Increasing interest in the Term Asset-Backed Securities Loan Facility (TALF)
By Jorge de Cardenas and Christine Egan

Kaufman Rossin Fund Services LLC (KRFS) has seen a lot of interest on the part of clients and prospects in the Term Asset-Backed Securities Loan Facility (TALF) program made effective by the Federal Reserve Board on March 3, 2009. The goal of the Program is to provide incentives to eligible borrowers (including established Investment Managers) in the form of low interest non-recourse TALF loans in exchange for pledged collateral consisting of eligible AAA rated asset-backed securities (ABS) such as auto loans, student loans, small business loans, etc. and certain AAA rated commercial mortgage-backed securities (CMBS).

In short, the program hopes to tip the scales of supply and demand for these ABS and CMBS security types and kick-start this near-completely halted market.

This appears to be a very attractive opportunity for experienced investment managers, particularly those who have experience in the ABS and CMBS sector.

Accounting for TALF

Sponsors of investment funds participating in the TALF program need to consider the complexities in accounting for ABS and CMBS securities, as well as the TALF loans.

Accounting for these securities is not straightforward. There is some uncertainty in the expected cash flows and the timing of the cash flow settlements, which typically take up to one month to settle. This uncertainty may result in use of estimates in accounting for and valuing these instruments. Any changes in cash flows and factors must be accounted for appropriately.

Administration of the TALF loans involves, among other items, accounting for the principal balances of the loans, accounting for the respective variable or fixed interest rate(s), and tracking the individual collateral for each loan. Also important is the reporting function, i.e. providing the investment fund with timely and accurate reports of the investment and collateral data. Such reporting will enable the fund's advisor to manage the risks associated with the collateral function. This becomes especially important when the fund has a large number of individual loans.

Next Up? Collateralized Mortgage Backed Securities

On May 19th, the Federal Reserve Board announced that in addition to making loans to investors to purchase newly issued AAA-rated commercial mortgage-backed securities, the TALF would be extended to include CMBS issued before Jan. 1, 2009, known as legacy CMBS.

The first round of loans to purchase newly issued CMBS is now set for June 16, while the first round of loans to purchase legacy CMBS is slated for late July. Investors will be permitted to take out loans at a minimum of $10 million with a 5% haircut, or equity stake. The New York Fed will offer three- and five-year non-recourse fixed-rate mortgages. Interest rates will correspond with the three- and five-year LIBOR swap rate plus 100 basis points.

To find how KRFS' experience with ABS and CMBS securities and collateralized loans can benefit you, please contact Jorge de Cardenas at 305 857 6826 or jdecardenas@krfs.com.

About Kaufman Rossin Fund Services

Established in 1994, Kaufman Rossin Fund Services (KRFS) is an independent full-service provider of administration services to the investment community. Born out of one of the nation's top CPA firms, KRFS maintains top-tier technical skills, quality control practices and technology. KRFS "Goes Beyond" its competition by delivering expertise in the complex areas of taxation, accounting standards and financial statement preparation. Clients worldwide rely on KRFS for startup, accounting and valuation, back-office outsourcing, investor services, tax services, customized reporting and corporate services. KRFS has offices in Miami, Fort Lauderdale, Boston, New York and the Cayman Islands. For more information visit www.krfs.com.