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6/9/09

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  1. PUBLIC-PRIVATEINVESTMENT PROGRAM (PPIP):Will it Ever Arrive or Will RTC-Type Asset Sales Programs Return?By Holland & Knight LLPPresentation by Lawrence J. Wolk, Esq.Partner - Holland & KnightFormer Assistant General Counsel – Resolution Trust Corporation/Federal Deposit Insurance Corporation.June 16, 2009 6/9/09

  2. Holland & Knight Financial Recovery Team Lawrence J. Wolk Partner, Holland & Knight (Washington DC and New York) t: 212-513-3529 e: lawrence.wolk@hklaw.com Lawrence J. Wolk is a partner in the New York and Washington, D.C. offices of Holland & Knight LLP. Mr. Wolk practices in the real property area, emphasizing public and private sector transactions and commercial real estate finance as well as single-and multi-asset, multi-state acquisitions, mortgage financing and sales. This practice has included the negotiation and documentation of public/private partnership transactions, construction, permanent, and multi-state loans, sales, acquisitions, and other public and private development and projects. From 1992 to 1995, Mr. Wolk served as the Assistant General Counsel at the Resolution Trust Corp., the senior-most real estate legal position within the agency. Mr. Wolk had senior legal responsibility for the disposition of billions of dollars worth of real estate-related assets.

  3. Holland & Knight Financial Recovery Team Additional Members Jose “Joe” Sirven – Partner, Miami t: 305-789-7784 e: jose.sirven@hklaw.com Mr. Sirven has practiced in the corporate, mergers and acquisitions, banking, and international fields for over 25 years. He has represented large publicly owned corporations, global and regional financial institutions, privately held entities, and governments in connection with a variety of business issues involving nearly every country in Latin America and the Caribbean and throughout Europe and Asia. Steven B. Nesmith – Partner, Washington DC t: 202-457-5908 e: steven.nesmith@hklaw.com Mr. Nesmith is a Partner in the firm's Public Policy & Regulation Group. Mr. Nesmith served as Assistant Secretary for Congressional and Intergovernmental Relations in the U.S. Department of Housing and Urban Development. He was a Sub–Cabinet member and principal advisor to the Secretary, Deputy Secretary and senior staff on legislative affairs, regulatory issues and policy matters affecting Federal, state and local governments, and public and private industry groups. As a senior Administration Official, he also served as a member of the President’s Leadership Team. Kerry S. Kehoe – Partner, Boston t: 617-854-1451 e: kerry.kehoe@hklaw.com Mr. Kehoe is a member of the firm's Business Law Department and concentrates his practice in insolvency matters and corporate finance transactions. Mr. Kehoe has represented debtors, secured creditors, trustees, and creditors' committees in bankruptcy proceedings; and lenders and borrowers in out-of-court workout and restructurings. In corporate finance transactions, Mr. Kehoe has represented financial institutions and borrowers. Suzanne E. Gilbert – Partner, Orlando t: 407-244-1142 e: suzanne.gilbert@hklaw.com Ms. Gilbert practices in the areas of business and commercial litigation, real estate litigation, and bankruptcy and creditors' rights. Ms. Gilbert has experience representing clients in commercial disputes in federal, state and bankruptcy courts. A large portion of Ms. Gilbert’s practice involves real estate litigation, including contract disputes, boundary disputes, title issues and mortgage fraud. Additionally, she has represented financial institutions and other entities in a variety of matters, including workouts, lender liability claims, fraudulent transfers, and preferential transfer actions. Ms. Gilbert has represented both debtors-in-possession and creditors in Chapter 11 and Chapter 7 cases.

  4. PUBLIC-PRIVATE INVESTMENT PROGRAM AN OVERVIEW What is PPIP? A $500 billion to $1 trillion plan to purchase Legacy Assets Which government agencies are involved? The U.S. Treasury Department (Treasury) in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve How will PPIP be funded? Equity: $75 billion to $100 billion in Troubled Assets Relief Program (TARP) capital supplemented by capital from private investors Debt: Purchase money financing for acquisition of assets by PPIF is guaranteed by FDIC (Legacy Loans Program) and provided by Treasury (Legacy Securities Program) What are Legacy Assets? 2 Types: • Legacy Loans: real estate loans and other To Be Determined assets held directly on the books of banks • Legacy Securities: commercial mortgage-backed securities and residential mortgage-backed securities issued prior to 2009, originally rated AAA, or equivalent.

