Now raising intellectual capital
The Fed published changes to its TALF facility that provides financing to investors buying eligible asset-backed securities. One, the Fed is looking to expand the number of rating agencies issuers could use to evaluate the AAA-worthiness of their debt offerings.
The second one looks more interesting though.
Starting with the November subscription, in addition to continuing to require that collateral for TALF loans receive two triple-A ratings from TALF-eligible NRSROs, the Federal Reserve Bank of New York will conduct a formal risk assessment of all proposed collateral–ABS in addition to CMBS, which are already subject to a formal risk assessment. The change to the collateral review process will enhance the Federal Reserve’s ability to ensure that TALF collateral complies with its existing high standards for credit quality, transparency, and simplicity of structure.
To facilitate the risk assessment, each issuer wishing to bring a TALF-eligible ABS transaction to market will be required to provide, at least three weeks prior to the subscription date, information including, but not limited to, all data on the transaction the issuer has provided to any NRSRO.
This additional red tap is likely to be off putting to some investors, but it’s not like the program has been going gangbusters either. Investors only applied for $2.5 billion in loans in the latest round of TALF financing.
“Loans of concern” has the same ominous ring as the phrase “persons of interest” when uttered by law enforcement officials investigating a murder.
The corpse in this instance is the commercial real estate market, and Fitch Ratings has the latest indication of its morbid condition.