Recent updates to the Federal Reserve’s (Fed) Term-Asset Backed Loan Facility (TALF) program could help clear some of the collateralized loan obligations (CLOs) stuck in limbo. The updates to the TALF program broadens the range of corporate loans CLOs can hold while still remaining eligible for the $100 billion in TALF. According to David Preston, a Wells Fargo analyst, the updated TALF could, “help clear the estimated $15 billion to $20 billion in existing warehouses.” Despite the good news, prospects for existing CLOs remain questionable. Preston also noted that the cost of borrowing from TALF could limit the ability of the program to fund new CLOs. One reason for this is because TALF loans will cost 1.50 percentage points above the Secured Overnight Financing Rate (SOFR.)
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