Posts filed under ‘Client Alerts’
FDIC Announces Monitoring Process for Financial Stability Programs
In a recent financial institution newsletter (the Letter), the FDIC announced its “expectation” that state nonmember institutions institute a process to monitor “their use of capital injections, liquidity support and/or financing guarantees obtained through recent financial stability programs.” (A copy of the letter is available here.) The stated purpose of the monitoring requirement is to help measure the impact of recent financial stability programs on the lending practices of participating institutions. Here’s a quick overview of the Letter:
- Which institutions are covered by the Letter? The Letter applies to all state nonmember institutions that have (1) received funds under the TARP Capital Purchase Program, (2) issued FDIC-guaranteed debt, or (3) received funding from the Federal Reserve’s expanded borrowing facilities.
- What activities should be monitored? Covered institutions should document how funds obtained from or guaranteed by federal liquidity-enhancement programs are used to promote lending activities, as described in the November 10, 2008, Interagency Statement on Responsible Lending (see FIL-128- 2008).
- Why does the FDIC want to monitor the conduct of these institutions? According to the Letter, the FDIC expects the results of the monitoring programs to illustrate whether federal programs are supporting credit markets and strengthening bank capital. In addition, the FDIC anticipates results of the monitoring processes should demonstrate whether participation in these federal programs has reduced unnecessary foreclosures.
- How will a covered institution report the results of its monitoring program? Covered institutions should be prepared to describe their use of federal programs during bank examinations. The Letter also encourages covered institutions to summarize such information in published annual reports and financial statements.
This Letter probably represents the first of many reporting/monitoring requirements for institutions that participate in federal liquidity-enhancement programs like TARP or the Temporary Liquidity Guarantee Program. Like all reporting requirements, covered institutions should begin implementing a compliance monitoring system now, so that all relevant information is available during examinations.
Treasury Extends the TARP to Cover S-Corporations
Yesterday, the United States Treasury issued the much-anticipated Term Sheet setting forth the terms for financial institutions operating under Subchapter S of the Internal Revenue Code (S-Corps) to participate in the TARP Capital Purchase Program (CPP). The application deadline is February 13, 2009. To review the Term Sheet in its entirety, click here. To review the Treasury’s Frequently Asked Questions about the Term Sheet, click here. Here’s an overview of the Term Sheet:
- Security Type: Unlike previous CPP transactions, S-Corps will not sell preferred stock to Treasury. Instead, participating S-Corps will issue subordinated debentures, referred to in the Term Sheet as “Senior Securities.”
- Amount: A participating financial institution will issue Senior Securities in an aggregate principal amount that equals at least 1% of the institution’s risk-weighted assets and does not exceed 3% of risk-weighted assets or $25 billion, whichever is less.
- Key Terms: Each debenture representing a Senior Security will be issued in the principal amount of $1000, will require quarterly interest payments at a rate of 7.7% per annum for the first five years the securities are outstanding and 13.8% thereafter and will carry a maturity date of 30 years. (These interest rates are higher than the dividend rates payable under previous CPP transactions. Treasury increased the rate for S-Corps to offset the fact that interest payments are tax-deductible but dividends are not.)
- Capital Treatment: The Senior Securities will be treated as Tier 1 capital for holding companies and Tier 2 capital for banks or other associations.
- Interest Deferral: Holding companies may defer interest payments on the Senior Securities for up to 20 quarters. Unpaid interest will accrue and compound during any deferral period.
- Dividend Restrictions: No dividends on shares of equity or trust preferred securities may be paid while an interest deferral is in effect. For the first three years of participation, Treasury must consent to any increase in the participant’s regularly paid common dividends. After the third year, Treasury must consent to any dividend increase that exceeds an amount equal to 103% of the prior year’s dividend. However, Treasury’s consent is not required for any dividend increase if the increase is proportionate to the increase in the financial institution’s income, and the increased dividends are distributed to shareholders to pay increased income tax liabilities.
- Voting: The Senior Securities will be non-voting, except that they will have class voting rights on (1) the issuance of equity securities purporting to rank senior to the Senior Securities, (2) amendments to the rights of the Senior Securities, and (3) any merger, exchange or similar transaction that would adversely affect the Senior Securities’ rights. Further, if interest is not paid in full for six interest periods, consecutive or non-consecutive, Treasury will be able to elect two directors until all interest payments are current.
- Executive Compensation: The senior executive officers of S-Corps participating in CPP will be subject to the executive compensation provisions in EESA and its implementing regulations.
