The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Term Asset-Backed Securities Loan Facility

  • From Vol. 10 No.11 (Mar. 16, 2017)

    Types, Terms and Negotiation Points of Short- and Long-Term Financing Available to Hedge Fund Managers 

    As hedge funds move into relatively illiquid assets in an effort to improve returns, traditional short-term margin and repurchase agreement financing may no longer be appropriate or available. Instead, hedge fund managers are pursuing short- and long-term financing through prime brokers, private-equity-style capital call facilities, term facilities and special purpose vehicles. See “Can a Capital on Call Funding Structure Fit the Hedge Fund Business Model?” (Nov. 5, 2009). A recent presentation by Dechert partner Matthew K. Kerfoot provided an overview of these types of financing arrangements and some of their key negotiating points. This article summarizes his insights. For additional commentary from Kerfoot, see “The Current State of Direct Lending by Hedge Funds: Fund Structures, Tax and Financing Options” (Oct. 27, 2016); and “Dechert Panel Discusses Recent Hedge Fund Fee and Liquidity Terms, the Growth of Direct Lending and Demands of Institutional Investors” (Jun. 14, 2016).

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  • From Vol. 2 No.24 (Jun. 17, 2009)

    Update on the Federal Reserve Bank of New York Term Asset-Backed Securities Loan Facility

    In November 2008, the Federal Reserve Board established the Term Asset-Backed Securities Loan Facility (TALF) to provide $200 billion in non-recourse financing by the Federal Reserve Bank of New York (FRBNY) to eligible borrowers owning eligible asset-backed securities (ABS).  On February 10, 2009, the Treasury announced that, under the Financial Stability Plan, the TALF would be expanded to provide up to $1 trillion in financing.  On May 1, 2009, the FRBNY announced that, beginning in June 2009, certain commercial mortgage-backed securities (CMBS) would be eligible for TALF funding; eligible CMBS will be highly-rated and of recent origin.  The FRBNY will cease making TALF loans on December 31, 2009, unless the program is extended by the Board of Governors.  In guest article, Alyson B. Stewart and Lawrence D. Bragg, III, Associate and Partner, respectively, at Ropes & Gray LLP, provide a comprehensive summary of terms of the TALF based on publications of the FRBNY and their experience representing borrowers in the TALF subscriptions to date.

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  • From Vol. 2 No.12 (Mar. 25, 2009)

    Onerous Customer Agreements Undermine Investor Interest in the TALF, but TALF Trusts Offer a Creative Solution for Hedge Funds Interested in Participating

    The first round of the Federal Reserve Bank of New York and the United States Treasury Department’s Term Asset-Backed Securities Loan Facility (TALF) program has launched to a lukewarm reception among investor-borrowers.  According to a statement issued by the Federal Reserve on March 18, 2009, in its first round of funding, the TALF program received only $4.7 billion in requests for loans out of $200 billion in available loan capacity.  Only 19 hedge funds applied for funding.  Market participants attribute the relative lack of interest in part to resistance on the part of investors to the terms of customer agreements that investors are required to enter into with dealers.  According to lawyers who have negotiated such customer agreements, the customer agreements are more restrictive than the Master Loan and Securities Agreement (MLSA) that primary dealers must enter into with the Federal Reserve to participate in the TALF.  The customer agreements are generally dealer-friendly, including unilateral set off rights that favor dealers and broad rights for dealers to inspect investors’ books and records.  We explain the concerns among hedge funds and their advisers relating to the customer agreements.  We also describe TALF Trusts, a creative solution that some hedge fund are employing to circumvent the customer agreements, along with a review of some of the shortcomings of TALF Trusts.

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  • From Vol. 2 No.7 (Feb. 19, 2009)

    As Prime Brokers Tighten Lending to Hedge Funds, the Federal Reserve Increases Hedge Fund Financing Capacity with Expansion of the TALF

    The Federal Reserve Bank of New York and the United States Treasury have announced that financing available under the Term Asset-Backed Securities Loan Facility (TALF) program will be substantially increased, from a previously announced $200 billion up to $1 trillion, and that eligible collateral for loans under the TALF could be expanded (although such an expansion is not yet certain) to include newly and recently issued AAA-rated commercial mortgage-backed securities (MBS) and private-label residential MBS.  As originally envisaged, eligible collateral was limited to AAA-rated asset backed securities (ABS) backed by newly and recently originated auto loans, credit card loans, student loans and Small Business Administration-guaranteed small business loans.  The expansion of the TALF would be supported by a commitment from the Treasury of additional funds from the Troubled Asset Relief Program.  Hedge funds, who historically have not been eligible to borrow from the Fed, will become eligible to do so under the TALF with respect to investments in certain ABS.  We explain the background and mechanics of the revised TALF and the related Public-Private Investment Fund, and enumerate the benefits and burdens to hedge funds of participating in the program.

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  • From Vol. 2 No.1 (Jan. 8, 2009)

    Hedge Funds Gain Access to Government Loans as Fed Expands the TALF

    Hedge funds find themselves in new territory under a plan by the Federal Reserve to boost lender liquidity.  The Fed created a new $200 billion lending facility, called the Term Asset-Backed Securities Loan Facility (TALF), which offers low-cost, three-year financing to a wide range of US banks and investors for the purchase of securities backed by consumer loans, beginning in February 2009.  Notably, domestic (though probably not offshore) hedge funds would be eligible to participate in the program, allowing them to borrow from the Federal Reserve, something hedge funds have not been able to do in the past.  We describe the mechanics of the program and how hedge funds may be able to participate, and explore the benefits and burdens of participation.

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