The Treasury Department  just released added guidance for potential investors in the securities portion of the Public Private Investment Program (PPIP).

According to a release from the department, the new guidance extends the deadline for application to the program as well as clarifies that participation criteria will be viewed holistically. This means that the failure to meet any one criterion will not automatically disqualify a proposal. 

The new guidance also reflects the Treasury's interest in program participation by small, minority and women-owned businesses, according to the release. The new terms also cover the potential for further expansion of participants and asset classes as well as the interaction of the Federal Reserve's Term Asset-Backed Securities Lending Facility (TALF) with this program.

On March 23, Treasury, along with the Federal Deposit Insurance Corp. and the Federal Reserve, announced the PPIP as part of an effort to repair financial institutions' balance sheets throughout the country's financial system. It was also set up to ensure that credit is available to the households and businesses, both large and small. The PPIP is divided into two pieces: one that addresses legacy loans weighing down the balance sheets of banks and another that seeks to repair the market for legacy securities.

The release said that the just announced update exclusively addresses the legacy securities program and includes additional Frequently Asked Questions (FAQs). It also covers a revised version of the Legacy Securities Summary of Terms and Application for private asset managers. The information can both be found at http://www.financialstability.gov.

Below are highlights from the updated materials:

In terms of the application evaluation, as previously established in the Summary of Terms released on March 23, fund managers will be pre-qualified based on criteria that are anticipated to include various eligibility requirements such as a proven ability to raise capital, demonstrated experience investing in the eligible asset classes and a minimum threshold of eligible assets under management.

According to the Treasury, these qualifications will be viewed on a holistic basis, and it is expected that failure to meet any one criteria will not automatically disqualify a proposal.

To better accommodate increased participation, the Treasury said that the deadline for email submission of applications has been extended to 5 p.m. ET on April 24. The Treasury now expects to inform applicants regarding preliminary qualification on or before May 15. The department requests that all applications be submitted via email only.

To ensure broad based participation in the program, the Treasury will encourage small, veteran, minority- and women-owned businesses to partner with private asset managers. There are a number of ways smaller firms can partner with fund managers such as an asset manager, an equity partner, or a fund raising partner.

Other alternatives open to participate include providing such services as trade execution, valuation, and other important financial services. The Treasury will allow smaller firms to partner before or after the application deadline, including after the selection of the initial group of pre-qualified fund managers. It encourages innovative proposals from fund managers that incorporate the options listed above as well as other potential options.

The goal of the legacy securities PPIP is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. In achieving this goal, Treasury seeks to maximize the inflow of private capital into the market from firms large and small while protecting the interests of U.S. taxpayers. To effectively accomplish this aim, after the initial pre-qualification of fund managers, the Treasury will consider opening the program to fund managers that are not selected in the initial pre-qualification process.

The legacy securities PPIP will work together with the Term Asset-Backed Securities Lending Facility (TALF) program for legacy assets, but they remain separate. The legacy TALF will be a Federal Reserve lending program with its own set of terms, conditions and eligibility requirements.

Legacy TALF will be made available to investors (that meet Federal Reserve eligibility standards) regardless of whether or not they participate in the legacy securities PPIP. A qualified investor using legacy TALF will do so on the same terms and conditions as a legacy securities PPIP investor under the legacy TALF, making the funding of legacy assets available to a broad range of market participants.

The legacy securities PPIP is limited to eligible assets that include non-agency commercial backed and residential mortgage backed securities issued prior to 2009. However, the Treasury will solicit comment from fund managers about the potential expansion the legacy securities PPIP at a later date to include other asset classes.

 

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