On April 9, 2020, the Federal Reserve released an updated term sheet for the Term Asset-Backed Securities Loan Facility (“TALF”). The TALF program, which was first announced on March 23, 2020, will provide a funding backstop for eligible asset-backed securities (“ABS”) issued on or after March 23, 2020.[1] The updated term sheet expands the asset classes that qualify as eligible collateral to include certain commercial mortgage-backed securities (“CMBS”), as well as newly issued static collateralized loan obligations (“CLOs”). The updated TALF program was announced along with a number of other programs under Title IV of the CARES Act, which collectively will provide up to $2.3 trillion to support the U.S. economy. For information concerning other programs, see here and here.

TALF will operate through a special purpose vehicle (“SPV”) created by the Federal Reserve Bank of New York (“Reserve Bank”). The SPV initially will make up to $100 billion of TALF loans to eligible borrowers, which will be funded through a commitment by the Reserve Bank and an equity investment of $10 billion by the Department of the Treasury. No new loans will be made after September 30, 2020.

As of the date of this client alert, TALF is not yet active. The updated term sheet published by the Federal Reserve on April 9 contemplates that more detailed terms and conditions will be provided at a later date, primarily based on the terms and conditions used for a similar TALF program established in response to the 2008 financial crisis (“2008 TALF”). The Federal Reserve has invited comments and questions on the TALF but has not set a specific deadline for submitting public comment on the TALF term sheet.

The following summarizes key terms of TALF as set forth in the updated term sheet.

Borrower and Collateral Eligibility

  • An eligible borrower must be a U.S. company that owns eligible collateral. “U.S. company” is defined as a business that is organized in the United States and has significant operations, and a majority of its employees, based in the United States. The 2008 TALF provided a more detailed list of the types of entities that would be considered a “U.S. company” for purposes of borrower eligibility, including certain investment funds. It is unclear whether all of those entities would qualify under the current TALF. Additionally, the updated term sheet omits a provision from the 2008 TALF that expressly permitted a company that is organized under U.S. law but managed or controlled by a foreign entity to be an eligible borrower.
  • Eligible collateral must be ABS that (i) have the highest investment grade credit rating from at least two eligible nationally recognized statistical rating organizations and (ii) do not have a credit rating below the highest investment grade rating category.
  • In order to be eligible collateral, ABS must be issued by a U.S. company, and all or substantially all of the credit exposures underlying the ABS must have been originated by a U.S. company. Eligible ABS must be issued on or after March 23, 2020 (except for CMBS, which must be issued prior to March 23, 2020). Except for legacy CMBS, all or substantially all of the underlying credit exposures must be newly issued. The underlying credit exposures for CMBS must be to real property located in the United States or one of its
  • The updated term sheet identifies a total of nine eligible asset classes, including auto loans, student loans, credit card receivables, certain small business loans guaranteed by the SBA, commercial mortgages and static CLOs. The eligible asset classes included in the current TALF term sheet are broadly consistent with those included in the final terms and conditions of the 2008 TALF.
  • The following will not be eligible collateral:
    • Single-asset single-borrower CMBS and commercial real estate CLOs.
    • CLOs that are not static CLOs (e., substitution of collateral is not allowed).
    • ABS that bear interest payments that step up or step down to predetermined levels on specific dates.
    • ABS that include underlying credit exposures that are cash ABS or synthetic ABS.

Loan Terms

  • Generally, the Reserve Bank will lend to each eligible borrower an amount equal to the market value of the pledged collateral minus a discount, or “haircut.” Haircut amounts for each asset class are identified in the TALF term sheet and range from 5%-22% depending on the type of ABS and the average life. The haircut schedule generally is consistent with the haircut schedule used for the 2008 TALF.
  • The loans will have a term of three years, will be nonrecourse to the borrower and will be fully secured by eligible ABS.
  • Interest rates will vary, depending on the nature of the eligible collateral:
    • CLOs: 150 basis points over the 30-day average secured overnight financing rate (“SOFR”);
    • SBA Pool Certificates (7(a) loans): the top of the federal funds target range plus 75 basis points;
    • SBA Development Company Participation Certificates (504 loans): 75 basis points over the 3-year fed funds overnight index swap (“OIS”) rate;
    • All other eligible ABS with underlying credit exposures that do not have a government guarantee:
      • For securities with a weighted average life of less than two years, 125 basis points over the 2-year OIS rate.
      • For securities with a weighted average life of two years or greater, 125 basis points over the 3-year OIS rate.
    • The pricing for other eligible ABS will be determined at a later date and set forth in the detailed terms and conditions.
  • There is an administrative fee equal to 10 basis points of the loan amount.

