The TALF program, launched with much fanfare in November 2008, was created to help restart the securitization market and stabilize the banks. The program allowed purchasers of TALF securities to borrow from the government at very low rates to purchase TALF eligible bonds.
DDR recently completed the first CMBS issuance under TALF for $400M, the results of which are an interesting picture of the state of CMBS and the larger market. It's also possible this is the only CMBS TALF deal that's completed. The pricing was strong:
According to Bloomberg the:.807%
What are possible conclusions:
1) Low interest rates are working - buyers are willing to take more risk to achieve yields above the treasury rates available now.
2) There's demand for very safe assets. These TALF bonds were "clean," in that they were newly underwritten to high standards given scrutiny that this first offering received.
3) Pricing on the underlying assets may be stronger than expected.
4) The subsidized loan portion of the program wasn't that important. A significant portion of the AAA purchasers didn't use the TALF financing available from the government.
5) A paranoid Fed makes a good rating agency. While it may be some time before rating agencies have re-established credibility with the markets. The involvement of the NY Fed in approving the deal from an underwriting standpoint may have given investors comfort.