- Affiliate Transactions: For as long as the Treasury holds its Senior Securities, a financial institution may not enter into a transaction with a related person unless the transaction is on terms no less favorable than could be obtained from an unaffiliated third party.
Just like other federal programs aimed at alleviating stress in the financial sector during the current economic downturn, the S-Corp CPP has advantages and disadvantages. We strongly urge all S-Corps to weigh those benefits and costs in deciding whether to apply for this particular program before the February 13th application deadline.
Federal Bank Regulatory Agencies Issue Joint Guidance on Real Estate Appraisals and Evaluations
On November 19, 2008, the federal bank regulatory agencies jointly issued Proposed Interagency Appraisal and Evaluation Guidelines to re-enforce the importance of sound collateral valuation practices, which are necessary to promote safe and sound real estate lending activity. The proposed guidelines would supersede the 1994 Interagency Appraisal and Evaluation Guidelines and incorporate recently issued supervisory guidance to address the increased use of automated valuation methods and tax assessment values as evaluation alternatives. The guidelines would also address changes to uniform appraisal standards. Each agency’s real estate lending regulations and guidelines require institutions to adopt and maintain an appropriate real estate appraisal and evaluation program. Examiners will review that program’s compliance with appraisal regulations and supervisory guidelines as part of the examination of the institution’s overall real estate related activities. The new guidance, when finalized, will apply to real estate lending activities of federally regulated financial institutions. Institutions are invited to submit comments on the proposal to their primary federal regulator on or before January 20, 2009. The proposed guidelines include the following:
- Further clarification of the minimum appraisal standards set forth in the agencies’ appraisal regulations.
- Incorporation of changes to uniform appraisal standards, which were provided by the June 2006 Interagency Statement on the 2006 Revisions to Uniform Standards of Professional Appraisal Practice.
- Clarification of what information should be included in an evaluation including the inclusion of a new appendix that discusses appropriate practices and controls regarding an institution’s use of automated valuation methods and tax assessment valuations as evaluation alternatives.
- A new section emphasizing the importance of an institution’s process for ensuring that appraisals and evaluations support credit decisions, including a discussion of internal controls, documentation independence, review procedures and reviewers’ qualifications.
- A discussion of the importance of sound portfolio monitoring principles that set forth criteria for when an institution should replace or update collateral valuations for existing real estate loans and certain factors that institutions should consider when establishing that criteria.
To read the entire text of the proposed guidelines, please click here.
Deadline for Filing Election Forms for the Temporary Liquidity Guarantee Program is this Friday, December 5, 2008
On November 21, 2008, the FDIC issued its final rule (the Final Rule) implementing the Temporary Liquidity Guarantee Program (TLGP). The TLGP, developed to counter the system-wide crisis in the nation’s financial sector, has two components: (1) the Transaction Account Guarantee Program (TAG Program) and (2) the Debt Guarantee Program (DGP). A financial institution may opt out of the TAG Program, the DGP or both programs.
Regardless of whether a financial institution opts out of any component of the TLGP, the FDIC is requiring all financial institutions to file the FDIC Temporary Liquidity Guarantee Program Election Form (Election Form), using FDICconnect, no later than 11:59 p.m., Eastern Standard Time, December 5, 2008. Any financial institution electing to opt out of either component of the TLGP must indicate its election on the Election Form. In addition, any financial institution that does not elect to opt out of the DGP must make certain disclosures, which are described below, on the Election Form. A copy of the Election Form is available here.
Treasury Releases Capital Purchase Program Terms
On November 17, 2008, the U.S. Treasury (Treasury) released a term sheet for qualified privately-held financial institutions (QFIs) to participate in the TARP Capital Purchase Program (CPP).
- Deadline. The application deadline is December 8, 2008. With this deadline less than three weeks away, all QFIs desiring to participate in the CPP should begin the application process immediately, unless already filed. A copy of the application, together with other information about the CPP, can be accessed by clicking here. (Note: The Treasury has not updated the application form, which still reflects a November 14th filing deadline.)
- S-corporations not Covered. The term sheet does not apply to S-corporations or mutual depository institutions. A separate term sheet for these entities has not been issued.
