TALF’s first recipient will be Nissan Motors of Japan

As I mentioned in my post, “TALF: A bailout if one reads the fine print” the TALF is not a program ONLY for U.S. institutions. It is a vehicle for re-starting the U.S. asset-backed securities credit markets. In fact, the first recipient of TALF money may be Nissan Motors, a Japanese company (Hat tip Marc):

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After focusing on the big banks and AIG, official attention has broadened in recent weeks to include help for home owners, consumers and small businesses. The Fed’s Term Asset-Backed Securities Loan Facility (TALF) is aimed re-opening access to credit by consumers and small businesses by re-opening the market for the securization of such credit. The Federal Reserve is committed to buying up to $1 trillion worth of such ABS.

After much tweaking of the rules to ensure a successful launch, the program is ready. Ironically, Nissan, the Japanese auto maker, may be the first participant. It security will likely be priced tomorrow, the deadline for investors to apply to the Fed for loans to buy the debt. Reports indicate Nissan is preparing a package of $1.3 bln in auto loans that may the first to qualify under the TALF program. The largest AAA portion of Nissan’s securities matures in a little less than 2 years and indicative prices suggest 185-200 bp premium to the benchmark.

Here in Q1 09, about $2.3 bln of auto-backed debt has been issued. This is less than a third of the amount issued in Q1 08 and illustrates the drying up of the market. It also highlights the significance of the Nissan deal–increasing the auto ABS brought to market by 50%.

The Fed had initially hoped to start TALF in Feb. Procedural and legal issues have been behind the delay. However, the size of the program has been lifted from $200 bln initially proposed.

Bloomberg says substantially the same thing.

The Obama administration is counting on the TALF plan to help end the credit crunch and recession, thawing the market for asset-backed securities so lenders can make new loans to consumers. The program, first announced in November, was hampered by delays as investors, dealers and issuers worked on details.

“A number of people were concerned that some glitches might not have been ironed out this week” in time to meet the first deadline for investors to apply for the Fed loans, said Malcolm Dorris, a senior partner in the securitization group at law firm Dechert LLP in New York. “Getting a deal done in March is good for the program. We are still in the wait-and-see stage.”

Investors have shunned debt backed by consumer loans as unemployment has climbed in the worst financial crisis since the Great Depression. Sales of the bonds plunged 40 percent last year to $106 billion, according to data compiled by Bloomberg, choking off funding to lenders. About $2.3 billion of debt backed by auto loans has been sold this year, compared with more than $9.6 billion in the same period of 2008, according to data from JPMorgan Chase & Co…

The first phase of the TALF will finance the purchase of as much as $200 billion of AAA rated securities containing loans for autos, education, credit cards and small businesses. Officials eventually plan to include other assets, including commercial mortgage-backed securities.

The Fed originally planned to start the TALF in February, then delayed the debut to ensure “all our legal and procedural steps had been taken,” Bernanke said in congressional testimony Feb. 25. On March 3, the Fed and Treasury said applications for the first deals would be due in two weeks, with loans disbursed on March 25.

The largest AAA portion of the Nissan sale maturing in 1.98 years may price to yield between about 185 basis points and 200 basis points more than benchmark interest rates, the person said. JPMorgan and Bank of America Corp. are underwriting the bonds.

This is the big test. If credit markets are not freed up by these moves, we must hope there is a Plan B.

Sources
Fed’s TALF Consumer Lending Program Starts With Nissan Debt – Bloomberg.com
Nissan to Sell $1.3 Billion of Auto Debt Through TALF – Bloomberg.com