Road to Stability

Legacy Securities Public-Private Investment Program

Updated: July 23, 2010

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Overview

The Legacy Securities Public-Private Investment Program ("S-PPIP") is designed to purchase troubled legacy securitiesTroubled real estate-related securities [Residential Mortgage-Backed Securities ("RMBS"), Commercial Mortgage-Backed Securities ("CMBS"), and Asset-Backed Securities ("ABS")] that remain on institutions' balance sheets that have lost value but are difficult to price due to the recent market disruption. that are central to the problems currently impacting the U.S. financial system. Under this program, Treasury will invest equity and debt in multiple Public-Private Investment Funds ("PPIFs") established with private sector fund managers and private sector investors for the purpose of purchasing eligible assetsEligible Assets: commercial mortgage-backed securities and non-agency residential mortgage-backed securities issued prior to January 1, 2009, that were originally rated AAA or an equivalent rating by two or more nationally recognized statistical rating organizations without external credit enhancement and that are secured directly by the actual mortgage loans, leases, or other assets and not other securities. At least ninety percent (90%) of the assets underlying any Eligible Asset must be situated in the United States.. PPIF managers will invest in securities backed directly by mortgages that span the residential credit spectrum (e.g., primeA classification of borrowers, rates, or holdings in the lending market that are considered to be of high quality (i.e., high credit scores between 620-850). , Alt-AA classification of mortgages whose rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers., subprimeA type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loan (e.g., due to low credit scores). mortgages) as well as the commercial mortgage market.

Program Design

Private sector fund managers and private investors will partner with the Treasury to purchase these legacy securities from banks, insurance companies, mutual funds, pension funds, and any other eligible sellerEligible sellers include any (i) "financial institution" as defined in Section 3(5) of EESA and (ii) any institution covered by Section 112 of EESA. “Financial institution” means any institution, including, but not limited to, any bank, savings association, credit union security broker or dealer, or insurance company, established and regulated under the laws of the United States, or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States but excluding any central bank of, or institution owned by, a foreign government. as defined under EESA. The equity capital raised from private investors by the fund managers will be matched by Treasury. Treasury will also provide debt financing up to 100% of the total equity of each PPIF. Furthermore, Treasury will allow the PPIFs to obtain additional financing, up to certain limits, including from the Federal Reserve´s Term Asset-Backed Securities Loan Facility ("TALF") program for those assets that are eligible for TALF financing (currently restricted to CMBS only).

S-PPIP: THE PPIF STRUCTURE

program design

Treasury will initially commit up to a combined $30 billion in equity and debt under the program; however, Treasury can increase the size of the S-PPIP as economic and financial system conditions warrant. Fund managers will retain control of asset selection, pricing, trading, and disposition. Income that a PPIF earns from its investments will be distributed in accordance with the partnership agreements. The proceeds of a PPIF, net of expenses, will be distributed to the investors, including Treasury, in proportion to their equity capital investments. Consistent with EESA, Treasury will receive warrants from the PPIFs, which will give Treasury the right to receive a percentage of the profits that would otherwise be distributed to the private partners that are in excess of their contributed capital.

The program structure spreads risk between the private investors and the government, and provides the American taxpayers with the opportunity for substantial gain.

The PPIF fund managers stringent compliance obligations are defined in the Compliance RulesClick on "Limited Partnership Agreements"available below under the "Fund Manager Documentation" tab within the "Additional Resources" section., an annex to the Limited Partnership Agreements that fund managers executed as part of establishing the individual PPIFs. Treasury is currently implementing a rigorous oversight framework to vet fund managers conformity with their Compliance Rules obligations.

Since the inception of PPIP, OFS has employed specialists within its Office of Internal Review dedicated to PPIP who have leveraged private sector experience and best practices from other OFS programs to create a robust oversight program. OFS has also hired a world-class compliance contractor, PricewaterhouseCoopers ("PWC"), which is aiding Treasury in vetting fund manager trading activities and allocation decisions in PPIF and non-PPIF funds.

Together with PWC, Treasury will review this data for any aberrant behavior. Additionally, the fund managers are required to use valuations for marking PPIF assets which are independently derived by a separate valuation agent, the Bank of New York Mellon. Treasury has also ensured that the Compliance Rules give access to PPIF books, records, and key individuals to oversight bodies, including the SIGTARP and GAO, so that ad hoc audits and reviews can be tailored to risks which may arise on an ongoing basis.

Program Status

On July 8, 2009, Treasury announced the names of nine fund managers pre-qualified to raise equity capital from private sector investors with the objective of generating attractive returns through long-term opportunistic investments:

AllianceBernstein, LP
Angelo, Gordon & Co., LP and General Electric Capital Corporation Partnership
BlackRock
Invesco Ltd.
Marathon Asset Management, LP
Oaktree Capital Management, LP
TCW Asset Management
Wellington Management Company, LLP
Western Asset Management Company

Treasury has completed comprehensive legal, compliance, and business due diligence on each pre-qualified fund manager. The due diligence process included, but was not limited to, in-person management presentations, limited partner reference calls, on-site visits, and background checks.

Collectively, the pre-qualified PPIP fund managers have established 10 unique relationships with leading small, veteran-, minority-, and women-owned financial services businesses, located in five different states, pursuant to the Legacy Securities PPIP.

Fund Manager	Partner	Service	City	State
AllianceBernstein	Altura Capital Group	Capital raising, investment sourcing	New York	NY
Angelo Gordon / GE Capital	CastleOak Securities	Broker dealer, capital raising and advisory	New York	NY
Angelo Gordon / GE Capital	Park Madison Partners	Capital raising and advisory	New York	NY
BlackRock	Utendahl Capital Management	Asset management (will manage 5% of portfolio)	New York	NY
Invesco	Jackson Securities, LLC	Capital Raising	Atlanta	GA
	Muriel Siebert & Co	Capital Raising	New York	NY
	The Williams Capital Group	Capital Raising	New York	NY
Marathon	Blaylock Robert Van	Capital Raising	New York	NY
Oaktree	Arctic Slope Regional Corporation	Participate in investment process	Barrow	AK
Wellington	Advent Capital Management	Capital raising and asset management	New York	NY
Wellington	The Williams Capital Group	Cash Management	Durham	NC

The first group of PPIF initial closings took place on September 30, 2009, and additional initial closings have occurred since that date. Following the initial closing, each PPIF will have the opportunity for subsequent closings over the next six months to receive matching Treasury equity and debt financing. The PPIFs have already begun purchasing eligible assets within the market for legacy securities, and Treasury anticipates that PPIFs will continue purchasing eligible assets in the coming weeks.