• TALF -- Expanded to Include Legacy CMBS
  • June 16, 2009
  • Law Firm: Blank Rome LLP - Philadelphia Office
  • Yesterday afternoon, the Federal Reserve announced the expansion of TALF to include "certain high-quality commercial mortgage backed securities issued before January 1, 2009 (legacy CMBS)" as eligible collateral for TALF loans. When the Fed originally announced the expansion of the program to include CMBS, it limited eligible CMBS to those issued after January 1, 2009.  Noting the CMBS market "came to a standstill in mid-2008," the Fed's move to include legacy CMBS is aimed at promoting price discovery and liquidity in the CMBS market in the hopes of reviving the market and stimulating the issuance of new CMBS. That would then enable borrowers to purchase new commercial properties or refinance existing mortgages. The TALF Terms and Conditions list the criteria for legacy CMBS to be eligible TALF collateral.  A few noteworthy ones are that legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages; they must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody's Investors Service, Realpoint, or Standard and Poor's; and they must not have a rating below triple-A from any of those rating agencies.
    According to the Fed, the CMBS market has financed roughly 20 percent of outstanding commercial mortgages, which includes mortgages on office buildings, multi-family residential properties, retail complexes, and industrial properties. Only the June 16th subscription, the first round for CMBS collateral, will be limited to newly issued CMBS.  Starting with July's subscription, both new and legacy CMBS will be eligible. The Fed has not announced the July subscription date, but it is likely to be mid-month. The next regular TALF subscription date is June 2nd. The New York Fed is continuing to develop the requirements for legacy CMBS.