Fed Settles $1.3 Billion In TALF Loans For Existing CMBS
By Prabha Natarajan, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The Federal Reserve extended $1.3 billion in loans to
investors to buy existing commercial mortgage bonds under the Term Asset-Backed
Securities Loan Facility, or TALF, according to data released Friday.
It also provided $72.2 million in loans toward purchase of the first
commercial mortgage bond in more than a year from Developers Diversified Realty
(DDR).
The central bank had received $72.3 million in loan requests for the new
issue, and $1.42 billion on existing bonds.
This program is part of the central bank's efforts to jumpstart the dormant
commercial mortgage realm. Already, there's evidence that it is working. Spreads
on these bonds have tightened. And, the $400 million deal from Developers
Diversified saw more non-TALF buyers participate, a clear indication that
investors are confident about newly underwritten loans.
Further, to capture the usual commercial bond investors who didn't get to
participate in the DDR deal, Bank of America (BAC) came out with a $460 million
bond issue, that is not TALF eligible.
TALF also allows for the purchase of existing securities. The Fed announced a
rate of 2.72% on a fixed, three-year loan and 3.5427% on a five-year loan.
The central bank reserves the right to use its discretion in awarding these
loans requests, and not all securities that satisfy its terms may qualify for
the loan.
This time, the Fed unexpectedly rejected three securities without any
explanations. Participants already confused by previous rejections, were even
more puzzled by this one since the Fed rejected bonds it had previously bought.
This lack of clarity on what the Fed accepts and rejects is expected to keep
away some investors.
Citi analysts say subscriptions on existing bonds is likely to stay in the $1
billion to $1.5 billion range for the next few times.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468; prabha.natarajan@
dowjones.com
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