Like its public company counterpart, the private company term sheet summarizes the terms and conditions under which a QFI may sell shares of preferred stock to the Treasury. Although the provisions of this term sheet are similar to the public term sheet released in October, there are some notable differences. These differences include:
- Warrant Terms. The public term sheet requires CPP participants to grant the Treasury warrants to purchase the participant’s common shares. The warrants’ exercise price is based on the current market value of the participant’s common stock. Under the private term sheet, QFIs must grant warrants to purchase preferred shares. These warrants must have an aggregate liquidation preference equal to 5% of the preferred stock purchased by the Treasury. The warrants have an exercise price of $.01 per share and, although the warrants are exercisable for ten years, the Treasury intends to exercise them immediately.
- Other Dividend and Repurchase Restrictions. Under the private term sheet, after the tenth anniversary of the Treasury’s purchase of a QFI’s preferred stock, the QFI will be restricted from paying common dividends or repurchasing any equity securities or trust preferred securities until after the QFI redeems all of its equity securities held by the Treasury, or until the Treasury transfers all such equity securities to third parties.
- Dividend Increases. The public term sheet forbids participating institutions from increasing common dividends for the first three years after the date of the Treasury’s purchase of the institution’s preferred shares. The private term sheet includes additional restrictions on dividend increases. Not only must a QFI obtain the Treasury’s consent before increasing its common dividend during the three years following the Treasury’s purchase of the institution’s preferred shares, but for the time between the third and tenth anniversary of the Treasury’s purchase, the QFI must obtain the Treasury’s consent before increasing its common dividend by more than 3% per annum. This restriction is void once the preferred shares are redeemed or the Treasury transfers them to third parties.
To view our summary of the private term sheet, click here. To view the full text of the private term sheet, click here. Treasury has also provided a FAQ sheet regarding these new terms and is available by clicking here.
FDIC Extends Opt-Out Deadline
On November 3, 2008, the FDIC announced that it has extended the opt-out deadline for participation in its Temporary Liquidity Guarantee program (“Program”) to December 5, 2008. The original deadline for opting out of the Program was November 12, 2008.
The Program has two parts: the debt guarantee component and/or the transaction account guarantee component. In order to opt out of one or both components, an eligible financial institution must inform the FDIC by completing the Election Form via FDICconnect by December 5, 2008.
You may review the FDIC’s announcement and obtain a copy of the Election Form by clicking here.
Application Process Delayed For Treasury’s Capital Purchase Program
The Treasury Department, on October 31, announced that the November 14, 2008 application deadline and public term sheet for participation in the Capital Purchase Program applies solely to eligible publicly traded financial institutions. The Treasury will post an application form and term sheet for privately held eligible financial institutions at a later date and establish a reasonable deadline for privately held institutions to apply.
As always, we will keep you informed of the new deadlines. Please contact us if you have any questions.
Executive Compensation —Treasury Tightens Financial Institutions’ Purse Strings
Overview. The U.S. Department of the Treasury (Treasury) has issued an interim final rule (New Compensation Restriction Rules) implementing the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 (EESA). The New Compensation Restriction Rules apply to the senior executive officers of any financial institution participating in any part of the Treasury’s Troubled Assets Relief Program (TARP), including, the Capital Purchase Program (CPP), the Program for Systemically Significant Failing Institutions (PSSFI) and the Troubled Asset Auction Program (TAAP). Although the extent of the Compensation Rules’ impact will depend upon the program in which a particular financial institution chooses to participate, most institutions (even private ones) will be required to comply with one or more of the following rules:
- Ensure that incentive compensation for senior executives does not encourage unnecessary and excessive risks;
- Recover any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that prove to be materially inaccurate;
- Refuse to make any golden parachute payment to a senior executive officer during the period that the Secretary holds an equity or debt position in the institution;
- Forego federal income tax deductions on executive compensation exceeding $500,000 in a given tax year. Note: not a restriction on compensation levels, but on deductibility; and
- Senior executives covered by the New Compensation Restriction Rules include the chief executive officer, chief financial officer and the three other most highly compensated executive officers (SEOs).
When do these new rules apply? The applicability of the New Compensation Restriction Rules depends upon several factors, including the value of the assets sold by the institution to the Treasury and the method by which the Treasury acquires those assets (directly or via auction). Consider the following:
- The Compensation Restriction Rules apply to every financial institution along with its control group parent or subsidiaries (Subject Entity) that (a) participates in CPP, (b) sells more than $300 million of assets via the TAAP or (c) becomes part of the PSSFI.
- For participants in the CPP, the New Compensation Restriction Rules apply only during the time period that the Treasury holds an equity or debt position in the financial institution. For participants in the TAAP, the New Compensation Restriction Rules apply at least through December 31, 2009 and possibly through October 3, 2010, depending on whether Treasury extends the program.
