Public-Private Investment Program: Legacy Securities Program

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The Public-Private Investment Program: Legacy Securities Program

PPIP-LSP creates investment vehicles with 50% private money and 50% Treasury money that are then leveraged up to 100% with a Treasury loan, with the gains or losses spread between the private investors and the government. The vehicle purchases commercial and residential asset-backed securities on the entire spectrum of sub-prime to prime ratings, issued before Jan. 1, 2009. The program was originally slated to have as much as $100B in Treasury funds, and then was reduced to $30B has been committed, but Treasury has said this could expand if economic conditions deteriorate. Treasury eventually settled on $22.4 billion as the total amount of equity and loans it committed to the program.[1]

The Treasury is gradually drawing down more money from that as private partners put up more capital. The program is slated to end in the 4th quarter of 2012, for a three year full term.[2]

Wall Street Bailout Accounting
(back to main table)
PUBLIC-PRIVATE INVESTMENT PROGRAM: LEGACY SECURITIES PROGRAM
Balance Sheet
Disbursed*: Treasury: $17.0B[3] ($22.4B committed)[4]
Current outstanding: Treasury: $15.9B[5]
Public Funds
Maximum at-risk: Treasury: $1,000B[6]
Current at-risk: Treasury: $30.0B[7]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Treasury Department.

Matching money and loans to purchasers of toxic assets.

Who benefits

Banks holding toxic assets.

Background

SIGTARP:[8]

“The Legacy Securities Program continues to develop, and on July 8, 2009, Treasury announced the selection of nine PPIF managers that will receive debt and equity financing of up to $30 billion in TARP funds during the initial capital-raising efforts for the PPIFs. Treasury has stated that PPIP, originally intended to involve up to $1 trillion in total funds, may involve up to $75 billion of TARP funds. ”


SIGTARP:[9]

“According to Treasury, “the goal of the Legacy Securities Program 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.” For the purposes of PPIP, legacy securities are ABS supported by real estate-related loans issued before January 1, 2009, and originally rated AAA (or an equivalent rating) by two or more NRSROs. Private investors and Treasury will co-invest in PPIFs to purchase these assets from financial institutions. Furthermore, Treasury will offer debt financing to the PPIF equal to or double the total private equity investment. Treasury, the PPIF manager (which is required to invest at least $20 million of its own money in the PPIF), and the private investors will share in PPIF profits on a pro rata basis. PPIF losses will be shared on a pro rata basis up to each participant’s investment amount. As of September 30, 2009, there were no asset purchases.”

Notes

Treasury has stated that it expects PPIF fund managers to follow a “predominantly a long-term buy and hold strategy” of up to eight years, extendable by Treasury.[10]

Of the eight funds active in the last quarter of 2009, three had mild losses (less than 2% net) and no fund exceeded 5% net return.[11]

Assets allowed to be included are Residential Mortgage Backed Securities (RMBS) backed by home mortgages of residences occupied by up to four households, which accounted for 87% (3.0 billion) of the $3.4 of securities purchased as of Dec. 31, 2009. Of the RMBS, 42% were of prime ratings, with 41% in Alt-A, 12% in subprime, and 5% in option ARM. Commercial Mortgage Backed Securities (CMBS), which include mortgages of offices, retail, industrial, hotels and multi-family residences, account for $0.4 billion, or 13% of the total. Of the CMBS, 41% were super-senior, 39% were mezzanine, and 20% were junior. All ABS must have been issued prior to Jan. 1, 2009.[12]

LSP created Public-Private Investment Funds to raise private capital that is matched 100% by a Treasury equity investment and then that amount is matched by an up-to-100% Treasury loan.[13]

The program was originally slated to have as much as $100B in Treasury funds, but for now only $30B has been committed, but Treasury has said this could expand if economic conditions deteriorate.[14]

Articles and resources

Related SourceWatch articles

References

  1. U.S. Treasury, Section 105(a) Monthly Congressional Reports, June 2011, Appendix 1. Available at http://www.financialstability.gov/latest/reportsanddocs.html
  2. U.S. Treasury, Section 105(a) Monthly Congressional Reports, April 2011, p. 4 & 11-12. Available at http://www.financialstability.gov/latest/reportsanddocs.html . See also "Public-Private Investment Program," U.S. Treasury.
  3. U.S. Treasury, Section 105(a) Monthly Congressional Reports, June 2011, available at http://www.financialstability.gov/latest/reportsanddocs.html
  4. Accounting released by Treasury on Sept 16, 2010, “9-16-10 Transactions Report as of 9-14-10 Convenience Copy”. Available at http://www.financialstability.gov/latest/reportsanddocs.html
  5. U.S. Treasury, Section 105(a) Monthly Congressional Reports, June 2011, available at http://www.financialstability.gov/latest/reportsanddocs.html
  6. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress October 21, 2009,” p. 43, 72.
  7. Accounting released by Treasury on May. 13, 2010, “5-13-10 Transactions Report as of 5-11-10 Convenience Copy”. http://www.financialstability.gov/latest/reportsanddocs.html
  8. SIGTARP October 2009 report, p. 43.
  9. SIGTARP Oct. 2009 report, p.85.
  10. SIGTARP Jan. 2010 report, p. 85
  11. SIGTARP Jan. 2010 report, p. 86.
  12. SIGTARP Jan. 2010 report, p. 83-88.
  13. U.S. Treasury http://financialstability.gov/roadtostability/legacysecurities.html, accessed Mar. 10, 2010.
  14. ProPublica http://bailout.propublica.org/programs/8-public-private-investment-program

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