PUBLICPRIVATE INVESTMENT PROGRAM PPIP: Will it Ever Arrive or Will RTCType Asset Sales Programs Retu

1
PUBLIC-PRIVATEINVESTMENT PROGRAM (PPIP)Will
it Ever Arrive or Will RTC-Type Asset Sales
Programs Return?By Holland Knight
LLPPresentation by Lawrence J. Wolk,
Esq.Partner - Holland KnightFormer Assistant
General Counsel Resolution Trust
Corporation/Federal Deposit Insurance
Corporation. June 16, 2009
6/9/09
2
Holland Knight Financial Recovery Team

• Lawrence J. Wolk
• Partner, Holland Knight (Washington DC and New
  York)
• t 212-513-3529
• e lawrence.wolk_at_hklaw.com
• Lawrence J. Wolk is a partner in the New York
  and Washington, D.C. offices of Holland Knight
  LLP. Mr. Wolk practices in the real property
  area, emphasizing public and private sector
  transactions and commercial real estate finance
  as well as single-and multi-asset, multi-state
  acquisitions, mortgage financing and sales. This
  practice has included the negotiation and
  documentation of public/private partnership
  transactions, construction, permanent, and
  multi-state loans, sales, acquisitions, and other
  public and private development and projects.
• From 1992 to 1995, Mr. Wolk served as the
  Assistant General Counsel at the Resolution Trust
  Corp., the senior-most real estate legal position
  within the agency. Mr. Wolk had senior legal
  responsibility for the disposition of billions of
  dollars worth of real estate-related assets.

3
Holland Knight Financial Recovery Team
Additional Members

• Jose Joe Sirven Partner, Miami t
  305-789-7784 e jose.sirven_at_hklaw.com
• Mr. Sirven has practiced in the corporate,
  mergers and acquisitions, banking, and
  international fields for over 25 years. He has
  represented large publicly owned corporations,
  global and regional financial institutions,
  privately held entities, and governments in
  connection with a variety of business issues
  involving nearly every country in Latin America
  and the Caribbean and throughout Europe and Asia.
• Steven B. Nesmith Partner, Washington DC t
  202-457-5908 e steven.nesmith_at_hklaw.com
• Mr. Nesmith is a Partner in the firm's Public
  Policy Regulation Group. Mr. Nesmith served as
  Assistant Secretary for Congressional and
  Intergovernmental Relations in the U.S.
  Department of Housing and Urban Development. He
  was a SubCabinet member and principal advisor to
  the Secretary, Deputy Secretary and senior staff
  on legislative affairs, regulatory issues and
  policy matters affecting Federal, state and local
  governments, and public and private industry
  groups. As a senior Administration Official, he
  also served as a member of the Presidents
  Leadership Team.
• Kerry S. Kehoe Partner, Boston t 617-854-1451
  e kerry.kehoe_at_hklaw.com
• Mr. Kehoe is a member of the firm's Business Law
  Department and concentrates his practice in
  insolvency matters and corporate finance
  transactions. Mr. Kehoe has represented debtors,
  secured creditors, trustees, and creditors'
  committees in bankruptcy proceedings and lenders
  and borrowers in out-of-court workout and
  restructurings. In corporate finance
  transactions, Mr. Kehoe has represented financial
  institutions and borrowers.
• Suzanne E. Gilbert Partner, Orlando t
  407-244-1142 e suzanne.gilbert_at_hklaw.com
• Ms. Gilbert practices in the areas of business
  and commercial litigation, real estate
  litigation, and bankruptcy and creditors' rights.
  Ms. Gilbert has experience representing clients
  in commercial disputes in federal, state and
  bankruptcy courts. A large portion of Ms.
  Gilberts practice involves real estate
  litigation, including contract disputes, boundary
  disputes, title issues and mortgage fraud.
  Additionally, she has represented financial
  institutions and other entities in a variety of
  matters, including workouts, lender liability
  claims, fraudulent transfers, and preferential
  transfer actions. Ms. Gilbert has represented
  both debtors-in-possession and creditors in
  Chapter 11 and Chapter 7 cases.

4
PUBLIC-PRIVATE INVESTMENT PROGRAM AN OVERVIEW

• What is PPIP?
• A 500 billion to 1 trillion plan to purchase
  Legacy Assets
• Which government agencies are involved?
• The U.S. Treasury Department (Treasury) in
  conjunction with the Federal Deposit Insurance
  Corporation (FDIC) and the Federal Reserve
• How will PPIP be funded?
• Equity 75 billion to 100 billion in Troubled
  Assets Relief Program (TARP) capital supplemented
  by capital from private investors
• Debt Purchase money financing for acquisition
  of assets by PPIF is guaranteed by FDIC (Legacy
  Loans Program) and provided by Treasury (Legacy
  Securities Program)
• What are Legacy Assets?
• 2 Types
• Legacy Loans real estate loans and other To Be
  Determined assets held directly on the books of
  banks
• Legacy Securities commercial mortgage-backed
  securities and residential mortgage-backed
  securities issued prior to 2009, originally rated
  AAA, or equivalent.

