SEC Grants Exemption from Section 11(d)(1) of the Securities Exchange Act of 1934 for Certain Lending Transactions

Strategic Insights -

The Securities and Exchange Commission (SEC) has issued an order granting an exemption from Section 11(d)(1) of the Securities Exchange Act of 1934 to permit brokers and dealers to participate in the Federal Reserve's 2020 Term Asset-Backed Securities Loan Facility (TALF 2020) by facilitating extensions of non-recourse credit to purchasers of new issues of asset-backed securities.

The SEC's decision comes in response to a letter from the Federal Reserve Bank of New York, which requested an exemption from Section 11(d)(1) to allow TALF Agents to participate in the TALF 2020 program. The program aims to support the provision of credit to consumers and businesses by enabling the issuance of asset-backed securities (ABS) backed by private student loans, auto loans and leases, consumer and corporate credit card receivables, equipment loans and leases, floorplan loans, insurance premium finance loans, certain small business loans guaranteed by the Small Business Administration, and leveraged loans.

The exemption is necessary for the success of the TALF 2020 program, as the New York Fed and the TALF Special Purpose Vehicle (SPV) lack the resources to perform certain functions necessary for the program's success. The SEC understands that the effective participation of TALF Agents is crucial to the program's success and its importance to the United States Government's efforts to restore the availability of credit in the national economy.

Key Takeaways:

  • The SEC has granted an exemption from Section 11(d)(1) of the Securities Exchange Act of 1934 to permit brokers and dealers to participate in the TALF 2020 program.
  • The exemption applies to brokers and dealers designated by the New York Fed as TALF Agents and allows them to provide non-recourse credit to purchasers of new issues of ABS.
  • TALF Agents will act as agents of borrowers in facilitating extensions of non-recourse credit, receiving interest and principal distributions, and disbursing them to borrowers.
  • The relief is consistent with investor protection, as the TALF 2020 loans are non-recourse to the borrower and do not allow for collection of the loan balance unless there is a breach of representation or other enforcement event.
  • The SEC's decision is in accordance with Section 36 of the Exchange Act and the protection of investors.
  • The exemption is not applicable to other extensions or maintenance of credit or any other arranging for the extension or maintenance of credit on new issues of securities in which TALF Agents participated as members of a selling syndicate or group.

Statistics:

  • The TALF 2020 program aims to support the provision of credit to consumers and businesses by enabling the issuance of ABS backed by private student loans, auto loans and leases, consumer and corporate credit card receivables, equipment loans and leases, floorplan loans, insurance premium finance loans, certain small business loans guaranteed by the Small Business Administration, and leveraged loans.
  • The program will be facilitated by TALF Agents, who will act as agents of borrowers in making applications for TALF loans, assessing the eligibility of prospective borrowers and collateral, receiving interest and principal distributions, and disbursing them to borrowers.
  • The TALF 2020 program has the potential to restore the availability of credit in the national economy, which is important to the United States Government's efforts.

Sources:

  • Securities and Exchange Commission (SEC). (2020). Order Granting Exemption from Section 11(d)(1) of the Securities Exchange Act of 1934.
  • Federal Reserve Bank of New York. (2020). Letter to the Securities and Exchange Commission requesting an exemption from Section 11(d)(1) of the Securities Exchange Act of 1934.
  • Securities Exchange Act of 1934. (Section 11(d)(1)).