COVID-19 Impact on Consumers, Businesses and Structured Finance - PowerPoint PPT Presentation

COVID-19 Impact on Consumers, Businesses and Structured Finance March 30, 2020

COVID-19 Impact: Consumers, Businesses and Structured Finance Introduction: SFA on COVID-19 • Kristi Leo, President View from Capitol Hill • Leslie Sack, Head of Government Relations TALF 1.0 vs. TALF 2.0 • Jen Earyes, Head of Policy • Elen Callahan, Head of Research Impact of COVID-19 on Securitization Markets • Elen Callahan, Head of Research SFA: Next Steps • Michael Bright, CEO 2

Structured Finance Ecosystem Federal Reserve’s Lending/Purchase Programs Fed lending facilities Securitization Collateral TALF includes ABS b backed b by a auto to l loans a and leases, s student t loans, c credit t card r receivables, TALF: Term Asset-Backed Securities Loan TA equipment l t loans, f floorplan l loans, i insurance Facility premiu ium f finance l loan oans, certain in s small b ll busin iness ABS Issuers loans t that a are g guaranteed b by S SBA and e eligi gible CPF PFF: Commercial Paper Funding Facility servicing a g advance r receivables CPFF includes ABCP CP Includes AB AB CP, Agencies, MBS, ABS (In the Primary Dealers PDC DCF: Primary Dealer Credit Facility case of ABS, only AAA-rated CMBS, CLOs and CDOs) Includes ABCP BCP, , Agenci cies, MBS, A , ABS ( (In t the Banks/Depository Discount W t Window ca case o of A ABS BS, o , only AAA-rated C CMBS, C CLOs a and Institutions CDO DOs) s) Investors: Money MMLF: F: Money Market Mutual Fund Liquidity Market Mutual Includes Age gencies a and A ABCP Facility Funds Dealers and Agency cy M MBS BS & & CMBS MBS P Purch chase P Programs Includes the purchase of Age gency d debt Investors 3

Federal Reserve Lending Programs Constraints since 2008/09 • Revised Section 13(3) of Federal Reserve Act ⎯ Fed’s use of section 13(3) during 2008-09 financial crisis was successful in maintaining financial stability • Dodd Frank Act amended this provision narrowing the Fed’s authority ⎯ Lending must be made in connection with “a program or facility with broad-based eligibility” ⎯ Cannot “aid a failing financial company” or “borrowers that are insolvent” ⎯ Cannot have “a purpose of assisting a single and specific company avoid bankruptcy” ⎯ Cannot establish a section 13(3) program without the prior approval of the secretary of Treasury ⎯ Within seven (7) days after the Fed authorizes a program, it must provide Congress with a detailed report ⎯ GAO to audit any of the Fed’s emergency lending programs 4

SFA on COVID-19 Short-term Focus • TALF: Term Asset-Backed Securities Loan Facility ⎯ Include “legacy securities” ⎯ Expand eligible asset classes ⎯ Allow senior-most securities with rating of at least investment grade ⎯ Operational efficiencies ⎯ Clarifications on term differences from TALF 2008 • Establish Servicer Liquidity Facility • CPFF: Commercial Paper Funding Facility ⎯ Request technical fix to maximum facility size ⎯ Reduce/Eliminate upfront free • Other ⎯ Facilitate the CARE Act funding of SBA Paycheck Protection Program ⎯ Institute uniform delay of CECL final implementation date ⎯ IRS guidance on tax implications of forbearance programs (REMICs and Grantor Trusts) ⎯ Clarity on CRT deals and accounting for wide-scale forbearance ⎯ Expand PMCCF and SMCCF to include other collateral 5

