Credit Crisis & Government Intervention Task Force
Recognizing that there are numerous needs arising from challenges in financial markets, Troutman Sanders has formed its Credit Crisis & Government Intervention Task Force, comprised of lawyers from its bankruptcy, insurance, financial institutions, lending and finance, real estate, litigation and white collar practice groups. Task Force Members include former federal bank regulators and prosecutors, and specialists in financial institutions, corporate reorganization, directors and officers’ issues, real estate finance and workouts, complex litigation, bankruptcy, executive compensation and benefits, and insurance.
Task Force Issues Analysis:
Public-Private Investment Program – Legacy Loans Program & Legacy Securities Program
On March 23, 2009, the Treasury – in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve - announced the initial details of its Public-Private Investment Program (PPIP) which is designed to (i) remove toxic real estate loans and securities from the balance sheets of U.S. depositary institutions, which include banks and thrifts (Participant Banks), (ii) rejuvenate real estate credit markets and (iii) restart the real estate loan securitization market. PPIP is divided into two programs, (a) the Legacy Loans Program dealing with residential and commercial real estate loans held by Participant Banks and (b) the Legacy Securities Program dealing with commercial mortgage backed securities (CMBS) and residential mortgage backed securities (RMBS).
Treasury Announces Public-Private Partnership Investment Program For Toxic Assets
On March 23, 2009, Treasury announced details of its two-part Public-Private Partnership Investment Program aimed at relieving financial institutions of toxic loans and securities.
Liability Risk Management Under The American Recovery And Reinvestment Act Of 2009
The new Stimulus Bill, styled the American Recovery and Reinvestment Act of 2009 (ARRA), appropriates over $780 Billion to stimulate the economy through federal, state and private activity. It uses at least 10 federal agencies, all state and local governments willing to participate, and as many private businesses as qualify for the contracts, grants, loans and loan guarantees funded by the Act.
TARP Capital Purchase Program – Summary of Executive Compensation Requirements
Pursuant to authority granted under Section 111 of the Emergency Economic Stabilization Act of 2008 (EESA), the U.S. Treasury Department has announced a voluntary Capital Purchase Program (CPP) to encourage eligible U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.
OCC Changes Policy to Facilitate New Equity Investments in Troubled Banks
With the credit crisis showing no signs of slowing, the Office of the Comptroller of the Currency (the “OCC”) publicly released its first ever conditional preliminary approval of an application to establish a national bank to facilitate new equity investments in troubled banks.
State Attorneys General Will Aggressively Pursue Actions During The Credit Crisis
While much of the press reports during the credit crisis has focused on the United States Treasury’s Troubled Asset Relief Program and the financial woes of Bear Stearns, Lehman Brothers, Washington Mutual (“WaMu”), Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), Wachovia National Bank, American International Group (“AIG”) and the automobile industry, little notice has been paid to the aggressive actions that have been taken by state Attorneys General. (full article)
Treasury Releases Term Sheet For TARP Participation By Non-Public Banks
On November 17, 2008, the Treasury released the term sheet and related FAQs for non-publicly traded financial institutions participating in the TARP Capital Purchase Program (“CPP”). (full article)
Treasury Issues Guidance for Publicly Traded Financial Institutions Participating in TARP CPP
On October 31, 2008, the U.S. Department of the Treasury (the "Treasury") provided additional information for publicly traded financial institutions seeking to participate in the Troubled Assets Relief Program ("TARP") Capital Purchase Program (the "Program") as authorized under the Emergency Economic Stabilization Act of 2008 (the "Act"). (full article)
Addressing Silent Government Intervention During the Credit Crisis
It has been well documented that the current crisis has eroded bank capital, created stresses on bank liquidity, threatened credit quality, strained the infrastructure and resources of the banking institutions, increased their administrative costs due to the need to conduct more and better underwriting and due diligence, and sharpened the focus on collection efforts. During this crisis, bank supervisory agencies will increase their supervisory efforts rather than focus on public enforcement actions. (full article)
United States Treasury Announces TARP Capital Purchase Program
In an unprecedented move, the United States Department of the Treasury (“Treasury”) announced the implementation of a Capital Purchase Program (“CPP” or “Program”) with the goal of encouraging U.S. financial institutions “to be build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.” (full article)
Emergency Economic Stabilization Act of 2008 - Troubled Asset Relief Program
The Emergency Economic Stabilization Act of 2008 (the “Act’) was signed in to law on October 3, 2008. This legislation is the most significant economic intervention by the United States Government in the nation’s financial services industry since the Great Depression. (full article)
Be Ready for Intensified Government Action
The national, now global, financial crisis is driving state and federal regulators to dig much more deeply and examine far more broadly the practices and portfolios of all businesses engaged in financial transactions. The Justice Department, FBI and state attorneys general are joining in; and Congress is demanding that federal authorities find and punish the culprits. (full article)
Federal Reserve Changes Policy to Encourage Equity Investments in Banks
With the initial US credit crisis rapidly evolving into a global credit crisis, the US Secretary of the Treasury (the “Secretary”), the G-7, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and other central banks have taken aggressive steps to calm markets and encourage investors to provide needed capital to banks worldwide. (full article)
Recent Developments:
Treasury Announces Financial Stability Plan - Feb. 10, 2009
Treasury Secretary Timothy Geithner announced on February 10, 2009 the Financial Stability Plan.* This Plan includes provisions to enhance bank capitalization, supervision, and public disclosure; a public-private bad asset investment and disposition program; initiatives for consumer and business lending; and a program for foreclosure avoidance. Many of these programs will be funded through additional TARP and related bailout funding. Significant details regarding the Financial Stability Plan are included in a Fact Sheet also released today by Treasury.