- The New Compensation Restriction Rules apply only to SEOs. To implement this requirement, the New Compensation Restriction Rules look to Item 402 of Regulation S-K, applied under federal securities laws in connection with public offerings and public company periodic reporting. The Item 402-based determination of SEOs applies whether the institution is public or private.
Item 402 states that executive officers (other than the CEO or CFO) must make at least $100,000 and the determination as to which executive officers are the most highly compensated shall be made by reference to total compensation for the last completed fiscal year. However, the New Compensation Restriction Rules require Subject Entities to use “best efforts” to determine the three most highly compensated executive officers prior to having year-end compensation data for the current year. Also, Item 402 states that executive officers may include one or more executive officers or other employees of subsidiaries. Under limited circumstances, a Subject Entity may exclude an individual, other than its CEO or CFO, who is otherwise one of the most highly compensated executive officers, due to the payment of amounts of cash compensation relating to overseas assignments attributed predominantly to such assignments.
Restrictions By Specific TARP Program. As noted above, the effect that the New Compensation Restriction Rules will have on a given financial institution will depend upon which TARP program the institution chooses. The following paragraphs explain in greater detail the compensation restrictions associated with a given TARP program.
- Capital Purchase Program – This program allows the Secretary to purchase assets directly from financial institutions in exchange for a meaningful debt or equity position in the institution. The New Compensation Restriction Rules place several compliance requirements on financial institutions participating in the CPP.
First, the institution’s compensation committee, in conjunction with the institution’s senior risk officers, must ensure that SEO compensation packages do not prescribe incentive compensation that promotes unnecessary and excessive risks. The first such review must be completed within 90 days of the institution’s initial participation in the CPP, and a similar review must occur annually (but only while the Secretary holds a debt or equity interest in the institution pursuant to CPP). After these reviews, the compensation committee must certify that the reviews have been completed. Note the rules provide no guidance, other than consultation with risk management officers, as to what constitutes risk-promoting compensation. And, although the rules require the compensation committee to certify that SEO contracts comply with the prohibition on risky compensation pay, the certification will not be provided until after the Treasury has purchased troubled assets from the Subject Entity. The New Compensation Restriction Rules are not clear on what would happen if an existing contract did not comply with the Secretary’s guidelines.
Second, any financial institution participating in the CPP must require SEOs to repay any bonus or incentive compensation previously received if such compensation was based on statements of earnings, gains or other criteria that prove to be materially inaccurate. Note, although similar in many respects to Section 304 of Sarbanes-Oxley, this provision is in reality much broader. This provision applies to both public and private institutions, is not triggered exclusively by an accounting restatement, has an unlimited recovery period and covers not only material inaccuracies in financial reporting, but also material inaccuracies relating to other performance metrics used to award bonuses and incentive compensation.
Third, a financial institution cannot make any golden parachute payments to any SEOs while the Secretary holds an equity or debt position acquired under the CPP. For purposes of this rule, the term “golden parachute” payment refers to any compensation, other than a payment under a qualified retirement plan, with an aggregate present value that equals or exceeds 300% of the employee’s base salary. While that definition is similar to the term “excess parachute” payment set forth in § 280G of the Internal Revenue Code, “golden parachute” payments subject to EESA include all payments triggered by an applicable severance from employment, regardless of whether there has been a change in control of the financial institution, and encompass most any compensation paid on account of an SEO’s involuntary termination from employment, including terminations associated with the institution’s bankruptcy, insolvency or receivership.
Fourth, the financial institution must agree to forego any federal income tax deduction on the compensation in excess of $500,000 paid to any SEO.
- Programs for Systemically Significant Failing Institutions – Under this program, the Treasury provides direct assistance to certain failing financial institutions on terms negotiated on a case-by-case basis. These standards are similar in all respects to the New Compensation Restriction Rules applicable to the CPP, except that the definition of “golden parachute payment” is defined even more broadly. Like the CPP program discussed above, a financial institution participating in the PSSFI must prohibit any golden parachute payment to a SEO while the Treasury holds a meaningful equity or debt position in the institution. But unlike the CPP, for purposes of PSSFI, a “golden parachute payment” is defined as any compensatory payment to an SEO on account of severance from employment (i.e., not just payments in excess of 300% of the SEO’s base amount).
