|
9%
|
|
|
|
Servicing Advances
|
Residential mortgage
|
12%
|
13%
|
14%
|
15%
|
16%
|
|
|
|
Small Business
|
SBA loans
|
5%
|
5%
|
5%
|
5%
|
5%
|
6%
|
6%
|
|
Student Loan
|
Private
|
8%
|
9%
|
10%
|
11%
|
12%
|
13%
|
14%
|
|
Student Loan
|
Gov’t guaranteed
|
5%
|
5%
|
5%
|
5%
|
5%
|
6%
|
6%
|
The first subscription date for newly issued CMBS (issued on or after January 1, 2009) will be June 16, with subsequent dates pre-announced in advance thereafter. Both types of CMBS collateral are expected to have the same subscription date going forward, usually in the middle of the month, while all other TALF-eligible collateral will continue operations in the first part of each month.
CONTACTS
Michael Leichtling
212.704.625
Jake Lutz
804.697.1490
Miles A. Borden
212.704.6161
Robert A. Friedman
212.704.6048
Rory S. Clark
212.704.6056