Lessons from the 2008 TALF

The TALF term sheet makes clear that the Federal Reserve intends to provide more detailed terms and conditions modeled after the 2008 TALF. Terms and conditions developed in connection with the 2008 TALF provided considerably more detail about borrower eligibility, the underlying credit exposures for eligible asset classes, a risk assessment process for proposed collateral, transaction structure and pricing. We anticipate similar details about the current TALF to be provided by the Federal Reserve in the coming days or weeks.

Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. We will continue to evaluate the CARES Act, related regulations and any subsequent legislation to provide our clients guidance in real time. Please visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

_______________

[1] The term sheet published on April 9, 2020 updated the initial term sheet that was published when the program was announced on March 23, 2020.

Photo of Andrew Bettwy Andrew Bettwy

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both…

Andrew Bettwy is a partner in the Corporate Department and co-head of the Finance Group. His principal focus is the representation of financial institutions, private equity sponsors, and public and privately held companies in leveraged finance and other financing transactions. Andrew represents both lenders and borrowers in a wide range of transactions involving multiple industries and diverse debt capital structures, including acquisition financings, recapitalizations, multiple lien and subordinated debt financings, debtor-in-possession and exit financings, and private placements.

Andrew has represented several leading financial institutions while at Proskauer, including Bank of America, Citibank, CoBank, Credit Suisse, Imperial Capital, Jefferies Finance and Lazard Capital Markets.

Andrew is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Photo of Karen J. Garnett Karen J. Garnett

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and…

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and interpreting federal securities laws and regulations, including requirements governing public company registration, reporting and disclosure.

Karen joined Proskauer following almost 24 years on the staff of the U.S. Securities and Exchange Commission. Most recently, she was an Associate Director in the Division of Corporation Finance, where she led the disclosure review program. Karen routinely provided guidance on a broad range of complex transactions and disclosure matters. She oversaw the work of several industry-focused review teams and has significant expertise in disclosure relating to REITs and commodity pools. As a senior officer, Karen helped develop many of the Division’s policies and procedures, and she worked closely with staff across the SEC on matters involving broker-dealers, investment companies, and novel financial products.

Photo of Jeffrey A. Horwitz Jeffrey A. Horwitz

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member

Jeffrey A. Horwitz is a partner in Proskauer’s Corporate Department where he co-heads our Private Equity Real Estate practice and runs our internationally recognized Hospitality, Gaming & Leisure Group. He also has served as co-head of Mergers & Acquisitions and as a member of our Executive Committee. Jeff is a general corporate and securities lawyer with broad-based experience in mergers and acquisitions, cross-border transactions, and long-term joint ventures. He is regularly engaged to advise boards, management teams and investors on strategic matters, from litigation to personnel to transactions. Jeff is also the head of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Jeff counsels clients on the full range of their activities, from seed capital to public offerings, acquisitions and operational matters, often acting as outside general counsel. He represents major financial institutions, sovereign wealth funds, private equity and family offices in sophisticated financial and other transactions. He represented Merrill Lynch Global Private Equity in connection with its equity participation in the $33 billion acquisition of HCA in what was then the largest LBO ever. He has handled deals aggregating nearly $200 billion in value, including tender offers, “going-private” transactions, IPOs, restructuring and structured finance transactions, and mergers and acquisitions in industries as diverse as biotechnology and aerospace, retail and cable television, and education and scrap metal. He regularly handles transactions outside the U.S., including Europe, the Middle East, Asia, Latin America, Australia, South Africa and India.

Leading our Private Equity Real Estate group, he works with a team of 75 lawyers from across the firm advising on complex transactions and disputes relating to real estate, and particularly hotels. Jeff has handled virtually every type of matter, and has worked with virtually every major player in these industries, including transactions for nearly 3,500 hotels comprising more than 275,000 rooms and involving more than $12 billion. His experience, both in and outside the U.S., extends to hotel and casino development and construction; portfolio and single-property acquisitions; sales and restructurings; financings; management; marketing; reservations systems; litigation counseling and strategic planning; and ancillary services. This breadth of work is key to executing complex and sophisticated transactions, such as the $2.9 billion acquisition of Fairmont Raffles by AccorHotels and its investments in Huazhu, Banyan Tree Hotels & Resorts, Brazil Hotel Group, sbe Entertainment and 21c Museum hotels, among others.

As a senior member of our Entertainment Group, Jeff represents The Broadway League (the national trade association for Broadway theatre), the Tony Awards®, and various other joint venture events and producers. In the media industry, Jeff has advised on the acquisition and sale of television, radio, newspaper and magazine properties, and the acquisition and sale of advertising, promotion and marketing agencies, and related joint ventures. He also advises rights holders, including our long-time clients The Leonard Bernstein Office and The Balanchine Trust. He leads our team representing TSG Entertainment in film-slate financing deals.

