Privately held auto financier World Omni Financial Corp. will likely be the TALF program’s guinea pig.
The unit of JM Family Enterprises is prepping a $750 million securitization backed by loans originated via Toyota dealerships in the Southeastern U.S., according to an article in today’s Wall Street Journal. A number of other auto finance companies are putting together deals, too, the paper said.
TALF, or the Term Asset-Backed Securities Loan Facility, calls for the Fed to provide cheap funds to investors to be used to buy securities backed by loans.
Though the effort is a good start — we have to start somewhere — the requirement that participants maintain a triple-A credit rating may hinder its success. There are a number of lower-rated auto financiers that would significantly benefit from access to capital; they are essentially being locked out.
Though it might be unfair to apply different standards to various asset classes in the program, auto-backed securities have long been considered some of the safest out there. Their short terms, generally three or four years, contribute to that security. I would venture to guess that there are investors with an appetite for single-A or B-rated securities.
