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Issuers Prepare to Take Final Crack at TALF
Asset Backed Alert, Harrison Scott Publications Inc. (February 19, 2010)

Issuers across a range of asset classes are teeing up a combined $10 billion to $15 billion of transactions for the final monthly installment of the Term Asset-Backed Securities Loan Facility.

Such volume would represent the biggest wave of deals to emerge from the Federal Reserve program since $16.8 billion of eligible bonds were sold in September. In February, TALF deal volume was $3.7 billion.

The deadline for investors to apply for TALF's last round of financing is March 4. Since launching in March 2009, the program has largely achieved its goal of aiding in commercial and consumer lending by adding liquidity to the broader asset-backed securities market. That easing, in turn, has increasingly led issuers to forgo Fed support for their new deals in recent months.

Why the surge in activity now? There's still enough buyside interest in TALF-eligible bonds for issuers to view next month's round as a last-chance opportunity to clear out their asset inventories.

Among issuers gearing up for TALF's swan song, Ford and possibly Nissan will sell bonds backed by dealer-floorplan loans. Sallie Mae is on deck with a student-loan deal. GE Capital and WorldOmni each will offer a private-label credit-card transaction. And Premium Financing Specialists will have a deal backed by insurance premiums. Investors also are anticipating a "fleet-lease" offering from a yet-to-be-identified company.

For the offerings to be eligible, they must price no more than two days before the Fed's deadline. "We're hearing TALF is going to be big, with some high-yielding deals," one investor said.

Although overall demand for TALF financing has waned in recent months, some buysiders say they will miss the option to tap low-cost Fed loans. Dealers, meanwhile, are breathing a sigh of relief that they will no longer have to deal with onerous central-bank paperwork. There's no question, however, that TALF helped pull the securitization industry back from the abyss. The program has been by far the biggest driver of U.S. deal volume over the past year, accounting for $98.3 billion of new transactions, according to Asset-Backed Alert's ABS Database. It has also helped spreads recover from their widest-ever levels. In March 2009, for example, Ford priced a batch of one-year, triple-A-rated bonds at 200 bp over eurodollar futures. A similar Ford deal priced in November at 35 bp. Both qualified for Fed financing.

What will the market look like post-TALF? In the short term, industry players expect spreads to widen among asset classes heavily dependent on the program, such as dealer-floorplan issues and deals backed by mortgage-servicer advances. But the higher yields likely will attract a different set of investors, which in turn should keep a lid on spreads. Other asset classes where non-TALF transactions have already been flowing should see less of an interruption.

Wells Fargo analyst John McElravey said he's convinced, based on conversations with investors, that there's strong demand for non-TALF issues as long as the yields are attractive. In a low-interest-rate environment, there are few alternatives for fixed-income investors looking for generous yields and short maturities. "If you get any significant amount of widening in spreads, you'll get strong demand," McElravey said. "We've really been operating without TALF . . . providing a meaningful amount of financing for several months now."



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