- Troubled Asset Auction Program – Under this program, the Treasury purchases troubled assets from a financial institution through an auction format. As prescribed by EESA, any financial institution that sells more than $300 million of troubled assets to the Treasury via auction would be prohibited from entering into new executive employment contracts that would provide a golden parachute payment to an SEO in the event of the SEO’s involuntary termination, or in connection with the financial institution’s bankruptcy filing, insolvency or receivership. The employment agreements subject to this rule will be considered “new” agreements if entered into on or after the date the financial institution has sold at least $300 million in troubled assets under TARP, provided that some of the asset sales were conducted through TAAP. An employment agreement that is renewed or materially modified after such date is also considered a “new” arrangement for this purpose. In addition, EESA precludes any financial institution from receiving any federal income tax deduction for any compensation in excess of $500,000 paid to an SEO.
Treasury’s Capital Purchase Program
You Must Act Now!
The deadline for filing applications to participate in the Treasury’s Capital Purchase Program (“TCPP”) is 5:00 p.m., on November 14, 2008. Financial Institutions need to take the following steps as soon as possible so they can determine if they are eligible to participate in TCPP and begin the process:
- Obtain and fill out the short TCPP application, which can be found by clicking here.
- Contact your primary federal bank regulator to determine whether you are eligible to participate in TCPP. It is our understanding that CAMELS 3 and 4 rated banks may be eligible to participate in TCPP.
- Convene a board meeting to discuss participation in TCPP in detail, paying specific attention to the restrictions the Bank would live with if it participates in TCPP. These restrictions involve dividends, redemptions and repurchases, transferability, voting rights, executive compensation and issuance of warrants. A detailed description of these restrictions in the Treasury’s term sheet for the senior preferred securities can be found by clicking here.
- In conjunction with counsel, (i) prepare to call a special shareholders meeting, (ii) prepare resolutions to be adopted at the shareholders meeting and (iii) prepare amendments to articles of incorporation, bylaws and other corporate documents authorizing the issuance of senior preferred securities to Treasury.
- Review the Treasury’s Standard Purchase Agreement when it is released (particularly the representations and warranties).
The major unanswered/unclear questions for community banks and their respective holding companies at this time are:
- Can S Corporations participate in the TCPP?
S Corporations can only have one class of stock. This issue was apparently overlooked in the rush of passing the new economic recovery laws. Our firm has been in contact with the IRS suggesting a regulatory change that would permit S Corporation banks and holding companies to participate in the TCPP. We have spoken with a branch manager of the IRS’ national office. Based on that conversation, we believe that S Corporations will be able to participate and guidance will be forthcoming that will disregard the TCPP senior-preferred for purposes of the single class of stock requirement for S Corporation status. - How can private non-public institutions participate in TCPP due to requirements for pricing of warrants?
Notwithstanding the questions above, we believe that you should start the application process, and other actions set out above, NOW to take advantage of this low cost capital!
Federal Reserve Board Establishes Commercial Paper Funding Facility
The contraction of credit has extended in dramatic fashion to the commercial paper market. Issuers are having to refinance their commercial paper daily unless they are willing to offer significantly higher interest rates, and the volume of outstanding paper continues to shrink. To reinvigorate this market, pursuant to its authority under Section 13(3) of the Federal Reserve Act, the Federal Reserve Board has created the Commercial Paper Funding Facility (CPFF) as a credit facility to a special purpose vehicle formed to purchase three-month U.S. dollar-denominated commercial paper from eligible issuers. An eligible issuer must be an U.S. issuer (including an U.S. subsidiary of a foreign parent) and register with the CPFF. Commercial paper must be non-interest bearing and rated at least A-1/P-1/F1 by a major nationally recognized statistical rating organization. No issuer may sell commercial paper through the program if such amount, together with outstanding commercial paper, would exceed the greatest amount of its U.S. dollar-denominated commercial paper outstanding on any day between January 1 and August 31, 2008. The commercial paper will be purchased at a discount based upon the three-month overnight index swap rate plus a spread which depends upon whether the paper is asset-backed or unsecured. Issuer registration begins on Monday, October 20, 2008, and purchases under the CPFF will begin on October 27, 2008. Further details about this program are outlined below. For more information from the Federal Reserve Bank of New York website, click here.