  5. PPIP OVERVIEW Why is PPIP needed? Banks hold Legacy Assets which create uncertainty around their balance sheets, compromising their ability to raise capital and to increase lending. What are PPIP’s primary objectives? • Draw new private capital into the Legacy Assets market by providing government equity co-investment and attractive public financing or guarantees of financing • Facilitate higher market pricing of Legacy Assets • Encourage financial institutions to engage in increased lending activities • Enhance the ability of financial institutions to raise new capital from private investors

  6. PPIP OVERVIEW PPIP’s Three Basic Principles 1. Leveraging the Impact of the Government Funds Government (guaranteed) financing and co-investment of equity by Treasury and private investors will leverage government resources and incentivize private investment. 2. Sharing of Both Risk and Profits With Private Investors PPIP enables private investors to invest. Private investors’ loss is capped at their equity investment. Private investors will share in profits along with the government. 3. Private Sector Sets Pricing Private investors will bid at auctions to establish the price of the asset pools and securities.

  7. LEGACY LOANS PROGRAM Funding the Acquisition of Assets Equity: Treasury capital and private investor capital will be invested proportionately at the same time in each PPIF • Treasury initially intends to provide 50% of equity capital for each PPIF • Treasury and private investors will share profits and losses in proportion to equity invested • Private investors may not participate in any PPIF that purchases assets from sellers that are affiliates of such private investors Debt: Each PPIF will issue debt financing payable to the Participant Bank guaranteed by FDIC

  8. LEGACY LOANS PROGRAM Passive Private Investors • The Administration is encouraging the inclusion of the following groups as private investors: • Small, veteran-, minority-, and women-owned firms • Mutual funds, pension plans, insurance companies, and other long term investors • Individual investors • Private investors must be pre-qualified by FDIC • Initial governmental materials indicated that executive compensation restrictions will NOT apply to passive private investors

  9. LEGACY LOANS PROGRAM Participant Banks/Eligible Assets • Participant Banks may include any insured U.S. bank or U.S. savings association • Assets comprising each Eligible Asset Pool (Eligible Assets) and any collateral supporting those assets must be situated predominantly in the U.S. • Asset managers, subject to FDIC oversight, will retain control of servicing throughout operations

  10. LEGACY LOANS PROGRAM Procedure for Purchasing Eligible Asset Pools FDIC Oversight and Implementation • A third party valuation firm selected by FDIC will analyze each Eligible Asset Pool and advise FDIC on, among other matters, the supportable leverage of the Eligible Asset Pool, bid structure and asset valuation • The FDIC-guaranteed debt-to-equity ratio will in no event exceed 6-to-1 • The FDIC has completed the notice and comment period and is working to address comments to finalize details of the program and to establish a start date

  11. LEGACY LOANS PROGRAM Procedure for Purchasing Eligible Asset Pools Auctions • FDIC will conduct the Eligible Asset Pool auction • Prior to bid submission, FDIC will disclose the proposed financing terms and leverage ratio that it has established for each Eligible Asset Pool • Pre-qualified private investors will bid for the opportunity to contribute 50% of the equity for the PPIF, with Treasury contributing the remainder of the equity for the PPIF • Each bid must be accompanied by a refundable cash deposit (Deposit) for 5% of the bid value

  12. LEGACY LOANS PROGRAM FDIC Guaranteed Purchase Money Debt FDIC will determine terms of the financing to be guaranteed by FDIC Financing will be non-recourse FDIC debt guarantee will be secured by the Eligible Assets Debt will initially be placed at the Participant Bank, which will have the right to resell the debt

  13. LEGACY LOANS PROGRAM Sharing the Responsibility Treasury will oversee and manage its equity investment in each PPIF FDIC will: • Oversee and manage its debt guarantees • Oversee the formation, funding, and operation of each PPIF • Approve Eligible Asset Pools from Participant Banks • Determine Eligible Asset Pool leverage levels • Conduct Auctions

