Fed restricts TALF to U.S.-based firms

Fed restricts TALF to U.S.-based firms
Fri Feb 6, 2009 8:16pm GMT

WASHINGTON (Reuters) - The U.S. Federal Reserve Board on Friday issued more detailed terms and conditions for its new asset-backed securities lending facility, restricting it largely to U.S.-based firms and underlying consumer debt owed by Americans.

The $200 billion Term Asset-backed Securities Loan Facility (TALF) will launch operations this month on a date yet to be announced. Unless it is extended, it will stop making new loans at the end of 2009, the Fed said.

The TALF was first announced in November as a plan to unblock frozen consumer credit markets. The mechanisms detailed on Friday remain much the same, allowing eligible firms to borrow funds from the New York Federal Reserve Bank against eligible asset-backed securities as collateral.

The TALF was designed to provide a ready source of funds for new car loans, student loans, credit cards and small business loans.

Eligible borrowers can be any U.S. company or a U.S.-based operating subsidiary of a foreign firm that "conducts significant operations or activities in the United States" and is not controlled by a foreign government. These can include investment funds, including hedge funds, mutual funds and private equity funds.

The eligible collateral must be U.S. dollar-denominated cash -- not synthetic -- ABS that have a credit rating in the highest-long-term or short term investment rating category by two or more rating agencies.

These must be backed by underlying loans to U.S. domiciled borrowers and are subject to valuation "haircut" reductions of 6 percent to 16 percent on auto loan and receivables, depending on the category, credit quality and term of the loans.

Collateral haircuts will run 5-11 percent on credit cards receivables; 5-14 percent for student loans and 5-8 percent on small business loans.

Interest rates on the three-year loans with a minimum loan request of $10 million will be 100 basis points over one-month London interbank offered rates (LIBOR) on floating-rate loans or 100 basis points over the three-year LIBOR swap rate on fixed-rate loans.

(Reporting by David Lawder; Editing by Jonathan Oatis)

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