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Federal Reserve Approves Dealer-Backed Initiative

Dec 31, 2008

Following President Bush’s recent announcement to provide $17.4 billion in bridge loans to General Motors and Chrysler, the Federal Reserve Board, in a related action, addressed a key request from the National Automobile Dealers Association by including floor plan securitizations in a new $200 billion credit facility the Federal Reserve is establishing. The Federal Reserve clarified the eligibility requirements under the new Term Asset-Backed Securities Loan Facility (TALF) and, in doing so, for the first time included loans for dealer inventory financing as a qualifying asset class. The U.S. Department of the Treasury announced November 25, 2008, that the Fed would be establishing the TALF credit facility, a $200 billion program designed to facilitate the issuance and sale of securitized auto loans. However, at the time the TALF was announced, it was unclear whether it would include loans for dealers at the wholesale level. That uncertainty has now been resolved.

In addition to confirming the eligibility of floor plan loans, the Federal Reserve also extended the term of TALF loans from one to three years and provided that TALF loans could have fixed or floating interest rates. These changes will make it easier for auto finance companies to use the TALF to issue floor plan securitizations.