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TARP CPP Repurchase Agreements

TARP CPP Repurchase Agreements

March 30, 2009

Authored by: Robert Klingler

Despite the fact that no Subchapter S institution has yet received TARP Capital funds, and a term sheet for mutual organizations has not yet been announced, the Treasury has now provided documentation on how a TARP Capital recipient would redeem their investment, as permitted by the American Recovery and Reinvestment Act of 2009.  On March 25, 2009, the Treasury published TARP Capital Purchase Program repurchase documents for public and private TARP Capital recipients.

Both the public and private documents contemplate the repurchase of all, or a portion of, the Company’s TARP Capital investment.  Under the public company repurchase documents, if a Company repurchases 100% of the Treasury’s preferred stock, then the Company is also given 15 days to either repurchase the warrant for common stock at fair market value, or to issue a replacement warrant that does not contain the adjustment to reduce the number of shares covered by the warrant in the event of a qualified equity offering.  Under the private company repurchase documents, once a Company repurchases 100% of the primary preferred shares (the ones initially paying 5%), it can also repurchase up to 100% of the warrant preferred shares (paying 9%).

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Treasury Provides Guidance on Redeeming TARP Capital Investments

The Treasury has provided a list of FAQs to address the changes to the Capital Purchase Program resulting from the American Recovery and Reinvestment Act of 2009 (the “Act”).  These FAQs deal with how an institution that has received TARP Capital can redeem the investment and with how the redemption affects other aspects of the investment. 

Importantly, the FAQs explicitly acknowledge that the participating institution may (1) redeem the investment under terms different from the terms contained in the original transaction documents, and (2) redeem less than the whole amount — 25% of the issue price is the minimum amount that can be redeemed.

According to the FAQs, an institution wishing to redeem should notify the Treasury and the institution’s primary regulator, who will then consult with the Treasury regarding the redemption.   Detailed payment instructions will be given to the institution after the notification and consultation process.

The institution must pay any dividends, whether cumulative or non-cumulative, that are accrued and unpaid at the time of redemption, even if the institution did not or would not actually declare dividends for the period. 

The Treasury has setup a new e-mail address to handle notifications of redemption: CPPRedemption@do.treas.gov.

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