Client Alert: New TARP Letter Dictates Quick Action
Today, the United States Department of the Treasury issued a press release announcing its intent to continue conducting auctions of securities held as part of the Capital Purchase Program of TARP. The release specifically identifies 53 financial institutions’ CPP securities that Treasury is intending to auction beginning in January.
Click here to view the press release.
Of particular note, it appears as if many of the CPP securities intended to be auctioned either:
- Constitute a large portion of the financial institution’s capital; or
- Are in deferment on the dividends or interest owed.
In each of these cases, the securities may be deemed to be voting or control securities by the federal banking regulators. Treasury has indicated that possible bidders (including the financial institution itself, directors, designated bidders and institutional investors) must consult with the appropriate federal and state banking regulator prior to the bidding in an auction and, if necessary, to receive formal approval or non-objection to purchase the amount of securities on which the bidder is interested in bidding.
Initial Action Items
Coordinating a bid with the banking regulators and Treasury will take some time and it is imperative that issuers and potential bidders begin the process immediately if they are interested in participating in the January auctions. Potential bidders (including the named financial institutions that are planning to bid on their own CPP securities) should begin the process by:
- Determining how much a bidder would be interested in bidding for each institution and understanding if formal regulatory approval would be required for that amount;
- Reaching out to the appropriate regulatory agency to determine what level of approval or non-objection is required;
- Collecting financial and biographical data that may be required by the banking regulators in connection with any approval or non-objection request; and
- Lining up the funding that will be used in the event of a successful bid (in our experience, the banking regulators will require the funds to be in place prior to granting any approval).
Additionally, the named financial institutions (whether or not they will bid on their own CPP securities) and potential bidders should begin reviewing the necessary corporate documents (including the bidding documentation, placement agency agreement, form of legal opinion, etc.) that are required by Treasury to complete the auction.
Since Treasury began the auction process earlier this year, we have represented over 20 financial institutions and bidders in preparing for or proceeding through the auction process. We have a number of attorneys who are experienced in the corporate, securities and bank regulatory aspects of the auction process. Please contact one of our attorneys listed below if you have any questions on the auction process.