Get Involved https://structuredfinance.org/join-a-committee- SFA Committee Structure or-task-force/ Industry Participant Committees Our industry participant committees are a key component of our governance structure by: ⎯ Providing a forum for individual constituency groups to separately discuss a wide-range of industry matters ⎯ Evaluating relevant policy, regulatory, legislative and market developments to provide the participant group’ perspective in building Association consensus positions ⎯ Engaging in select advocacy, with Association staff, to promote Association consensus positions ⎯ As such, membership in these participant committees are open to primary members in the related participant class or who are outside counsel who regularly advise the related participant class. • Issuer Committee • Financial Intermediary Committee • Issuer Subcommittee: Auto • Government Relations Committee • Issuer Subcommittee: Bank Securitized Lending & • Investor Committee ABCP • Legal Counsel Committee • Issuer Subcommittee: CLO • Rating Agency Committee • Issuer Subcommittee: CMBS • Servicer Committee • Issuer Subcommittee: Credit Card • Trustee Committee • Issuer Subcommittee: Equipment • Issuer Subcommittee: Esoteric • Issuer Subcommittee: RMBS • Issuer Subcommittee: Student Loan • Issuer Subcommittee: Unsecured Personal Loans 6

View From Capitol Hill

Congressional Action to Date Three major legislative responses to the coronavirus pandemic Phase Phase Phase I II III Paid lea eave, Major e Ma economic ic s stim imulu ulus Init itia ial s l suppo pport a and d unem nemplo loymen ent a and f d food d packa kage vaccine d e dev evel elopmen ent assi ssistance House House Senate Democrat Democrat Republican Origination Origination Origination H.R. 6074 6074 — Coronavirus H.R. 6201 6201 — Familie ilies F First H.R. 748 748 — The C he Corona navir irus us Aid, id, Prepa eparedne ness & & Respo ponse e Corona navir irus R Respo ponse A e Act Relie lief, a and E d Econo nomic ic S Secur urit ity Supp pple lemental A l Appr ppropria iatio ions ns A Act (CARES) A ) Act ‒ $100 billion in worker assistance, ‒ $8.3 billion in COVID-19 response – Major $2 trillion stimulus package including emergency paid sick leave, funding for developing a vaccine and – $454 billion for Federal Reserve food assistance, and unemployment preventing further spread of the virus programs and facilities payments ‒ Became law o on 3 3/6/ 6/20 20 – Direct payments to individuals and ‒ Became law o on 3 3/18/ 8/20 20 families – Became law o on 3 3/27/ 7/20 20 8

Political Partisanship Impacted Legislative Timeline Amend nded ed Pass ssed Senate te Pass ssed House To President To nt Sig igned in into la law 3/23/ 3/20 20 3/25/ 5/20 20 3/27/ 7/20 20 3/27/ 7/20 20 3/27/ 7/20 20 • Senate Democrats disagreed with several provisions in the bill and criticized Leader Mitch McConnell (R-KY) for not protecting individuals from eviction, foreclosure, or forbearance, and blocked a key procedural vote on March 22. – With 4 Republican Senators self-quarantined and no provision for remote voting, the majority margin was slim. • On March 25, Senate leaders announced they had reached a bipartisan framework on a modified $2 trillion bill making it the largest economic relief bill in U.S. history, but 24 hours were needed to resolve remaining differences and hash out technical drafting errors in the bill. • Republican Senators Lindsey Graham (R-SC), Tim Scott (R-SC), Ben Sasse, (R-NE) and Rick Scott (R-FL) had concerns on unemployment provisions, resulting in a threat to block the bill. Senator Bernie Sanders (I-VT) then threatened to block the legislation if the Republicans got their way. • After clearing the Senate 96-0 on March 25, the House of Representatives was expected to pass the bill by unanimous consent, which was later changed to a voice vote. Another dangerous political drama emerged when Rep. Thomas Massie (R-KY) threatened to force a recorded vote March 27 and further stall passage. • Rep. Massie’s actions received bipartisan criticism, but nonetheless compelled hundreds of lawmakers to return to Capitol Hill from their home districts. • A few hours after the House passed the bill on March 27, it was signed into law by President Trump. 9