Temporary Liquidity Guarantee Program - Nov. 10, 2008
The FDIC has created this program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount. (full article)
Treasury Announces Additional Guidance for TARP CPP Participation - Nov. 10, 2008
...a comprehensive update on the Treasury Department's progress in implementing the Troubled Asset Relief Program (TARP), which is a major component of the overall coordinated effort by the Federal Government to restore confidence in our financial system and ensure that credit continues to be available to consumers and businesses. (full article)
Treasury Issues Additional Information on Capital Purchase Program - Oct. 28, 2008
The Treasury Department is continuing comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets. (full article)
Representative Experience
Representing public banks, bank holding companies, thrifts, and thrift holding companies in applying for TARP capital.
Representing non-public entities mentioned above in applying for TARP capital.
Representing insurance companies in applying for TARP capital.
Closing TARP capital purchase program transactions on behalf of clients.
Advising clients regarding a variety of regulatory issues arising from TARP
Advising boards of directors regarding capital and balance sheet restructuring in view of TARP and current capital markets.
Preparing proxy materials for special shareholders meetings to authorize preferred stock to be issued in TARP capital purchase by Treasury.
Advising clients on mergers and acquisitions as a possible use of TARP capital.
Advising new bank formation groups of availability of TARP capital associated with startups.
Working with CPA firms regarding the financial and regulatory accounting for TARP capital transactions.
Reviewing employment agreements and benefit plans for TARP compliance.
Advising a variety of clients regarding the increased FDIC insurance coverage and guarantee of interbank debt.
Advising financial institutions regarding establishing special purpose entities for holding distressed assets - good bank/ bad bank model.
Advising clients regarding uses of custodial account structures to protect funds in face of insolvency.
Numerous regulatory negotiations and meetings with the Federal Reserve, FDIC, OCC, OTS, state bank regulators and other governmental officials regarding multiple issues and matters.
Advising counterparties to forward contracts, interest rate swaps, and foreign exchange transactions with respect to their rights of early termination and close-out netting and to return of their posted collateral in the chapter 11 cases of Lehman Brothers Holdings, Inc. and its affiliated debtors.
Advising clients concerning the application of the safe harbors for financial contracts under the Bankruptcy Code as they may relate to the amendment of existing swap master agreements to provide for the collateralization of the counterparties' obligations.
Advising clients concerning their rights with respect to credit default swaps and financial guaranty insurance policies that secure transactions where the counterparty to the credit default swap or the issuer of the financial guaranty insurance policy is a monoline insurer whose credit rating has been downgraded. Advice includes the treatment of credit default swaps and financial guaranty insurance under applicable state insurance law relating to liquidation or rehabilitation of the insurer.
Representing an insurance carrier in connection with its coverage of a broker dealer regarding litigation relating to the sale of $50 million of collateralized debt obligation instruments to investors.
Advised a client in connection with its obtaining cash collateral from Bear Stearns upon Bear Stearns' initial downgrade.
Advise a sub-prime credit card issuer on the regulatory issues that it currently is facing.
More than two dozen matters involving issues arising out of the financial crisis, including:
- Assisting a municipal government protect its deposits that are in excess of the FDIC insured limit.
- Assisting an international monetary authority protect its securities that are held in custody by a US bank.
- Providing advice to a hedge fund on how to protect investments it made to a Special Purpose Acquisition Company that was established to invest in US commercial banks.
- Providing advice to a number of investors who would like to take advantage of a recent change of Federal Reserve policy on minority investments in banking institutions.
- Providing advice to an international bank on how to protect itself in foreign exchange spot transactions with US investment banks.
- Assisting a corporate client restructure and expand its banking relationships to protect its deposits in US banks.
- Assisting a trust company structure its custodial relationships to protect custodial assets it controls, but are maintained in US banks.
- Providing advice to a number of banks concerning how to obtain funds under the Troubled Asset Relief Program.
- Providing advice to a number of banks regarding credit administration issues that arise when capital is under extreme pressure, general and special reserves are required and significant ALLL decisions must be made.
- Representation of indenture trustee for convertible senior debt in the chapter 11 proceedings of the parent company of, among other things, two major title insurance companies that were placed into rehabilitation under the Nebraska insurance law and whose stock was sold pursuant to the Bankruptcy Code.
- Representation of an acquisition and development lender in the chapter 11 proceedings filed by the developers of residential real estate that sought to finance continued development through the use of the lender’s cash collateral generated by the sale of developed lots.
- Representation of a construction lender in the chapter 11 filing by a condominium developer with significant mechanic’s lien and other title issues.
- Representation of senior secured lender to government contractor with international subsidiaries in negotiation of interim and final cash collateral relief in chapter 11 and section 363 sale of substantially all of debtor’s assets to management group that assumed obligations to lender.
- Negotiations with the FDIC, as successor to a junior participant in an acquisition and development loan, regarding consent to modification and restructuring of the loan.
- Enforcement of security interests in both real and personal property through foreclosure, Article 9 sales, and other judicial and non-judicial remedies.