SEC Staff Issues No-Action Letter for Funds Participating in TALF 2020

On May 27, 2020, in a letter addressed to the Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA), the SEC staff (Staff) provided no-action relief (ICI/SIFMA Letter) to address 1940 Act considerations for funds seeking to participate in the Federal Reserve Board’s (Fed) Term Asset-Backed Securities Loan Facility (TALF 2020).  TALF 2020 was announced on March 23, 2020 as part of the U.S. government’s response to the COVID-19 pandemic to support the asset-backed securities (ABS) market and indirectly provide loans to the U.S. companies whose debt underlies the ABS.  The Fed has indicated that TALF 2020 will be primarily modeled after the terms and conditions of the TALF used during the financial crisis of 2007-2009, which was announced in 2008 (TALF 2008).

In 2009, the Staff issued no-action letters to Franklin Templeton (Franklin Letter) and T. Rowe Price (T. Rowe Letter) addressing potential issues arising under the 1940 Act for funds seeking to participate in TALF 2008.  The ICI/SIFMA Letter stated the Staff’s view that “the terms and conditions of TALF 2020 are substantially similar to those of TALF 2008 for purposes of the staff no-action positions taken in the [Franklin Letter and T. Rowe Letter]” and confirmed that the 2009 letters can be relied upon when a fund participates in TALF 2020 with substantially similar facts and circumstances.

The Staff also took the opportunity in the ICI/SIFMA Letter to expand and update the relief provided in the Franklin Letter and T. Rowe Letter.  First, the Staff expanded the relief in the Franklin Letter and T. Rowe Letter to apply to business development companies.  Second, the Staff eliminated the condition in the T. Rowe Letter prohibiting a fund from investing in the affiliated private fund unless the fund had an operating policy that restricted the fund from purchasing additional securities to the extent it has borrowed in excess of 5% of the fund’s assets.  Finally, the Staff expanded the relief in the T. Rowe Letter to other fund groups, thus providing funds with flexibility to participate in TALF 2020 directly by relying on the Franklin Letter or indirectly by relying on the T. Rowe Letter.

The ICI/SIFMA Letter, the Franklin Letter and the T. Rowe Letter are available at the links below:

https://www.sec.gov/investment/ici-sifma-052720

https://www.sec.gov/divisions/investment/noaction/2009/franklintempleton061909.htm

https://www.sec.gov/divisions/investment/noaction/2009/troweprice100809.htm

These Seward & Kissel memoranda discuss the TALF 2020 program in greater detail:

Return Of The Talf

Talf 2020 Term Sheet

Talf 2020 Fed Updates Term Asset Backed Securities Loan Facilities Term Sheet