TALF: The Federal Government Stimulus Program for Consumers & Small businesses The Asset-Backed Securities (ABS) markets historically have funded a large percentage of consumer credit and Small Business Administration (SBA) -guaranteed loans. The Term Asset-Backed Loan Facility (TALF) was created to increase credit availability and to support economic activity by facilitating renewed issuance of consumer and small business ABS at wider than historical interest rate spreads.
stimulus packages have created opportunities for investors.
TALF loans have three year terms and are non-recourse to encourage buying of certain AAA rated securities backed by newly and recently originated consumer and small business loans. A unique feature of TALF loans is the borrower/investor can put back the loan to the Federal Reserve if the underlying collateral (ABS) The ABS market came to a halt is below purchase value in October 2008 as interest rate at the loan’s maturity. spreads soared to levels well - Duncan Morton III- Interfund Principal With the loan features above historical ranges, reflecting offered, the risk to the unusually high-risk premiums. investor is their economic In a move to revitalize the stake in the transaction, ABS markets, to promote new typically referred to credit extensions, to normalize as a “haircut”. In addition, under the Troubled Assets spreads, and to stimulate investor demand the Federal Reserve Relief Program (TARP), the U.S. Treasury has provisioned Board has implemented a $200 billion loan facility program $20 billion of credit protection to the Federal Reserve initially directed at helping consumers and small businesses. Bank of New York (FRBNY) in connection with the TALF. The creation of the TALF will support the issuance of ABS collateralized by student loans, auto loans, credit card loans, Interfund’s Investment Partnership, Hegemony, is exclusively SBA loans, equipment loans and CMBS loans. Talk of extending available for accredited investors interested in investing in an the plan is already in the works from an initial goal of $200 entity that will participate in the recently created TALF program. billion to $1 trillion. Such revitalization efforts of government
“In an unlikely development, this is the first government backed carry trade.”
Opportunities for Hegemony as an Investor: • • • • • • • •
Purchase at a discount Wide spreads Participation in newly issued or repackaged securities Monthly fundings of top institutions Secured financing Asset maturity equates to loan term completion Possible extension of program to $1 trillion Mispriced risk
TALF Loan Features
Backed by the Full Faith & Credit of the Government
$20 Billion Credit Protection
Varying Terms
Three Years - Non-Recourse
Adjustable Rates Marked-to-Market Risk: Par Value
Investment Risks Include: • • • • •
Standard Loan Features
Liquidity risk Reinvestment risk Asset/Liability Maturities - non linked Consumers fail to fulfil obligations TALF Program subject to change
Reg T Margin Calls Unlimited Accessibility CDS for US Government Debt Priced at Par
LIBOR +50 to100 bps N/A Risk: Margin (Haircut) No Re-Margining Limited Accessibility to Investors Prohibitions on Hedging Priced at Par
Interest Rate Spreads & Eligible Asset Classes Sector
Fixed Loan Rate
Floating Loan Rate
Haircut %
Auto
3-year LIBOR swap rate + 100 bps
1-month LIBOR + 100 bps
6-16%
Credit Card
3-year LIBOR swap rate + 100 bps
1-month LIBOR + 100 bps
5-10%
•
Equipment
3-year LIBOR swap rate + 100 bps
1-month LIBOR + 100 bps
5-9%
•
3-year LIBOR swap rate + 100 bps
1-month LIBOR + 100 bps
12-16%
•
Floorplan
Subsector
Auto Non-Auto Residential mortgages
3-year LIBOR swap rate + 100 bps
1-month LIBOR + 100 bps
12-16%
Small Business
SBA loans 7(a)
NA
Fed Funds Target + 75 bps
5-6%
Small Business
SBA loans 504
3-year LIBOR swap rate + 50 bps
NA
5-6%
Student Loan
Private
NA
1-month LIBOR + 100 bps
8-14%
Student Loan
Government Guaranteed
NA
1-month LIBOR + 50 bps
5-6%
Subsector
•
•
11-15%
Servicing Advances
Sector
Eligible Asset Classes:
Loan Rate
Haircut %
Commercial Mortgage Backed Securities
3-year LIBOR swap rate + 100 bps
15-20%
Commercial Mortgage Backed Securities
5-year LIBOR swap rate + 100 bps
15-20%
•
Rental, commercial & government vehicle fleet leases Equipment related receivables include business, industrial & farm equipment loans & leases Consumer recreational vehicles, boats, trailers & sports vehicle loans & leases Consumer & corporate credit card receivables, small business loans, student loans Floor plan receivables including revolving lines of credit used to finance dealer inventories Servicing advance receivables related to residential mortgage loan securitization
INTERFUND CAPITAL
200 West River Street, 3rd Floor Ketchum, Idaho 83340-8920 TEL: (208)928-6900 For sources and additional information visit www.interfundcapital.com & www.newyorkfed.org/markets/talf_faq.html
Source: Federal Reserve Bank of New York
Hegemony Managers: Interfund Capital General Partner Jamie Schwartz, David Hepworth & Duncan Morton III
Structure Domestic 3(C)1
Reporting Quarterly
Strategy TALF
Domicile United States
Minimum Investment $1,000,000
Highwater Mark Yes
Legal Counsel Foley & Lardner LLP
Management Fee 1.5% Incentive Fee 20% Administration Kaufman Rossin
www.foley.com
Distributions Semi-annual
Liquidity Quarterly
Custodian Bank of New York Mellon
Auditor RSM McGladrey
with 60 days notice
www.bnymellon.com
www.rsmmcgladrey.com
www.krfs.com
This summary is provided solely for informational purposes and is not intended to be an offer to sell or a solicitation of an offer to purchase any securities or a forecast of future events, a guarantee of future results, or investment advice. Any offer of securities or solicitation shall be made only by the Partnership’s Private Placement Memorandum. Information included in this summary has been obtained from third parties. Although we believe the information is accurate, it is subject to change and we did not independently verify its accuracy or completeness. Investors should consult their investment professional for advice and information concerning their particular financial situation. This summary may not be duplicated or distributed to anyone other than the intended recipient. Interfund Capital © 2009 - www.interfundcapital.com