More Than $5 Billion In Deals Ahead Of TALF Loan Deadline

More than $5 billion in new consumer loan-backed deals have emerged ahead of the latest loan application deadline for a Federal Reserve program.

These bonds can be purchased using cheap funding through the central bank's Term Asset-Backed Securities Loan Facility, or TALF, geared toward boosting the securitization market. The eighth deadline for applying for TALF money is Oct. 2.

Among the issuers tapping the market this time round with bonds eligible for TALF are Mercedes-Benz Financial with a $1.08 billion bond, BMW AG (BMW.XE) with a $550 million bond, American Home Mortgage Servicing Inc. with a $600 million deal, Harley-Davidson Inc. (HOG) with a $700 million bond, Ford Motor Co. (F) with a $1 billion bond and Citi Financial Auto with a $1.40 billion auto-sector deal.

The packaging of consumer loans into bonds for sale to investors has helped lower the cost of borrowing. This is because lenders use the cash from these bonds to make new loans. This process of securitization helped ramp up credit and helped 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 the launch of the TALF program in March, with the bulk being eligible for the Fed's facility. Auto-sector deals comprise the majority of issuance, followed by credit card debt-backed bonds.

About $15 billion in bonds sold in the last round of TALF loan applications in September. Issuers included American Express Co. (AXP) and Citigroup Inc. (C) in the credit card-backed sector, and Nissan Motor Co. (NSANY), Ford and Hyundai (HYMLY) in the auto sector.

The attractive terms of the program, where investors can walk away from the loans if anything goes awry, have drawn investors to this market.

With some signs of stability in the market and growing investor interest, issuers have also offered deals ineligible for TALF funding: last week, both JPMorgan Chase & Co. (JPM) and Avis Budget (CAR) sold non-TALF bonds.

TALF also includes funding for existing and new commercial mortgage-backed securities. That portion of the program started later than the consumer loan-backed portion, which was launched in March.

The program has been extended into next year. TALF loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be extended through March 31, 2010. For newly issued CMBS, which take a long time to put together, the extension is until June 30, 2010. The TALF program could total $1 trillion.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; [e-mail]