Geithner's PPIP Toxic Asset Plan Hits Snags, Gets Delayed

The Treasury Department is delaying the deadline for those who want to participate in the Public-Private Investment Program and loosening some of the guidelines for participation. This suggests that the programs have not attracted the level of support the government had hoped for.

The changes are meant to make it easier for firms to participate in the “legacy securities” portion of the program.

Here’s the release from Treasury:

As part of an ongoing effort to refine the guidelines and enhance the effectiveness of the Financial Stability Plan programs, the Treasury Department today released additional guidance for potential investors in the securities portion of the Public Private Investment Program (PPIP). The new guidance extends the deadline for application to the program and clarifies that participation criteria will be viewed holistically — failure to meet any one criterion will not necessarily disqualify a proposal. Additionally, the guidance highlights Treasury’s interest in program participation by small, minority and women-owned businesses; the potential for further expansion of participants and asset classes; and the interaction of the Federal Reserve’s Term Asset-Backed Securities Lending Facility (TALF) with this program.

On March 23, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – announced the PPIP as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery. This program 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.

Today’s update exclusively addresses the Legacy Securities program and includes additional Frequently Asked Questions and a revised version of the Legacy Securities Summary of Terms and Application for Private Asset Managers, which can both be found at Below are highlights from the updated materials:

Application Evaluation

As previously set forth in the Summary of Terms released on March 23, 2009, Fund Managers will be pre-qualified based on criteria that are anticipated to include various eligibility requirements including a proven ability to raise capital, demonstrated experience investing in the eligible asset classes and minimum threshold of eligible assets under management. Please note that these criteria will be viewed on a holistic basis, and it is anticipated that failure to meet any one criteria will not necessarily disqualify a proposal.

Deadline Extension

To better accommodate increased participation, the deadline for email submission of applications has been extended to 5 p.m. ET on Friday, April 24, 2009. Treasury now expects to inform applicants regarding preliminary qualification on or prior to Friday, May 15, 2009. The Treasury Department requests that all applications be submitted via email only.

Business Partnerships

In order to ensure broad based participation in the program, Treasury will encourage 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. Other ways to participate include providing such services as trade execution, valuation, and other important financial services. Treasury will allow smaller firms to partner prior to or after the application deadline, including after the selection of the initial group of pre-qualified Fund Managers. Treasury encourages innovative proposals from Fund Managers that incorporate the options listed above as well as other potential options.

Potential for Program Expansion

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 maximise the inflow of private capital into the market from firms large and small while protecting the interests of US taxpayers. To effectively accomplish this goal, after the initial pre-qualification of Fund Managers, Treasury will consider opening the program to Fund Managers that are not selected in the initial pre-qualification process.

Interaction with the Federal Reserve Term Asset-Backed Securities Lending Facility (TALF)

The Legacy Securities PPIP will work together with the 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 (who meet Federal Reserve eligibility standards) regardless of whether or not they participate in the Legacy Securities PPIP. A qualified investor utilising Legacy TALF will do so on the same terms and conditions as a Legacy Securities PPIP investor utilising Legacy TALF, 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 backed and residential mortgage backed securities issued prior to 2009. However, Treasury will solicit comment from Fund Managers regarding potential expansion the Legacy Securities PPIP at a later date to include other asset classes.

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