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Board of Governors of the Federal Reserve System
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Board of Governors of the Federal Reserve System

Monthly Report on Credit and Liquidity Programs
and the Balance Sheet

March 2010 (1.27 MB PDF)

Appendix A

Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008

In light of improved functioning of financial markets, on February 1, 2010, the Federal Reserve closed the Term Securities Lending Facility (TSLF), Primary Dealer Credit Facility (PDCF), Commercial Paper Funding Facility (CPFF), and the Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF). As of that date, all loans under the TSLF, PDCF, and AMLF had been repaid in full, with interest, in accordance with the terms of each facility, and each of the facilities resulted in no loss to the Federal Reserve or taxpayers. Some credit extended to CPFF LLC will remain outstanding until April 2010, when the remaining commercial paper will mature.

For the reasons discussed below, the Board does not anticipate that the Federal Reserve or taxpayers will incur any net loss on the loans provided by the Federal Reserve Bank of New York (FRBNY) under the Term Asset-Backed Loan Facility (TALF), to American International Group, Inc. (AIG), to CPFF LLC, or to Maiden Lane LLC, Maiden Lane II LLC, or Maiden Lane III LLC (collectively, the "Maiden Lane facilities"). In making these assessments, the Board has considered, among other things, the terms and conditions governing the relevant facility and the type, nature, and value of the current collateral or other security arrangements associated with the facility. As discussed earlier in this report, the Federal Reserve has established various terms and conditions governing the types of collateral that may be pledged in support of a loan under a facility in order to mitigate the risk of loss. In the case of the Maiden Lane facilities, the Board also has considered analyses of the projected returns on the portfolio holdings of the respective special purpose vehicle (SPV) (the assets of which serve as collateral for the loan(s) extended to the SPV) conducted by the FRBNY or its advisors in connection with the most recent quarterly revaluation of the assets of each SPV.

Commercial Paper Funding Facility

As noted above, the CPFF was closed on February 1, 2010. While no new loans to the SPV established under the CPFF, CPFF LLC, were made after February 1, 2010, some credit extended to CPFF LLC will remain outstanding until the remaining commercial paper held by CPFF LLC matures. All advances by the FRBNY to the SPV are secured by all the assets of the SPV. In addition, in situations where the obligations acquired by the SPV are asset-backed commercial paper (ABCP), the advances are further secured by the assets that support the commercial paper. To use the CPFF, each issuer paid a facility fee. Furthermore, each time an issuer sold commercial paper that was not ABCP to the SPV, the issuer paid a surcharge unless it had entered into a collateral arrangement for the commercial paper, or had obtained an endorsement or guarantee of its obligation on the commercial paper, that was acceptable to the FRBNY. All fees have been retained by the SPV and serve as additional collateral for the FRBNY loans to provide an additional cushion against losses. As of February 24, 2010, the total value of the assets of CPFF LLC significantly exceeded the outstanding amount of the loans extended by the FRBNY under the CPFF.

Term Asset-Backed Securities Loan Facility

Under the TALF, the FRBNY makes loans on a collateralized basis to holders of eligible asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). The potential for the Federal Reserve or taxpayers to incur any net loss on the TALF loans extended by the FRBNY to the holders of ABS and CMBS is mitigated by the quality of the collateral, the risk assessment performed by the FRBNY on all pledged collateral, and the margin by which the value of the collateral exceeds the amount of the loan (the haircut). Potential losses to the Federal Reserve also are mitigated by the portion of interest on the TALF loans to borrowers transferred to TALF LLC and by $20 billion in credit protection provided by the Treasury under the Troubled Asset Relief Program (TARP), both of which are available to TALF LLC to purchase any collateral received by the FRBNY from a borrower in lieu of repaying a TALF loan or foreclosed upon due to a default by the borrower.

Loans to Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC

The portfolio holdings of each of Maiden Lane LLC (Maiden Lane), Maiden Lane II LLC (ML-II), and Maiden Lane III LLC (ML-III) are revalued in accordance with generally accepted accounting principles (GAAP) as of the end of each quarter to reflect an estimate of the fair value of the assets on the measurement date. The fair value determined through these revaluations may fluctuate over time. In addition, the fair value of the portfolio holdings that is reported on the weekly H.4.1 statistical release reflects any accrued interest earnings, principal repayments, expense payments and, to the extent any may have occurred since the most recent measurement date, realized gains or losses. The fair values as of February 24, 2010--as shown in table 1 of this report, and reported in greater detail in the H.4.1 release for that date--are based on quarterly revaluations as of December 31, 2009.

Because the collateral assets for the loans to Maiden Lane, ML-II, and ML-III are expected to generate cash proceeds and may be sold over time or held to maturity, the current reported fair values of the net portfolio holdings of Maiden Lane, ML-II, and ML-III do not reflect the amount of aggregate proceeds that the Federal Reserve could receive from the assets of the respective entity over the extended term of the loan to the entity. The extended terms of the loans provide an opportunity to dispose of the assets of each entity in an orderly manner over time and to collect interest on the assets held by the entity prior to their sale, other disposition, or maturity. Each of the loans extended to Maiden Lane, ML-II, and ML-III is current under the terms of the relevant loan agreement.

In addition, JPMorgan Chase will absorb the first $1.15 billion of realized losses on the assets of Maiden Lane, should any occur. Similarly, certain U.S. insurance subsidiaries of AIG have a $1 billion subordinated position in ML-II and an AIG affiliate has a $5 billion subordinated position in ML-III, which are available to absorb first any loss that ultimately is incurred by ML-II or ML-III, respectively. Moreover, under the terms of the agreements, the FRBNY is entitled to any residual cash flow generated by the collateral assets held by Maiden Lane after the loans made by the FRBNY and JPMorgan Chase are repaid, and five-sixths and two-thirds of any residual cash flow generated by the assets held by ML-II and ML-III, respectively, after the senior note of the FRBNY and the subordinate positions of AIG affiliates for these facilities are repaid.

Revolving Credit Facility and Preferred Interests Relating to American International Group, Inc.

In light of the extremely broad and diverse range of collateral (including AIG's ownership interest in numerous nonpublic companies) and guarantees securing advances under the Revolving Credit Facility and the term of the credit facility, it is difficult to estimate with precision the aggregate value that ultimately will or may be received in the future from the sale of collateral or the enforcement of guarantees supporting the Revolving Credit Facility or from the sale of assets of the two SPVs, AIA Aurora LLC and ALICO Holdings LLC (including any noncash consideration that may be received in connection with the sale of the assets of the AIA or ALICO SPVs), and disclosure of any such estimate could interfere with the goal of maximizing value through the company's global divestiture program and, consequently, diminish the proceeds available to repay the loan or redeem the preferred interests held by FRBNY in the AIA and ALICO SPVs. However, based on the substantial assets and operations supporting repayment of the loan or redemption of the preferred interests, the terms of the agreements entered into by AIG for the sale of American International Assurance Company (AIA) and American Life Insurance Company (ALICO), the capital and capital commitments provided to AIG under the TARP, and the most recently completed quarterly review of the security arrangements supporting the Revolving Credit Facility conducted as of September 30, 2009, by the FRBNY supported by analyses performed by its advisors, the Federal Reserve anticipates that the loans provided by the Federal Reserve under the Revolving Credit Facility, including interest and commitment fees under the modified terms of the facility, will be fully repaid and the face value of the preferred interests in the AIA and ALICO SPVs, plus accrued dividends, will be received. Accordingly, the Federal Reserve anticipates that the facility will not result in any net loss to the Federal Reserve or taxpayers.

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Last update: August 2, 2013