More than $5 billion in new consumer loan-backed deals have emerged ahead of the latest loan application deadline for the Federal Reserve's Term Asset-Backed Securities Loan Facility program.
These bonds can be bought using cheap funding through the central bank program geared toward boosting the securitization market. The eighth deadline to apply for Talf money is Friday.
Among the issuers tapping the market this time around with bonds eligible for Talf are Mercedes-Benz Financial with a $1.08 billion bond, BMW AG with a $550 million bond, American Home Mortgage Servicing Inc. with a $600 million deal, Harley-Davidson Inc. with a $700 million bond, Ford Motor Co. with a $1 billion bond and Citigroup Inc.'s Citi Financial Auto with a $1.4 billion deal.
The packaging of consumer loans into bonds for sale to investors has helped reduce the cost of borrowing because lenders use the cash from bond sales to make new loans. This securitization process helped ramp up credit and fuel the lending boom that came to an abrupt halt with the credit crisis. The Fed has helped prop up this market with Talf.
More than $100 billion in such deals have been sold since Talf was begun in March, with most being eligible for the Fed's facility. Auto-sector deals comprise the majority of issuance, followed by bonds backed by credit card debt.
About $15 billion in bonds were sold in the last round of Talf loan applications in September. Issuers included American Express Co. and Citigroup Inc. in the credit card-backed sector and Nissan Motor Co., Ford and Hyundai in the auto sector.
The program's attractive terms, including an investor option to walk away from loans if anything goes awry, have drawn investors.
With growing investor interest, issuers have also offered deals ineligible for Talf funding: Last week both JPMorgan Chase & Co. and Avis Budget Group sold non-Talf bonds.
The program has been extended into next year. Talf loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be available through March 31. For newly issued CMBS, which take a long time to put together, the extension is until June 30. The Talf program could total $1 trillion.