Toxic Asset Plan Still Light On The Details

Toxic Asset Plan Still Light On The Details - 5/6/2009

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Toxic Asset Plan Still Light On The Details
Jacqueline Bell

Securities Law 360. May 6, 2009
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EXCERPT: More than a month after the U.S. Treasury Department first unveiled its plan to bolster banks by helping them offload toxic assets, few vital details have emerged on the Public-Private Investment Program, pushing many potential investors to take a wait-and-see approach as they try to determine what the impact of participation could be. On March 23, the Treasury released a blueprint of the public-private partnerships it plans to create in order to allow banks sell off the troubled assets that are weighing them down. Under the program, potential investors contribute capital that would then be matched by government funds. The deal would be further sweetened for investors with government loans and risk transfer agreements. Regulators hope that the program will establish a fair price for the poorly performing real estate assets, including mortgages and mortgage-backed securities, at the root of the current crisis. Under the PPIP, up to $100 billion in remaining funds from the government’s Troubled Asset Relief Program could be used to help lure private investors into a partnership with the government. But many potential investors remain leery of joining forces with the government, even if the outlines of the plan seem promising. Significant questions remain as to what the true parameters of participation will be, and how burdensome they could become. “No one has any real idea at this point how the structure of the transaction is going to work,” said Robin R. Green, partner at Bryan Cave LLP. “We need to understand what the strings are.” The Treasury Department is pushing ahead with the program, and some firms are starting to consider what roles they are willing to play. Last week, the Treasury announced it had received over 100 applications from institutions wanting to become fund managers under the PPIP. The companies are seeking approval to buy and manage troubled securities.

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