Troutman Sanders LLP » Public-Private Investment Program (PPIP)

Special Inspector General For The Troubled Asset Recovery Program: Audits, Investigations, Recommendations And Criminal Referrals

Troutman Sanders LLP — Fri, 24 Apr 2009 15:12:03 +0000

Created by the Economic Stabilization Act or 2008, the Special Inspector General for the Troubled Asset Recovery Program (“SIGTARP”) has the powers to audit and investigate TARP awards and to make recommendations to the Treasury Department on how it should manage TARP programs. Acting with the attention of the Congress, oversight over Treasury, the authority to deal directly with TARP recipients, and the required cooperation of the Federal Reserve, the Securities and Exchange Commission and federal and state law enforcement, SIGTARP Neil Barofsky has a broad jurisdiction and extensive powers. While his formal power of compulsion ends with court-enforced subpoenas and he must refer criminal matters for prosecution to the Department of Justice, in two months of activity, he has initiated 20 criminal investigations, audited the use of TARP funds and the executive compensation of its 364 recipients, and set a schedule of audits and investigations across the spectrum of TARP programs.

There is a natural tension between the SIGTARP and Treasury. SIGTARP is concentrating on fraud risk and prevention; Treasury is focusing on use of federal funds, agencies and guarantees to thaw the credit markets. As SIGTARP investigates recipients’ use of TARP funds and executive compensation limitations imposed by the provision added for TARP in the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”), Treasury is designing new programs to attract private investors and money managers into its mission.

TARP Rescue Morphs into Public-Private Programs

Initial Troubled Asset Recovery Program (“TARP”) funding to assist financial institutions (Capital Purchase Program (“CPP”), Capital Assistance Program (“CAP”), Targeted Investment Program (“TIP”), Asset Guarantee Program (“AGP”)), to AIG (Systemically Significant Failing Institutions (“SSFI”)) and to the auto industry (Automobile Industry Financing Program (“AIFP”), Auto Supplier Support Program (“ASSP”) and Auto Warranty Support Program (“AWSP”)) are all direct-infusion rescue plans designed to avoid failure of important domestic sectors and businesses. For the Treasury Department, how TARP funds were specifically used has been less important than prospective success of its rescue efforts and their presumed beneficial effect on the revival of credit markets for businesses and consumers. Concerned that TARP funds have only been applied to proper uses, SIGTARP has asked thes 364 TARP recipients to provide a narrative on how they used their federal assistance. The recipients’ responses have given a wide range of uses from adding to capital, to reducing debt, to purchasing mortgage-backed debt, and increasing loans.
Pursuing its mission of moving toxic loans and securities off the books of financial institutions and hopefully into a market, the Treasury Department has solicited the private sector to participate in the process by expanding the Term Asset-Backed Loan Program (“TALF”) to include a Public-Private Investment Program (“PPIP”), whereunder private investors would provide one element of the equity funding for a special purpose vehicle (“SPV”) to purchase toxic assets, the Federal Reserve would provide funding for a substantially larger equity element, and additional federal lending would be available. Because there is no direct Treasury payment of TARP funds in this structure, the issue arose whether the executive compensation limitations added to TARP funding in the Recovery Act apply to the private investors or money managers of the SPV. Treasury has formally concluded that they do not. SIGTARP has recommended, however, that Treasury should issue regulations for executive compensation limitations under TALF.

Some Preliminary Guidance

Because SIGTARP acts as an independent entity with three constituencies – the Treasury Department, the Congress and the American public – its mission is broader than Treasury’s alone, and its requests for information have reflected that. How one responds to SIGTARP inquiries, however, depends on the context. Where SIGTARP is seeking generic information for which there is no specific reporting or record requirement – as his inquiry about the use of TARP funds – recipients can fashion a response that is as explicit or general as their particular situation indicates. As with all such responses, care should be taken for accuracy, as SIGTARP will usually require certification of the response. In circumstances where the Treasury and SIGTARP appear to have different views on applicable law – as with the application of executive compensation limitations to PPIP programs – participants in programs designed by Treasury may be faced with SIGTARP inquiries that presume a different rule than Treasury. Before submitting a response, prudence counsels ascertaining how firm and explicit the positions of each agency are. The recipient can then decide how best to craft its response. Where SIGTARP requests documents or information that must or should be maintained by the recipient, care should be taken to be thorough, accurate and timely in the response.

Contact:

Stu Pierson

Legacy Securities Program

Troutman Sanders LLP — Wed, 25 Mar 2009 13:33:05 +0000

On March 23, 2009, the Treasury – in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve – announced the initial details of its Public-Private Investment Program (PPIP) which is designed to (i) remove toxic real estate loans and securities from the balance sheets of U.S. depositary institutions, which include banks and thrifts (Participant Banks), (ii) rejuvenate real estate credit markets and (iii) restart the real estate loan securitization market. PPIP is divided into two programs, (a) the Legacy Loans Program dealing with residential and commercial real estate loans held by Participant Banks and (b) the Legacy Securities Program dealing with commercial mortgage backed securities (CMBS) and residential mortgage backed securities (RMBS).

This Advisory addresses the Legacy Securities Program. For more information regarding the Legacy Loans Program, please refer to our Advisory that can be found here.

