Legacy CMBS Now Eligible For TALF

rm Asset-Backed Securities Loan Facility (TALF) has been opened up to include legacy commercial mortgage-backed securities (CMBS), the Federal Reserve Board has announced. CMBS issued before Jan. 1, 2009, will become eligible collateral for the program starting in July. On May 1, the board announced it would expand the range of acceptable TALF collateral to include newly issued CMBS starting with the June subscription, and this week's announcement marks the first addition of a legacy asset class to the list of eligible TALF collateral. The inclusion of CMBS is intended to promote price discovery and liquidity for legacy CMBS. The CMBS market has financed approximately 20% of outstanding commercial mortgages, the Fed says. The resulting improvement in legacy CMBS markets should facilitate the issuance of new CMBS, which will help borrowers finance new purchases of commercial properties or refinance existing mortgages on better terms. 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 and, as detailed in the New York Fed's [link=http://www.newyorkfed.org/markets/talf_cmbs_terms.html][u]term sheet[/u][/link], meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. The New York Fed will review and reject any CMBS that does not meet the published terms or otherwise poses unacceptable risk. Eligible newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody's Investors Service, Realpoint or Standard & Poor's and must not have a rating below triple-A from any of these rating agencies. More broadly, the Federal Reserve is formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve's credit programs. The initial subscription date for TALF loans collateralized by newly issued CMBS will be June 16, 2009, the Fed adds. SOURCE: Federal

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