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SEC Staff Issues No-Action Letter Regarding Fund Participation in the Federal Reserve Board’s 2020 Term Asset-Backed Loan Facility

On May 27, 2020, the SEC staff issued a no-action letter to the Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA) permitting registered funds to participate in the Term Asset-Backed Securities Loan Facility (TALF 2020) program established by the Board of Governors of the Federal Reserve System (Fed) and the U.S. Department of the Treasury on March 23, 2020. TALF 2020 was established to address the effects of the COVID-19 pandemic on financial markets to support the availability of credit to consumers and businesses through the Fed’s issuance of loans for the purchase of AAA-rated asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets. TALF loan proceeds are disbursed to the borrower upon receipt by TALF 2020’s custodian of eligible collateral (i.e., TALF-eligible ABS), an administrative fee and a “haircut” (i.e., a percentage of a TALF-eligible ABS’s value calculated in accordance with a standardized schedule). A similar program was established in 2008 in response to the global financial crisis (TALF 2008).

Following the establishment of TALF 2008, the SEC staff in 2009 issued two no-action letters regarding the participation by registered funds in that program. The first no-action letter, issued to Franklin Templeton Investments on June 19, 2009, provided that the SEC staff would not seek enforcement action against a registered fund that participated in TALF 2008 (1) under Section 18 of the Investment Company Act of 1940 for failure to treat TALF loans as senior securities or (2) under Section 17(f) of the 1940 Act or related rules with respect to the unique custody arrangements necessitated by TALF loans. The Franklin Templeton no-action letter also required participating funds to segregate liquid assets equal in value to the outstanding principal and interest under each TALF loan. The second no-action letter, issued to T. Rowe Price Associates, Inc. on October 8, 2009, provided that the SEC staff would not seek enforcement action under Section 17(a) or 17(d) of the 1940 Act or Rule 17d-1 thereunder for purchasing interests in a private pooled investment vehicle formed for the specific purpose of acquiring eligible collateral and obtaining TALF loans. Reliance on each no-action letter was subject to certain conditions set forth in each letter.

The May 2020 no-action letter issued to the ICI and SIFMA affirmed the no-action positions taken in 2009 relating to the participation by registered funds in TALF 2008, noting that TALF 2020 and TALF 2008 have substantially similar terms and conditions. Additionally, the May 2020 no-action relief expands upon the 2009 relief issued to T. Rowe Price by permitting third parties to rely on that relief and by extending that relief to Section 57(a) of the 1940 Act, which permits reliance by business development companies.

The SEC staff’s May 27, 2020 no-action letter issued to the ICI and SIFMA is available here.

© 2020 Vedder PriceNational Law Review, Volume X, Number 188


About this Author

Legal, Business, John Marten, Investment Attorney, Vedder Price Law FIrm

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal, Investment Attorney, Vedder Price Law Firm

Nathaniel Segal is an Associate at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence and drafting regulatory disclosures in connection with fund reorganizations and management acquisitions. He counsels clients on a wide variety of regulatory matters, including interpretive and no-action letter requests and SEC exemptive orders, as well as governance matters and internal compliance procedures in response to SEC examinations and inquiries.

(312) 609 7747
Jacob Tiedt, Vedder Price, investment services attorney

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

Mark Quade Investment Attorney Vedder Price Chicago

Mark Quade is an associate in Vedder Price’s Chicago office and a member of the firm’s Investment Services practice group.

Prior to joining Vedder Price, Mr. Quade served as a 1940 Act attorney and assistant vice president at a mutual fund service provider in Milwaukee, Wisconsin. There, he provided legal support to a registered open-end multiple series trust and its board of trustees, and he also supported proprietary mutual funds. Among other matters, Mr. Quade facilitated investment advisory agreement approval and renewal processes, prepared and reviewed board meeting materials...

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