Highlights in this post include Citigroup (C), JP Morgan Chase (JPM), Capital One (COF), Sallie Mae (SLM) and Nelnet (NNI).

In a statement issued yesterday following FOMC’s two-day meeting, the Federal Reserve confirmed that it will be implementing the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the extension of credit to households and small businesses. It is one of the two programs earlier announced by the Fed on November 25, 2008.

We talked about the Fed’s program to purchase mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae in our blog dated December 31, 2008. This program was implemented earlier this month and has been instrumental in bringing down the mortgage rates significantly.

Let’s talk about the second program now — the TALF, which is expected to commence lending in February 2009. The $200 billion facility (in joint effort with the Treasury) will provide 3-year term loans to investors against AAA-rated securities backed by recently originated consumer and small-business loans. Further, if the facility proves successful, the Fed intends to expand it to accommodate higher volumes or additional classes of securities.

On a fixed day each month, borrowers will be able to borrow under the facility. Loan proceeds will be disbursed to the borrower, upon receipt of the eligible collateral. As the loan is non-recourse, if the borrower does not repay the loan, the Fed will sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets. The facility will cease on December 31, 2009, unless the Board of Governors extends the facility.

Any U.S. company (including hedge funds) that owns eligible collateral may borrow from the TALF.

The underlying credit exposures of eligible Asset Backed Security (ABS) must be auto loans, student loans, credit card loans, or small business loans guaranteed by the SBA (Small Business Administration). Eligible ABS must be issued on or after January 1, 2009. The minimum loan size under the TALF will be $10 million and loans have a three-year maturity.

We expect the program to ease the pressure on the ABS market and improve the profitability and liquidity of the companies which were reliant on the ABS market for funding, and had to resort to much more expensive funding sources when the ABS market virtually froze late last year.

Apart from the banks like Citigroup (C) and JP Morgan Chase (JPM), the facility will also benefit the credit card issuers like Capital One (COF) and student lenders like Sallie Mae (SLM) and Nelnet (NNI). We can only hope that the banks and credit card companies receiving the help from the Government will pass on the benefits to the consumers also, unlike what happened in case of TARP.

Read the full analyst report on SLM

Read the full analyst report on NNI

“JPM” Free Stock Analysis: Buy? Sell? Hold?
“SLM” Free Stock Analysis: Buy? Sell? Hold?
“COF” Free Stock Analysis: Buy? Sell? Hold?
“NNI” Free Stock Analysis: Buy? Sell? Hold?
“C” Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

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