Jeff also frequently represents start-up and development-stage companies, as well as established “traditional” businesses, in online, Internet-related or technology businesses. He has handled organizational and structuring matters, venture capital and other equity placements, restructurings (from “down” rounds to recapitalizations to M&A solutions). He has both company-side and investor experience.

As a frequent speaker at real estate and hospitality events, Jeff regularly presents about hotel management agreements at The Hotel School at Cornell’s SC Johnson College of Business, NYU’s Jonathan M. Tisch Center of Hospitality, and on M&A and investment matters at lodging investment conferences around the world, including the NYU Hospitality Industry Investment Conference in New York, Americas Lodging Investment Summit in Los Angeles, the International Hotel Investment Forum in Berlin and the Hotel Investment Conference Asia-Pacific in Hong Kong.

Jeff is a member of the American Hotel & Lodging Association (AHLA) Hospitality Investment Roundtable, ULI (and its Hotel Development Council) and the Advisory Board of the Cornell Center for Real Estate and Finance and has served as a member of the Editorial Board of the Cornell Hotel and Restaurant Administration Quarterly and a member of the Advisory Board of the Cornell Center for Hospitality Research. He is a director of The New York Hospitality Council, Inc., a not-for-profit forum for hospitality industry leaders, and is a member of the Real Estate Capital Policy Advisory Committee of The Real Estate Roundtable. He also has served as a director of the America-Israel Chamber of Commerce, and as a member of the French-American Chamber of Commerce in the U.S. and the American Society of Corporate Secretaries. He was the Chairman of the Board of Labyrinth Theater Company and a director of The Jewish Community Center in Manhattan for more than 15 years, a member of the Executive Committee of the Lawyers’ Division of UJA-Federation for more than five years and an officer of the Henry Kaufmann Foundation for more than a dozen years. He currently serves as Chairman of the Board of The American Playwriting Foundation and Building for the Arts and is a member of the Board of Directors of StreetSquash and The George Balanchine Foundation. He also served as a Vice Chair of the Associates’ Campaign for The Legal Aid Society.

Jeff has been with the firm for his entire career and lives in Manhattan and Connecticut.

Photo of Yuval Tal Yuval Tal

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers…

Yuval Tal is a partner in our Corporate Department where he co-heads our internationally recognized Hospitality, Gaming & Leisure Group. He also heads our Hong Kong and Beijing offices. He is a general corporate and securities lawyer with diverse experience in cross-border mergers & acquisitions (public and private, debt and equity), long-term joint ventures, private equity real estate and corporate and real estate finance. He advises clients on the full range of their activities including any form of financing, operational matters and commercial transactions. He advises sponsors and funds on the structuring, execution, entering into, restructuring and exiting of investments. Yuval is co-chair of Proskauer’s CARES Act Team and a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Taskforce helping to shape the guidance and next steps for clients impacted by the pandemic.

Yuval has decades of experience representing clients on complex, first in kind transactions.  Yuval’s strength is providing original, workable and practical solutions that get the deal done. Qualified in New York, Hong Kong and Israel, Yuval has negotiated transactions in six continents and has particular experience representing Asian clients and clients based outside of Asia in inbound and outbound transactions. Yuval has worked in various industries including real estate, hospitality, entertainment, sports, financial services, technology and life sciences.

As an international M&A lawyer, Yuval has many years of experience dealing with complicated, non-customary transactions involving parties from different countries, cultures and legal systems.  He has represented private equity, family offices, corporations and individuals in structuring, restructuring, managing and disposing of investments in Asia, Europe and the United States.  He is typically called upon to strategize and structure complex transactions that do not follow a prescribed form or pattern. Yuval’s experience enables him to forsee future issues and clients have commented on his “ability to think seven moves ahead of the competition”. Yuval is also well known for his ability to broker deals between opposing parties in order to get the deal done, irrespective of the legal, business or practical obstacles. His efforts have earned him recognition by Legal 500Chambers Asia Pacific and IFLR1000, where clients have referred to his “ability to play the honest broker to all parties involved, and to bridge the different cultures, legal systems and language barriers and to continually solve the unsolvable, is what allowed us to get this difficult deal done” and another stated “he was completely invested in the deal in a way lawyers seldom are, and his creativity and efforts allowed us to bridge considerable gaps between the parties and find common ground”.