The following links lead to more information regarding this program:

Equity Investment in the Legacy Securities Program

Debt Financing Available to Private Vehicles

Governance of Private Vehicles

A Sample Legacy Securities Program Investment

Process for Application for Private Fund Managers

Questions Raised by the Legacy Securities Program

Troutman Sanders’ Role

Troutman Sanders has already assembled an experienced multi-disciplinary team to guide clients through the Legacy Securities Program, as well as other programs established as part of Treasury’s Financial Stability Plan. We look forward to assisting existing clients and new clients with opportunities that will be created through the new Public-Private Investment Program.

Please continue to check our website, as we will continue to follow developments related to Legacy Securities Program and to update this advisory with additional relevant information as soon as it is released. If you have any questions or would like to contact a member of our Legacy Securities Program team, please feel free to call any of the Troutman Sanders lawyers listed above.

CONTACT

Michael “Mike” A. Leichtling
212.704.6257

Jake Lutz
804.697.1490

Miles M. Borden
212.704.6161

Anthony D. Greene
212.704.6194

Legacy Loans Program

Troutman Sanders LLP — Wed, 25 Mar 2009 13:32:22 +0000

On March 23, 2009, the Treasury – in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve – announced the initial details of its Public-Private Investment Program (PPIP) which is designed to (i) remove toxic real estate loans and securities from the balance sheets of U.S. depositary institutions, both large and small, which are insured by the FDIC (Participant Banks), (ii) rejuvenate real estate credit markets and (iii) restart the real estate loan securitization market. PPIP is divided into two programs, (a) the Legacy Loans Program dealing with residential and commercial real estate loans held by Participant Banks, and (b) the Legacy Securities Program dealing with residential and commercial mortgage backed securities which were originally issued prior to 2009 and are presently held by Participant Banks.

On March 26, 2009, the FDIC held a conference call with market participants to provide an overview of the Legacy Loans Program and to commence a two week comment period (ending April 10) in which market participants’ input is welcome to help structure the program. Troutman Sanders participated on this conference call and will continue to participate in the structuring phase of the Legacy Loans Program.

This Advisory addresses the Legacy Loans Program. For more information regarding the Legacy Securities Program, please refer to our Advisory that can be found here.

The following links lead to more information regarding this program:

Synopsis of Legacy Loans Program

Step-by-Step Process for Purchasing Eligible Loan Pools

A Sample Legacy Loans Program Investment

Questions Raised by the Legacy Loans Program

Troutman Sanders’ Role

While FDIC officials have alluded to a time period of 8-10 weeks before the first auction occurs, Troutman Sanders has already assembled an experienced multi-disciplinary team to guide clients through the Legacy Loans Program, as well as other programs established as part of Treasury’s Financial Stability Plan. We look forward to assisting existing clients and new clients with opportunities that will be created through the new Public-Private Investment Program. Specifically, our team can assist Participant Banks and private investors with involvement during the two week comment period and with their future participation in the Legacy Loans Program.

Please continue to check our website, as we will continue to follow developments related to Legacy Loans Program and to update this advisory with additional relevant information as soon as it is released. If you have any questions or would like to contact a member of our Legacy Loans Program team, please feel free to call any of Troutman Sanders lawyers listed above.

CONTACT

Michael “Mike” A. Leichtling
212.704.6257

Jake Lutz
804.697.1490

Miles M. Borden
212.704.6161

Anthony D. Greene
212.704.6194

Treasury Announces Public-Private Partnership Investment Program For Toxic Assets

Troutman Sanders LLP — Tue, 24 Mar 2009 13:31:16 +0000

On March 23, 2009, Treasury announced details of its two-part Public-Private Partnership Investment Program aimed at relieving financial institutions of toxic loans and securities. The program will use the collective resources of the Treasury, the Federal Reserve, and the FDIC, together with private funding and management, to remove from bank balance sheets whole loans and pre-2009 residential and commercial mortgage-backed securities, collectively referred to as Legacy Assets. This Public-Private Partnership Investment Program will be funded with $75 – $100 billion in TARP capital in addition to capital from private investors to create $500 billion to $1 trillion in Legacy Asset Purchases.

The Legacy Loan Program will involve FDIC auctions for pools of eligible whole loans identified by participating banks. FDIC will provide guaranteed debt financing collateralized by the purchased loans and Treasury will provide equity coinvestment. Private Asset Managers will control and manage the pools subject to FDIC oversight.

The Legacy Securities Program will be incorporated into the previously announced Term Asset-Backed Securities Loan Facility (TALF) and will provide nonrecourse debt financing for private sector purchases of pre-2009 residential and commercial mortgage-backed securities originally rated AAA. Treasury will select up to five asset managers to raise capital and receive matching funds.

While Treasury’s announcement includes the basic program structure, many details of implementation are still under development by Treasury, the Fed, and the FDIC. The FDIC has announced plans to release more details in the near future through a process providing for public comment prior to implementation.

Troutman Sanders will assist clients in all relevant areas and will provide additional information to clients regarding these programs as it becomes available. Fact sheets involving the program as well as FAQs, Private Asset Manager Applications, and Summary of Terms for Legacy Securities and Legacy Loans are available at:

CONTACT

Jake Lutz
Practice Group Leader
804.697.1490

Tom Powell
404.885.3294

Jerome Walker
212.704.6286