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Momentum Building for TALF's June Round
Asset Backed Alert, Harrison Scott Publications Inc. (May 15, 2009)

Structured-product issuers are lining up an estimated $15 billion to $20 billion of deals for the next monthly installment in the Federal Reserve's Term Asset-Backed Securities Loan Facility.

The offerings, scheduled to price on or just before June 2, would represent the largest wave of deals to emerge from the program so far - topping the $13.6 billion of issues that came to market during the first week of this month.

The issuers in the queue include Capital One, which is contemplating a credit-card securitization in excess of $1 billion. Such an offering would mark a reversal of sorts for the lender, which was thought to be avoiding TALF while funding its receivables through deposits.

Other first-time TALF users are likely to include Regions Financial, with an auto-loan issue. Meanwhile, GE Capital has been cited as a repeat issuer after completing a $1 billion sale of TALF-qualified credit-card bonds this month. Its next deal, however, would be backed by floorplan loans to dealers of boats and recreational vehicles.

A number of the June offerings are likely to come from companies that were planning to sell TALF-compliant bonds in the program's previous rounds, but didn't follow through for various reasons. They include PHH Vehicle Management, with a deal backed by leases on fleets of cars and trucks, and Fifth Third Bank, with an auto-loan offering. Both of those transactions were initially scheduled for TALF's May round.

Toyota was also expected to make an appearance this month with an auto-loan issue, but never did. That delay was especially disappointing to buysiders, as the company is on a stronger footing than many of its peers but hasn't sold asset-backed bonds since 2003. "Everybody was pumped when we heard about Toyota," one investor said.

It turns out that the automaker's extended absence is what ultimately kept it from jumping into the market in time. "They got bogged down with servicing reports and just couldn't get things in order fast enough," another buysider said.

It's possible that Caterpillar and John Deere could move forward with equipment-lease securitizations they have been developing for a few months. Previous talk about dealer-floorplan issues from the troubled Big Three automakers has picked up again as well - but as before, it doesn't appear that they would win the triple-A ratings required for TALF eligibility.

Industry players are also keeping an eye on Sallie Mae to see if the education lender tries again to securitize $1 billion of private loans that it pulled from its most recent issue's collateral pool. The last-minute move cut the size of that May 5 transaction by a corresponding amount, to $2.6 billion. It came after an unidentified buyer demanded a larger return than the 4.4-year securities' final spread of 600 bp over Libor.

TALF offers low-cost Fed financing for purchases of qualifying asset-backed bonds. The goal is to increase demand for such products, and thus stimulate production of the securities' underlying credits. The loans go out on a monthly basis, with the next round set for delivery on June 9.

A separate round of funding for commercial mortgage securitizations will likely take place later in the month.

TALF has been the main driver of U.S. asset-backed securities volume since it began in March. The program accounted for $7.4 billion of bonds that month, followed by $2.7 billion in April. Of the bonds sold in the program's May round, slightly more than $10 billion were pledged as collateral for government loans.



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