  14. LEGACY SECURITIES PROGRAM Expanding TALF for Legacy Securities • Intention: To expand the Term Asset-Backed Securities Loan Facility (TALF) program to include Legacy Securities • Funding Purchase of Legacy Securities: Non-recourse loans will be made available by Treasury to investors to fund purchases of legacy securitization assets • Not “Toxic” Assets: Legacy Securities include mortgage-backed securities that were originally rated AAA or its equivalent

  15. LEGACY SECURITIES PROGRAM Legacy Securities PPIFs • Treasury will make co-investment in order to partner with private investors and support the market for Legacy Securities Qualified Fund Managers: • Private asset managers will apply to be pre-qualified to raise private capital to invest in Legacy Securities PPIFs with Treasury • Treasury originally expected to approve 5 Qualified Fund Managers with a proven track record – that number has increased

  16. PPIP – STATUS AS OF JUNE 2009 Government Perspective • PPIP was not solely intended to clean up the balance sheets of banks but to also provide transparency so that investors would know the health of banks and would invest additional capital in the banks • The stress tests by the Fed have provided a “forward-looking” transparency and banks are releasing similar information to encourage capital investment without need for asset disposition through PPIP

  17. PPIP – STATUS AS OF JUNE 2009 Comments received by FDIC in connection with the Legacy Loan Program have provided FDIC with a better sense of the concerns of the “marketplace” • Many troubled loans are construction loans relating to projects in the Southeast. These loans do not necessarily lend themselves to contribution into a PPIP • Many Investors do not wish to be identified. FDIC is considering what percentage of ownership interest will trigger disclosure requirements • Reserve – The FDIC has received requests that a reserve be set, which, if reached, will require the contributing bank to sell the legacy asset to the PPIP. Bidders do not want to incur due diligence expenses without a reserve • FDIC views third-party valuation as providing a “price discovery” for FDIC, the Investor and the contributing bank

  18. PPIP – STATUS AS OF JUNE 2009 Conflicts • FDIC will not permit banks to purchase their own assets • FDIC considering permitting banks to participate in PPIP as an Investor in assets contributed by other institutions What size pool – supersized for Wall Street or downsized for Main Street? • FDIC envisions that pools will average $1 billion, with a minimum of $500 million (value including financing) • For a pool of $500 million, the minimum equity investment (6%) would be $30 million

  19. PPIP – STATUS AS OF JUNE 2009 Asset Management Concerns • The FDIC is concerned with the ongoing management of the PPIP assets Investors must realize that programs which involve taxpayer funds uniformly bring with them government involvement and regulations • FIRREA in RTC days • FDIC has NOT used government funds to date • TARP brings restrictions, regulations and rules

  20. PPIP – STATUS AS OF JUNE 2009 • Investors not willing to “play” in PPIP until Treasury promulgates rules with respect to recent legislation so that potential investors understand all rules and regulations What does the immediate future hold? • FDIC hopes that stress tests encourage increased investment of capital in banks • FDIC instituting RTC-like portfolio loan sales to dispose of assets of closed banks (this only represents a small percentage of troubled loan assets) over the next six months

  21. PPIP – STATUS AS OF JUNE 2009 Structure of loan sales of closed-bank assets to be held over the next six months by the FDIC • Loan assets contributed into an equity partnership • Investors bid to become partners with FDIC • Different vehicles for different loan products; SPE structure to differ depending on loan assets being contributed (land loans; construction loans; loans secured by completed projects) • Investor controls entity with 20-40% interest; FDIC a passive investor with 60-80% interest • Upside is shared pursuant to a formula established prior to bidding • Modeled on similar programs utilized by RTC

  22. PPIP – STATUS AS OF JUNE 2009 Other opportunities to participate in government programs • FDIC will likely require more contractors (and subcontractors) to manage real estate and real estate-related loans • Unless the liquidity problems self-correct, the government will likely institute program(s), perhaps including characteristics of PPIP, to incentivize removal of the legacy assets from the bank balance sheets and otherwise achieve the goals of the PPIP

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