Treasury Clarifies Guidance on Legacy Investments, Extends App Deadline

On Monday, the Treasury Department released additional guidance for potential investors in the securities portion of its Public Private Investment Program (PPIP) and extended the deadline for ""application to the program"":http://www.treas.gov/press/releases/reports/legacy_securities_ppif_app.pdf. The ""securities piece of the PPIP"":http://www.treas.gov/press/releases/reports/legacy_securities_terms.pdf initiative is intended to ""restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit,"" the Treasury explained.
On March 23, Treasury - in conjunction with the FDIC and the Federal Reserve - announced the PPIP as part of its efforts to repair balance sheets throughout the U.S. financial system and unfreeze credit lines. The program is divided into two pieces: one that addresses legacy loans weighing down the balance sheets of banks and another that provides for investments in legacy mortgage-backed securities.
The ""updated guidance"":http://www.treas.gov/press/releases/reports/legacy_securities_faqs.pdf issued Monday covers the legacy securities part of the program, aimed at alleviating some confusion within the market surrounding criteria for participation. Below are highlights from the new materials:
*Application Evaluation *
As previously outlined, fund managers will be pre-qualified based on their proven ability to raise capital, demonstrated experience investing in the eligible asset classes, and minimum threshold of eligible assets under management. The Treasury emphasized on Monday that firms would be evaluated on a ""holistic basis"" and that failure to meet any one criteria will not necessarily disqualify a proposal.
*Deadline Extension *
To better accommodate increased participation, the Treasury said it is extending the deadline for email submission of applications to 5 p.m. (EDT) on April 24. With this extension, the Department now expects to inform applicants regarding preliminary qualification on or before May 15.
*Business Partnerships *
In order to ensure broad-based involvement in the program, the Treasury is encouraging small, veteran, minority- and women-owned businesses to partner with private asset managers. There are several ways smaller firms can partner with fund managers, including as an asset manager, an equity partner, or a fund raising partner, the Treasury said. Other ways to participate include providing such services as trade execution or valuation. Treasury said it will allow smaller firms to partner with fund managers prior to or after the application deadline, and even after the initial group of pre-qualified fund management firms have been selected.
*Potential for Program Expansion *
The goal of the public-private partnership to invest in legacy securities is to jumpstart the secondary market for mortgage bonds, giving banks and other financial institutions new capital to lend. To achieve this goal, the Treasury said it seeks to maximize the inflow of private capital from firms large and small, while protecting the interests of U.S. taxpayers, and in doing so will consider opening the program to additional fund managers that are not selected among the initial five pre-qualified firms.
*Term Asset-Backed Securities Lending Facility (TALF) *
The Treasury underscored the fact that the legacy securities PPIP will work together with the TALF program for legacy assets, but the two initiatives remain separate. TALF is a Federal Reserve lending program with its own set of terms, conditions, and eligibility requirements, the Treasury explained, and the facility will be made available to investors who meet these standards regardless of whether or not they participate in the PPIP, making the funding of legacy assets available to a broad range of market participants.
*Eligible Assets *
The legacy securities PPIP is limited to eligible assets that include non-agency commercial and residential mortgage-backed securities issued prior to 2009. However, the Treasury said it will solicit comment from fund managers regarding the potential expansion of the program at a later date to include other asset classes.
The same type of private market involvement proffered by the government's PPIP is also supported by _DS News _as a compelling means of advancing a housing recovery. The publication is hosting the ""Distressed Asset Roundtable and Exchange"":http://www.dsnewsdare.com/ (DARE) in New York City, May 12-13, to bring private equity and institutional investors together with lenders and mortgage default servicing professionals and establish best practices for portfolio valuations and managing legacy securities.