5
PPIP OVERVIEW

• Why is PPIP needed?
• Banks hold Legacy Assets which create
  uncertainty around their balance sheets,
  compromising their ability to raise capital and
  to increase lending.
• What are PPIPs primary objectives?
• Draw new private capital into the Legacy Assets
  market by providing government equity
  co-investment and attractive public financing or
  guarantees of financing
• Facilitate higher market pricing of Legacy
  Assets
• Encourage financial institutions to engage in
  increased lending activities
• Enhance the ability of financial institutions to
  raise new capital from private investors

6
PPIP OVERVIEW

• PPIPs Three Basic Principles
• 1. Leveraging the Impact of the Government Funds
• Government (guaranteed) financing and
  co-investment of equity by Treasury and private
  investors will leverage government resources and
  incentivize private investment.
• 2. Sharing of Both Risk and Profits With Private
  Investors
• PPIP enables private investors to invest.
  Private investors loss is capped at their equity
  investment. Private investors will share in
  profits along with the government.
• 3. Private Sector Sets Pricing
• Private investors will bid at auctions to
  establish the price of the asset pools and
  securities.

7
LEGACY LOANS PROGRAM

• Funding the Acquisition of Assets
• Equity Treasury capital and private investor
  capital will be invested proportionately at the
  same time in each PPIF
• Treasury initially intends to provide 50 of
  equity capital for each PPIF
• Treasury and private investors will share profits
  and losses in proportion to equity invested
• Private investors may not participate in any PPIF
  that purchases assets from sellers that are
  affiliates of such private investors
• Debt Each PPIF will issue debt financing
  payable to the Participant Bank guaranteed by
  FDIC

8
LEGACY LOANS PROGRAM

• Passive Private Investors
• The Administration is encouraging the inclusion
  of the following groups as private investors
• Small, veteran-, minority-, and women-owned firms
• Mutual funds, pension plans, insurance companies,
  and other long term investors
• Individual investors
• Private investors must be pre-qualified by FDIC
• Initial governmental materials indicated that
  executive compensation restrictions will NOT
  apply to passive private investors

9
LEGACY LOANS PROGRAM

• Participant Banks/Eligible Assets
• Participant Banks may include any insured U.S.
  bank or U.S. savings association
• Assets comprising each Eligible Asset Pool
  (Eligible Assets) and any collateral supporting
  those assets must be situated predominantly in
  the U.S.
• Asset managers, subject to FDIC oversight, will
  retain control of servicing throughout operations

10
LEGACY LOANS PROGRAM

• Procedure for Purchasing Eligible Asset Pools
• FDIC Oversight and Implementation
• A third party valuation firm selected by FDIC
  will analyze each Eligible Asset Pool and advise
  FDIC on, among other matters, the supportable
  leverage of the Eligible Asset Pool, bid
  structure and asset valuation
• The FDIC-guaranteed debt-to-equity ratio will in
  no event exceed 6-to-1
• The FDIC has completed the notice and comment
  period and is working to address comments to
  finalize details of the program and to establish
  a start date

11
LEGACY LOANS PROGRAM

• Procedure for Purchasing Eligible Asset Pools
• Auctions
• FDIC will conduct the Eligible Asset Pool auction
• Prior to bid submission, FDIC will disclose the
  proposed financing terms and leverage ratio that
  it has established for each Eligible Asset Pool
• Pre-qualified private investors will bid for the
  opportunity to contribute 50 of the equity for
  the PPIF, with Treasury contributing the
  remainder of the equity for the PPIF
• Each bid must be accompanied by a refundable cash
  deposit (Deposit) for 5 of the bid value

12
LEGACY LOANS PROGRAM

• FDIC Guaranteed
• Purchase Money Debt
• FDIC will determine terms of the financing to be
  guaranteed by FDIC
• Financing will be non-recourse
• FDIC debt guarantee will be secured by the
  Eligible Assets
• Debt will initially be placed at the Participant
  Bank, which will have the right to resell the debt

