Friday, July 10, 2009

PPIP Pre-Qualified Fund Managers Announced

On July 8, 2009, the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation ("FDIC") announced the names of the private fund managers who have been pre-qualified to participate in the Legacy Securities portion of Treasury's Public-Private Investment Program (“PPIP”). The list of managers includes:

  • - AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC;
  • - Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
  • - BlackRock, Inc.;
  • - Invesco Ltd.;
  • - Marathon Asset Management, L.P.;
  • - Oaktree Capital Management, L.P.;
  • - RLJ Western Asset Management, LP.;
  • - The TCW Group, Inc.; and
  • - Wellington Management Company, LLP.
As previously outlined, the Legacy Securities PPIP is designed to improve the market for asset-backed securities by enabling banks and other financial institutions to price and sell those securities so that they can free up capital and extend new credit to homes and businesses. To facilitate the market, Treasury will invest up to $30 billion of debt and equity with leading private fund managers and investors for the purpose of buying qualifying commercial mortgage-backed securities and non-agency residential mortgage-backed securities. Qualifying securities must have been issued before 2009, have originally been rated AAA, and be secured directly by the actual mortgage loans, leases, or other assets.

Once approved, private fund managers will have up to 12 weeks to raise at least $500 million from private investors, which funds will be matched by Treasury. Each fund manager also has to invest a minimum of $20 million of firm capital. Once the money has been raised, the fund managers can purchase qualified securities. Treasury will also provide debt financing up to 100% of the total equity of the fund.

So far Treasury has negotiated equity and debt term sheets with each of the pre-qualified fund managers and expects to negotiate final documentation and announce a first closing of a fund in early August 2009.

The announcement also highlighted the FDIC's plan to test the funding mechanism of the Legacy Loan PPIP by conducting a sale of receivership assets this summer. A counterpart to the Legacy Securities PPIP, the Legacy Loan PPIP is designed to improve the market for distressed or troubled loan assets by facilitating their sale at market prices. Under the program, the FDIC would oversee the formation, funding and operation of private investment funds that will buy these assets from banks or from the FDIC. To fund the purchases, investment funds would provide equity capital and the FDIC would guarantee debt financing collateralized by the purchased assets. The investment funds would be required to pay the FDIC a fee in exchange for providing the guarantee. The FDIC expects to solicit bids for the sale of receivership assets during July.


CESR Publishes Consultation on Pan-European Short Selling Disclosure

On July 8, 2009, the Committee of European Securities Regulators ("CESR") published a consultation paper on its proposal for a pan-European short selling transparency regime. The initiative follows measures enacted since 2008 by a significant number of CESR members to restrain and/or condition short selling practices within their jurisdictions as a result of the financial crisis, which led to fragmented and complex compliance requirements for market participants across Europe.

CESR's approach is based on a two-tier disclosure system of significant net short positions. When a person reaches a net short position equal to 0.1% (the private disclosure threshold) of the issued share capital of a particular issuer, such fact would need to be disclosed to the regulator. A second-tier threshold requiring disclosure to all market participants is proposed at 0.5% (the public disclosure threshold). Further disclosures are envisaged when a position increases or decreases by a 0.1%. In addition, CESR proposes a lower public disclosure threshold (0.25%) during periods of particular vulnerability for an issuer, such as during a rights issue.

The proposed disclosure regime would only apply to shares admitted to trading on a European Economic Area regulated market or a Multilateral Trade Facility. As usual, exemptions for market makers are envisaged.

CESR recommends that the proposed regime be enacted through EU legislation, either as a regulation or directive. While the current proposal is only concerned with the short selling disclosure regime, CESR will continue to analyze the need for harmonized measures regulating the practice of short selling beyond disclosure.

CESR has invited interested persons to express their views on the consultation paper. Comments should be submitted online via CESR’s website under the heading "Consultations" at by September 30, 2009.