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Toxic Assets, Treasury & Trickle-Down TheoryWhat it Means to You and Me1Agenda•The Current Market: Toxic Assets, PPIF’s, etc.•The Trickle-Down Theory: Know Your Enemy•Q&A2Objectives for this Session 1. Share with you some highlights of current legislation2. Give you some insight on what to do in this market3. Get you to think about your “enemies” differently4. Provide one or two of you with the opportunity to be in the “Hot Seat”5. General Q&A3The Current Market An Overview of Legislation: 4 parts to the “Toxic Asset Plan”•Parts 1-3: Financial Stability Plan•Affordability for Responsible Homeowners: refinance capital, and loan modification pressure•Fed and Treasury collaboration (via Term Asset-Backed-Securities Loan Facility) to buy $15B in SBA securities (drop in the bucket)•Capital Assistance Program: related to bank supervision & capital requirement ratios4The Current Market Part 4 is the most relevant to all of us: •“Public-Private Investment Program for Legacy Assets”•Establishes a program to encourage the private sector to “buy” loans from banks, facilitated by the FDIC and by Treasury•(Note that Treasury has clearly distinguished between “securities” and “loans”)5Legacy Loan Program & PPIF Public-Private Investment Funds (PPIF’s)Purchase PriceEquity Investor7.5% US TreasuryBank AssetsEachFDIC (via TALFUp to Term ABS Loan 85%Facility)6The Numbers (at maximum leverage)$100MM in Assets & 50% UPB Bid =$3.75MMPurchase PriceEquity Investor7.5% US TreasuryBank AssetsEachFDIC (via TALFUp to Term ABS Loan 85%Facility)7The Potential Impact Up and Out•Pricing could go up – 85% leverage means buyers can bid higher now that they have a government “guarantee” (non-recourse debt)•“Up” – some pricing may increase as investors are able to buy with a lot less capital than before•“Out” – expect volume increases – potential for significant increases in volume8The Potential Impact How Much Volume?•Treasury is allocating $75-100B•Treasury’s share is as low as 7.5% of the total pie•So if $100B is 7.5%, then 100% = $1.3T 9What You Can Do Take Advantage of This•UST and the FDIC will encourage participation by small, veteran-, minority- and women-owned firms.”•Guidelines from FDIC on applications aren’t out yet, but could be an opportunity for entrepreneurial note buyers 101