On Thursday, April 9, 2009, the FDIC held its second telephone conference call to discuss the PPIP Legacy Loans Program.  The first such call was primarily for bankers, while today’s call was primarily for investors.

Investors wishing to participate in the Legacy Loans Program should complete the preliminary application.  The Legacy Loans Program Summary, Fact Sheet, and FAQ are also available.

At the outset, the FDIC repeatedly advised that this call was for information and discussion purposes only and specifically “not for attribution” to the FDIC.

The FDIC Chairman, Sheila Bair, presented very brief opening remarks, and gave certain background information.   She reminded callers that on March 23, 2009, Mr. Geitner announced the Legacy Loans Program, to be administered by the FDIC.   The Term Sheet provides the FDIC’s 17 initial questions.   Ms. Bair confirmed that the Legacy Loans Program is intended for all banks, large and small and that today’s call focuses on the investor perspective.

John Bovenzi, the FDIC’s Chief Operating Officer, then made brief remarks before opening the call to questions.  He confirmed that all FDIC insured institutions of all sizes can participate as sellers.  The FDIC will be hiring, registering, and opening up bids for contractors to help administer the program, including specifically valuation experts.  What was most clear from the call is that virtually all aspects of the sales process continue to be worked on, including material terms such as eligibility of assets, the FDIC fee for its guarantee, and the terms of the loan documents.

Selected questions and answers follow:

  • Timing:  “As promptly as we can.”
  • Guarantee Fee:  Will be based on the underlying portfolio, rather than on the skill set of the investor group.  The fee is being structured, and is expected, to cover all FDIC costs, included any potential losses.
  • Exit strategy:  Deal documents will set forth the requirements for the management and disposition of assets, which will vary by asset pool, whether commercial, residential, raw land, development, or otherwise.
  • OREO:  The FDIC has not yet determined whether OREO will be included as eligible assets.  The eligibility of mezzanine loans secured by equity, with a real estate component, also has not been determined, nor have other asset categories.
  • Write-down:   Banks still need to write-down losses on each loan.  One question proposed a longer term during which the bank can write-down loan losses.
  • Guaranteed debt:  The terms of the FDIC guaranteed debt, including whether public or private, are still undetermined.

Many questions were actually comments, which, as stated above, are due April 10, 2009. Much more information will certainly follow.