By Kristina Cooke and Nancy Leinfuss
NEW YORK, April 6 (Reuters) - Demand for the second round of the Federal Reserve's ambitious program to resuscitate consumer and small business lending may be even more lackluster than last month's debut.
Only two deals, involving CarMax and World OMNI -- both in the auto sector -- eligible under the $200 billion Term Asset-Backed Securities Loan Facility, or TALF, have emerged so far in the April round.
Issuers have until Tuesday afternoon to push out TALF eligible deals in this month's round. A syndicate source said he had heard of no other deals in the pipeline.
The Fed on Tuesday is accepting loan applications from investors who want to buy ABS. Last month, four TALF-eligible deals were issued and investors applied for only $4.7 billion in loans.
'I wouldn't expect much more demand, based on my conversations with investors and issuers who are interested in the program, but aren't quite ready to jump in,' said Tom Duncan, an ABS specialist at law firm Ballard Spahr Andrews and Ingersoll. 'They are still looking at the economics of the program.'
Duncan said investors were gauging whether they could get better deals under other funding programs, such as the government's public private investment program.
Mike Kagawa, portfolio manager at Payden & Rygel, said some potential issuers were also likely to go elsewhere for funding.
'You've got a number of issuers that have had to find alternative means of funding for a while now,' he said.
'Credit card issuers can get cheaper funding through the Federal Deposit Insurance Corp,' for example, he said. Kagawa also noted that the Big Three automakers were not taking full advantage of the program.
The worsening economic backdrop could partly explain the slow trickle of new issuance. Given widespread job insecurity and rising unemployment, consumers are likely to hunker down rather than buy new cars, for example, even if credit were to be made more easily available, analysts say.
Still, the Fed can point to some successes -- the market for asset-backed securities, which it aims to revive, has shown some signs of life after the first deal in March.
For the April round the Fed has expanded the program to include securities backed by floor plan loans as well as those backed by loans or leases relating to business equipment and leases of vehicle fleets. The program also includes debt backed by mortgage servicing advances, or money servicers must pay investors when loans are in default.
As part of the government's public private investment program, the TALF will be expanded to include so-called 'legacy assets,' which analysts hope will spur more demand for TALF and help remove troubled assets from banks' balance sheets.
The 'legacy assets' are primarily securities backed by failing or distressed commercial and residential mortgages written during the real estate boom.
Big investors stayed away from TALF's March debut, with only 19 smaller funds tapping the program, according to a source familiar with the situation.
Analysts attributed this stuttering start primarily to fear among investors about the government and the Fed changing the rules of the game after the fact at the height of a furor over bonuses at bailed-out insurer American International Group.
The question will be whether large investors will venture into the program's second round.
'The TALF can't succeed without the involvement of the private sector and in particular Wall Street,' said Tony Crescenzi, bond strategist at Miller Tabak & Co.
'The poisonous atmosphere surrounding compensation for recipients of taxpayer dollars could make investors shy about participating in the TALF and in the Public-Private Investment Program,' he said.
(Reporting by Kristina Cooke and Nancy Leinfuss; Editing by Dan Grebler) Keywords: USA FED/TALF XX:SU:REUTERS#SN:nN06419893#XX:2700728.0#HS:RAMSTXT_9088_2009-4-6_213727_1_95#DU:lanreunxd1+lanreunxd2+lanreznxd1+lanreznxd2+rekwire+reawire+rexwire+bsu8rtr#XN:##XP:tfukfipdistw.datastream.com ~ (kristina.cooke@thomsonreuters.com; Tel: +1 646 223 6154; Reuters Messaging:rm://kristina.cooke.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, April 6 (Reuters) - Demand for the second round of the Federal Reserve's ambitious program to resuscitate consumer and small business lending may be even more lackluster than last month's debut.
Only two deals, involving CarMax and World OMNI -- both in the auto sector -- eligible under the $200 billion Term Asset-Backed Securities Loan Facility, or TALF, have emerged so far in the April round.
Issuers have until Tuesday afternoon to push out TALF eligible deals in this month's round. A syndicate source said he had heard of no other deals in the pipeline.
The Fed on Tuesday is accepting loan applications from investors who want to buy ABS. Last month, four TALF-eligible deals were issued and investors applied for only $4.7 billion in loans.
'I wouldn't expect much more demand, based on my conversations with investors and issuers who are interested in the program, but aren't quite ready to jump in,' said Tom Duncan, an ABS specialist at law firm Ballard Spahr Andrews and Ingersoll. 'They are still looking at the economics of the program.'
Duncan said investors were gauging whether they could get better deals under other funding programs, such as the government's public private investment program.
Mike Kagawa, portfolio manager at Payden & Rygel, said some potential issuers were also likely to go elsewhere for funding.
'You've got a number of issuers that have had to find alternative means of funding for a while now,' he said.
'Credit card issuers can get cheaper funding through the Federal Deposit Insurance Corp,' for example, he said. Kagawa also noted that the Big Three automakers were not taking full advantage of the program.
The worsening economic backdrop could partly explain the slow trickle of new issuance. Given widespread job insecurity and rising unemployment, consumers are likely to hunker down rather than buy new cars, for example, even if credit were to be made more easily available, analysts say.
Still, the Fed can point to some successes -- the market for asset-backed securities, which it aims to revive, has shown some signs of life after the first deal in March.
For the April round the Fed has expanded the program to include securities backed by floor plan loans as well as those backed by loans or leases relating to business equipment and leases of vehicle fleets. The program also includes debt backed by mortgage servicing advances, or money servicers must pay investors when loans are in default.
As part of the government's public private investment program, the TALF will be expanded to include so-called 'legacy assets,' which analysts hope will spur more demand for TALF and help remove troubled assets from banks' balance sheets.
The 'legacy assets' are primarily securities backed by failing or distressed commercial and residential mortgages written during the real estate boom.
Big investors stayed away from TALF's March debut, with only 19 smaller funds tapping the program, according to a source familiar with the situation.
Analysts attributed this stuttering start primarily to fear among investors about the government and the Fed changing the rules of the game after the fact at the height of a furor over bonuses at bailed-out insurer American International Group.
The question will be whether large investors will venture into the program's second round.
'The TALF can't succeed without the involvement of the private sector and in particular Wall Street,' said Tony Crescenzi, bond strategist at Miller Tabak & Co.
'The poisonous atmosphere surrounding compensation for recipients of taxpayer dollars could make investors shy about participating in the TALF and in the Public-Private Investment Program,' he said.
(Reporting by Kristina Cooke and Nancy Leinfuss; Editing by Dan Grebler) Keywords: USA FED/TALF XX:SU:REUTERS#SN:nN06419893#XX:2700728.0#HS:RAMSTXT_9088_2009-4-6_213727_1_95#DU:lanreunxd1+lanreunxd2+lanreznxd1+lanreznxd2+rekwire+reawire+rexwire+bsu8rtr#XN:##XP:tfukfipdistw.datastream.com ~ (kristina.cooke@thomsonreuters.com; Tel: +1 646 223 6154; Reuters Messaging:rm://kristina.cooke.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.