Commercial Paper Funding Facility
Recently, the commercial paper market has buckled as money market mutual funds and other investors have hesitated to buy commercial paper, especially commercial paper carrying a longer-dated maturity. As a result, an increasingly high percentage of outstanding commercial paper must be refinanced daily, interest rates on longer-term commercial paper have increased significantly, and the volume of outstanding commercial paper has dramatically declined. To counteract this decline and thaw the market for short-term commercial paper, the Federal Reserve Board (FRB) has authorized a Commercial Paper Funding Facility (CPFF) pursuant to its authority under Section 13(3) of the Federal Reserve Act.
Structure
The CPFF will be structured as a credit facility to a special purpose vehicle (SPV) that will purchase term commercial paper from eligible issuers. Under this program, the Federal Reserve Bank of New York will lend to the SPV on a recourse basis secured by all the SPV’s assets. The SPV will use the facility to purchase commercial paper from eligible issuers through the New York Fed’s primary dealers. An eligible issuer is an entity organized under the laws of the U.S. or a political subdivision or territory thereof (including a U.S. issuer having a foreign parent) which is registered with the CPFF. If a parent and a subsidiary have separate commercial paper programs, they are considered separate issuers. Currently, municipal commercial paper issuers may not participate, and the New York Fed reserves the right to limit or prohibit participation in the CPFF based upon other factors.
Commercial Paper Being Purchased
The SPV will purchase only U.S. dollar-denominated commercial paper which is non-interest bearing, has a three-month maturity (not extendable) and is rated at least A-1/P-1/F1 by a major nationally recognized statistical rating organization (NRSRO). If rated by multiple major NRSROs, the paper must be rated at least A-1/P-1/F1 by two or more of them. The pricing is different for asset-backed commercial paper (ABCP) and other commercial paper.
Limits per Issuer
The maximum amount of commercial paper that any single issuer may sell to the SPV will be limited to the greatest amount of U.S. dollar-denominated commercial paper the issuer had outstanding (regardless of the maturity or other terms of the paper) on any day between January 1 and August 31, 2008. The SPV will not purchase additional commercial paper from an issuer whose total commercial paper outstanding to all investors (including the SPV) equals or exceeds the issuer’s limit. In connection with registration, the issuer must certify the maximum amount of commercial paper that it could sell to the SPV (and may not certify a lesser amount) and pay a facility fee equal to 10 basis points of such maximum amount. The minimum transaction size accepted over the BLOOMBERG PROFESSIONAL BOOM® platform is $250,000.
Pricing of Commercial Paper Purchased by the SPV
The commercial paper purchased by the SPV will be discounted based on a rate equal to an applicable spread over the three-month overnight index swap (OIS) rate on the day of purchase. The spread for unsecured commercial paper will be 100 basis points per annum, and the spread for ABCP will be 300 basis points per annum. For unsecured commercial paper, the issuer must also pay a 100 basis points per annum unsecured credit surcharge which will be deducted by the SPV from the proceeds of the issuance on the trade execution date. An issuer may avoid the unsecured credit surcharge if the issuer provides a collateral arrangement for the commercial paper that is acceptable to the New York Fed or obtains an endorsement or guarantee of its obligations on the commercial paper that is acceptable to the New York Fed. The daily CPFF rates will be posted by 8:00 ET on the New York Fed’s website and published on the CPFF page of BLOOMBERG PROFESSIONAL® service.
An issuer whose commercial paper is protected by the FDIC’s Temporary Liquidity Guarantee Program will be considered guaranteed to the satisfaction of the New York Fed under the terms and conditions of the CPFF. However, during the FDIC program’s first 30 days, any such issuer that sells commercial paper to the SPV will still be required to pay the 100 basis point unsecured credit surcharge. If the issuer does not opt out of the FDIC’s Temporary Liquidity Guarantee Program at the end of the FDIC program’s first 30 days, the issuer (1) will be entitled to a reimbursement of the unsecured credit surcharge previously paid and (2) will not be subject to the unsecured credit surcharge for commercial paper subsequently sold to the SPV.
Timing
The CPFF will begin operating on October 27, 2008. Issuer registration begins on Monday, October 20, 2008; registration materials, including wire instructions and a registration form, will be available on this date at http://www.newyorkfed.org/markets/cpff.html. To access the facility on October 27, 2008, an issuer must register no later than Thursday, October 23, 2008. Thereafter, an issuer that has not previously registered with the CPFF must register at least two business days in advance of its intended use of the CPFF. The SPV will stop purchasing commercial paper on April 30, 2009, unless the FRB elects to extend it. The CPFF facility will terminate when the last of the SPV’s assets mature.
