--Joy Wiltermuth & Libby Sallaberry
The Federal Reserve’sTerm Asset-Backed Securities Loan Facility substantially helped the asset-backed securities market by tightening spreads and restoring confidence for issuers, Susan Stiehm, markets officer and TALF manager at the Federal Reserve Bank of New York, said in her keynote address at the ABS East conference in Miami this morning. Stiehm laid out the Fed’s case for the effectiveness the government’s efforts over the past year in resuscitating the stalled securitization market.
Stiehm noted a steady increase in borrower interest in the program since the first TALF subscription. Additionally, after its initial mandate, the program has been expanded to include more asset classes, with bigger facilities.
There has been a substantial return of liquidity to the securitization market for student loans, small business administration and credit cards, as well as a greater diversity seen in these deals, Stiehm said. Subscription cycles for these collateral types have continued to grow, she added, with the Fed seeing increased requests among more diverse collateral types, as well as a termination point for the program for some asset classes.
The ABS market has even seen some non-TALF deals, which Stiehm noted as a sign of the market’s decreasing dependency of the program. “Although this may still be limited to a narrow space of asset classes and issuers, it does point to signs of a non-TALF depending market going forward,” she said. “People are relying less on TALF financing.” She did point out, however, that the TALF deals have been better subscribed than those not funded through TALF.
She said TALF’s success has been in large part due to restored demand for the paper from traditional cash investors, even though some have exited the securitization markets permanently.This has left many to consider what a post-TALF world will look like. Stiehm said there will be reduced reliance on rating agencies and easier and more transparent securitization structures. Going forward, she also mentioned there will be more due diligence on the part of investors, but cautioned, “It is still difficult to see what normalization is.”