As co-head of our Hospitality, Gaming & Leisure Group, Yuval has worked on virtually any kind of transaction, including mixed-use development and construction, acquisition and sale, restructuring and public offerings of real estate, hotel and casino companies. He has completed numerous high profile transactions involving the buying, selling and combining Asian and Western based hotel operating companies, including AccorHotels’ [EPA:AC]  US$2.9 billion acquisition of Fairmont, Raffles and Swissôtel brands, its acquisition of Tribe, Australia’s first integrated modular hotel brand, Accor’s long-term alliance with Huazhu Hotels Group (also known as China Lodging Group [Nasdaq: HTHT]) and its strategic partnership with Singapore-based Banyan Tree Holdings [SGX:B58]. He also advised Formosa International Hotels’ sale and resulting joint venture with Intercontinental Hotels Group with respect to the Regent brand.  His real estate and hospitality work has included transactions for properties from China to India to the United States to Australia. He also has many years of experience with hotel licensing, franchising and management.

Yuval’s broader Private Equity Real Estate experience includes working on The Recording Academy’s (The Grammys) deal to develop Grammy Museums in China, a public/private deal to finance an office building in Delhi, India; the acquisition of hotels in Bangkok by a large Japanese institutional investor and a joint venture between a Hong Kong developer and an Asian based private equity fund for the acquisition and redevelopment of a property in Kowloon into a mixed use property including co-living and co-working properties.

Yuval is a member of the Steering Committee of the Asian Hospitality Development Council of the Urban Land Institute (ULI) and has recently been appointed to the Law 360 2020 Hospitality Editorial Board. He is a regular speaker at real estate and hospitality related conferences such as the Hotel Investment Conference Asia-Pacific in Hong Kong.

Prior to rejoining Proskauer in 1999, Yuval practiced law in Israel, representing Israeli clients in transactions in Europe and the United States and European and U.S.-based clients in transactions in Israel. He handled transactions for major publicly traded Israeli companies such as Clal (Israel) Ltd., LifeWatch, Kitan Consolidated Ltd., Orckit Communications Ltd., ECI Telecom Ltd., Scitex Corporation Ltd. and Tecnomatix Technologies Ltd. Since joining Proskauer, Yuval has continued to represent Israeli clients on a wide range of corporate and securities matters.

Photo of Steven A. Fishman Steven A. Fishman

Steven A. Fishman, a senior counsel in the Corporate Department, concentrates his practice in real estate securities, real estate private equity investments and finance matters. Steve has extensive experience in connection with acquisitions and dispositions of public and private limited partnerships and limited…

Steven A. Fishman, a senior counsel in the Corporate Department, concentrates his practice in real estate securities, real estate private equity investments and finance matters. Steve has extensive experience in connection with acquisitions and dispositions of public and private limited partnerships and limited liability companies, the formation of real estate joint ventures and private equity funds, the sale of hotel companies, and debt and equity financings.

Steve also has broad experience representing public and private corporations in all aspects of their securities filings and commercial transactions.

Photo of Susan Goldfarb Susan Goldfarb

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring…

Susan R. Goldfarb is special finance counsel in the Corporate Department. Her practice focuses on representing lenders and borrowers with regard to personal property secured transactions, structured finance transactions, commercial law transactions and real estate finance transactions. Susan has extensive experience in structuring transactions that require bankruptcy remote special purpose entities.

Susan has significant experience drafting and negotiating financing documents for secured and unsecured loans, receivables financing, syndicated loans, loan modifications, restructuring transactions, equipment finance loan documents, loan assumptions and lease assumptions. In addition, she routinely drafts and negotiates enforceability, non-consolidation, true sale and other reasoned legal opinions.

Susan’s pro bono work primarily involves assisting not-for-profit organizations obtain federal and state tax-exempt status. She has obtained tax exempt status for companies that provide maternal health care and operate a pre-school and primary school in Uganda, conduct medical missions in Myanmar, operate a summer camp for LGBTQ youth, and provide services, resources and support to teenage mothers.

Photo of Steven B. Leiser-Mitchell Steven B. Leiser-Mitchell

Steven Leiser-Mitchell is an associate in the Corporate Department and a member of the Capital Markets group. His practice focuses on equity offerings, including IPOs and follow-on secondary offerings. Steven also has significant experience with debt offerings and private placements.

Prior to joining…

Steven Leiser-Mitchell is an associate in the Corporate Department and a member of the Capital Markets group. His practice focuses on equity offerings, including IPOs and follow-on secondary offerings. Steven also has significant experience with debt offerings and private placements.

Prior to joining Proskauer, Steven practiced corporate and securities law with Jones Day.

Photo of Lauren Richburg Lauren Richburg

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending…

Lauren Richburg is an associate in the Corporate Department and a member of the Finance Group. Lauren represents both lenders and borrowers in a wide range of complex financing transactions, including acquisition financings, fund finance transactions, restructurings and other secured and unsecured lending transactions.