Treasury’s Capital Purchase Program

October 23, 2008 at 4:13 pm Leave a comment

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:

  1. Obtain and fill out the short TCPP application, which can be found by clicking here.
  2. 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.
  3. 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.
  4. 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.
  5. 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!

Entry filed under: Client Alerts.

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