S&P Says TALF Putting CMBS Market on the Road to Recovery

The Federal Reserve Bank of New York (FRBNY) and the U.S. Treasury initially rolled out the Term Asset-Backed Securities Loan Facility (TALF) program to revive the asset-backed securities (ABS) market, but other sectors are also benefitting from the program, particularly commercial mortgage-backed securities (CMBS), Standard & Poor’s says.

S&P’s latest Quarterly TALF Report (Premium) discusses how the program has played an important role in improving market sentiment toward CMBS and putting the CMBS market on the road to recovery.

“So far, only one new issue CMBS transaction has used the program since the FRBNY accepted CMBS as eligible for TALF,” said credit analyst David Henschke. “That transaction, however, marked a significant turning point because it was the first major U.S. CMBS deal in nearly a year and a half. And it paved the way for two non-TALF CMBS deals, which further promoted price discovery for issuers and investors.”

The FRBNY expanded the TALF program to include newly issued CMBS in June 2009 and legacy CMBS in July 2009. Since July 2009, loan requests under TALF to purchase legacy CMBS have averaged approximately $1.5 billion per month.

Despite this relatively small usage, cash CMBS super-senior spreads in the secondary market have narrowed significantly since the inception of TALF from a high of swaps plus 1,150 basis points (bps) in March 2009 to their current level of swaps plus 435 bps.

In the report, Standard & Poor’s also reviews its rated ABS transactions that were used as collateral for TALF loans during the 11 rounds of TALF funding, including auto loan and lease, credit card, student loan, equipment, and dealer floorplan. The report also compares TALF for ABS with TALF for CMBS.