TALF Gains Momentum:  Automakers Quick to Join the Bandwagon

It is now looking like the Term Asset-Backed Securities Loan Facility (TALF) may play a prominent role in the auto industry’s turnaround.  Joining Nissan in the Federal Reserve’s TALF fray is Ford, which just announced a $2.95 billion dollar offering.  TALF should help automakers since many of their loans are securitized – the program allows loans to investors of asset backed securities.  Since automakers have existing loans on their balance sheets, yet have not been able to successfully securitize their portfolios due to the tight credit markets, TALF offers an attractive option to bolster this sagging industry.  

Seeking Security in Gold

With the increasing popularity and prices of gold, companies have been expanding their operations in hopes of a continued upward trend.  Reportedly joining the gold rush is famed trader John Paulson, who has made a big bet on gold with a stake in Anglo American Ashanti.  While times are tough for the smaller producers, who face difficult credit conditions and increasing operating costs, the cash-rich and credit-wise industry mainstays can offer a helping hand by injecting some of their know-how and much needed cash.  For example, Midway Gold Corp. recently entered into an exploration, development, and mine operating agreement with industry-giant Barrick Gold Exploration.  While Midway is the property owner, the agreement grants Barrick the exclusive right to explore and develop the property.   The terms of the agreement give Barrick the eventual right to receive a 60% share of the project should the company put $30 million towards the development of the project.   Also entering into an exploration, development and mine operating agreement is multi-resource producer U.S. Energy Corp. The company announced an agreement with metal producer Thomson Creek Metals, in which U.S. Energy receives a $1 million payment as part of the deal.

Additional CDS Central Counterparty:  The SEC’s Push Toward Transparency

Following the recent paths of LCH.Clearnet and ICE Trust, the SEC just announced an exemptive order allowing for an additional central counterparty clearinghouse – the Chicago Mercantile Exchange.  The Commission’s move to seek greater transparency in the credit markets is gaining significant momentum after the implementation of its November 2008 Memorandum of Understanding (by then-Chairman Cox). The SEC is working with the Federal Reserve Board and the Commodity Futures Trading Commission dealing with central counterparties for over-the-counter credit default swaps.  Chairwoman Schapiro said on the latest credit default swap (CDS) centralization move, "the SEC is committed to increasing investor protection and reducing systemic risk by facilitating the development and oversight of central counterparties to clear credit default swaps."

Creative Financing:  Forbearance Leading the Way

Highlighting the continued trend of creative financing arrangements, QEP CO Inc. just announced an extension to its forbearance agreement with Bank of America and HSBC.  Lazy Days RV Center also just extended its forbearance agreement.  While forbearance agreements are intended to buy time from lenders, the continued extension of these agreements is surely a case for the idea that the economy is still sour.  The terms of Lazy Days’ and QEP’s forbearance agreements allow for the companies to reimburse the lenders of all legal and out of pocket costs, and QEP’s terms ask for the payment of “default” rate interest payments.     

Bylaw Amendments:  Growth Leads to Additional Board Members

A number of companies have been adding members to their boards.  Many of these companies have experienced financial setbacks and are seeking the additional guidance an experienced director can offer.  For example, on the heels of a restatement, Hilltop Holdings, Inc. increased the size of its board and added a director who previously served on the boards of Exxon Mobile and AT&T.  The new director will serve on the company’s corporate governance committee.   On the other hand, companies perceivably “outgrowing” their current boards can add members to provide additional direction.  In order to support its desire to expand globally, General Mills, for example, added a new board seat and noted the new member’s “extensive international operating responsibilities.”

Published: March 19, 2009