13
LEGACY LOANS PROGRAM

• Sharing the Responsibility
• Treasury will oversee and manage its equity
  investment in each PPIF
• FDIC will
• Oversee and manage its debt guarantees
• Oversee the formation, funding, and operation of
  each PPIF
• Approve Eligible Asset Pools from Participant
  Banks
• Determine Eligible Asset Pool leverage levels
• Conduct Auctions

14
LEGACY SECURITIES PROGRAM

• Expanding TALF for Legacy Securities
• Intention To expand the Term Asset-Backed
  Securities Loan Facility (TALF) program to
  include Legacy Securities
• Funding Purchase of Legacy Securities
  Non-recourse loans will be made available by
  Treasury to investors to fund purchases of legacy
  securitization assets
• Not Toxic Assets Legacy Securities include
  mortgage-backed securities that were originally
  rated AAA or its equivalent

15
LEGACY SECURITIES PROGRAM

• Legacy Securities PPIFs
• Treasury will make co-investment in order to
  partner with private investors and support the
  market for Legacy Securities
• Qualified Fund Managers
• Private asset managers will apply to be
  pre-qualified to raise private capital to invest
  in Legacy Securities PPIFs with Treasury
• Treasury originally expected to approve 5
  Qualified Fund Managers with a proven track
  record that number has increased

16
PPIP STATUS AS OF JUNE 2009

• Government Perspective
• PPIP was not solely intended to clean up the
  balance sheets of banks but to also provide
  transparency so that investors would know the
  health of banks and would invest additional
  capital in the banks
• The stress tests by the Fed have provided a
  forward-looking transparency and banks are
  releasing similar information to encourage
  capital investment without need for asset
  disposition through PPIP

17
PPIP STATUS AS OF JUNE 2009

• Comments received by FDIC in connection with the
  Legacy Loan Program have provided FDIC with a
  better sense of the concerns of the marketplace
• Many troubled loans are construction loans
  relating to projects in the Southeast. These
  loans do not necessarily lend themselves to
  contribution into a PPIP
• Many Investors do not wish to be identified. FDIC
  is considering what percentage of ownership
  interest will trigger disclosure requirements
• Reserve The FDIC has received requests that a
  reserve be set, which, if reached, will require
  the contributing bank to sell the legacy asset to
  the PPIP. Bidders do not want to incur due
  diligence expenses without a reserve
• FDIC views third-party valuation as providing a
  price discovery for FDIC, the Investor and the
  contributing bank

18
PPIP STATUS AS OF JUNE 2009

• Conflicts
• FDIC will not permit banks to purchase their own
  assets
• FDIC considering permitting banks to participate
  in PPIP as an Investor in assets contributed by
  other institutions
• What size pool supersized for Wall Street or
  downsized for Main Street?
• FDIC envisions that pools will average 1
  billion, with a minimum of 500 million (value
  including financing)
• For a pool of 500 million, the minimum equity
  investment (6) would be 30 million

19
PPIP STATUS AS OF JUNE 2009

• Asset Management Concerns
• The FDIC is concerned with the ongoing management
  of the PPIP assets
• Investors must realize that programs which
  involve taxpayer funds uniformly bring with them
  government involvement and regulations
• FIRREA in RTC days
• FDIC has NOT used government funds to date
• TARP brings restrictions, regulations and rules

20
PPIP STATUS AS OF JUNE 2009

• Investors not willing to play in PPIP until
  Treasury promulgates rules with respect to recent
  legislation so that potential investors
  understand all rules and regulations
• What does the immediate future hold?
• FDIC hopes that stress tests encourage increased
  investment of capital in banks
• FDIC instituting RTC-like portfolio loan sales to
  dispose of assets of closed banks (this only
  represents a small percentage of troubled loan
  assets) over the next six months

21
PPIP STATUS AS OF JUNE 2009

• Structure of loan sales of closed-bank assets to
  be held over the next six months by the FDIC
• Loan assets contributed into an equity
  partnership
• Investors bid to become partners with FDIC
• Different vehicles for different loan products
  SPE structure to differ depending on loan assets
  being contributed (land loans construction
  loans loans secured by completed projects)
• Investor controls entity with 20-40 interest
  FDIC a passive investor with 60-80 interest
• Upside is shared pursuant to a formula
  established prior to bidding
• Modeled on similar programs utilized by RTC

22
PPIP STATUS AS OF JUNE 2009

• Other opportunities to participate in government
  programs
• FDIC will likely require more contractors (and
  subcontractors) to manage real estate and real
  estate-related loans
• Unless the liquidity problems self-correct, the
  government will likely institute program(s),
  perhaps including characteristics of PPIP, to
  incentivize removal of the legacy assets from the
  bank balance sheets and otherwise achieve the
  goals of the PPIP