US Treasury Bail-Out Alerts: Brown Rudnick Structured Resolution Group

Bail-Out Updates for Tuesday, October 28, 2008

Tue, 28 Oct 2008 17:27:47 -0400

Distressed mortgage assets? What distressed mortgage assets? The Emergency Economic Stabilization Act of 2008 (EESA), introduced in September and signed into law earlier this month, was touted as the government’s response to the credit market’s meltdown caused (in large part) by the subprime mortgage crisis. Naturally, the core of the government’s bail-out plan was considered to be the Treasury’s “troubled asset relief program” (TARP): the power to purchase troubled residential and commercial mortgage-related securities (and other financial instruments) from the U.S. financial institutions. The $700 billion allocated to the bail-out program (or even the immediately available $250 billion) could buy the government a lot of mortgage-backed paper. The biggest problem with the government’s bail-out plan was expected to be the lack of implementation details, most notably the pricing and auction mechanisms. The second issue had to do with the timing: the stock and credit markets were in a free fall and drastic and immediate measures were required to restore not just the liquidity but the confidence of Wall Street and Main Street. Finally, the third and not surprising problem: there is no shortage of supplicants for government largesse.

For more information, please read following alert.

U.S. Treasury Bail-Out Business Opportunities for Small (And Not So Small) Businesses

Wed, 22 Oct 2008 10:48:58 -0400

The new financial bail-out law authorizes the Treasury Department to spend up to $700 billion. A major portion of that money will be used by the Treasury Department to purchase goods and services to implement the law. The Treasury Department recently published a notice on small business participation in procurements under the Emergency Economic Stabilization Act (EESA) of 2008.1 Although the notice demonstrates the Treasury Department’s intent to consider contracting with small businesses, the fact is that even businesses that are "large" may benefit from small business preference programs. For instance, in certain industries, firms that employ as many as 1500 employees are regarded as small by the United States Small Business Administration. In other industries, a firm is small if its average annual receipts are less than $33.5 million. In certain financial industries, companies can have up to $175 million in assets and still be classified as small.2 Thus, small businesses (and not so small businesses) in all industries may be interested in the contracting opportunities and issues discussed in this alert.

Bail-Out Updates for Tuesday, October 14, 2008

Tue, 14 Oct 2008 17:33:51 -0400

Is the Emergency Economic Stabilization Act of 2008 turning out to be the real deal? On the heels of yesterday’s Manic Monday, when the Dow Jones Industrial Average gained 936 points (nearly doubling the largest daily point gain in its history and recording the first 10+% gain since 1933), the Treasury today announced the details of its voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program governed by the bail-out legislation the Treasury will take equity stakes in U.S. financial institutions by purchasing up to $250 billion (out of the $700 billion authorized by Congress) of senior preferred shares. The details of the government’s investment, as outlined in the program’s term sheet published by the Treasury, are covered in this alert.

Bail-Out Updates for Monday, October 13, 2008

Mon, 13 Oct 2008 13:53:55 -0400

Was the Emergency Economic Stabilization Act of 2008 a fundamentally flawed approach to the credit market crisis or is the lack of implementation mechanics responsible for the bail-out legislation’s failure to impress the markets? Only time will tell. For now, however, ten days following the enactment of the Treasury’s $700 billion rescue plan, the downward spiral of the financial markets has continued, although an uptick is predicted for today. Last week the Treasury announced the appointment of Neel Kashkari, the 35-year old former Goldman Sachs executive and current Assistant Secretary of the Treasury for International Economics and Development, as the Interim Assistant Secretary of the Treasury for Financial Stability responsible for overseeing the bail-out program. The Treasury also published its initial program guidelines entitled “Process for Selecting Asset Managers Pursuant to the Emergency Economic Stabilization Act of 2008.”

Bail-Out Updates for Friday, October 10, 2008

Fri, 10 Oct 2008 16:57:09 -0400

Parsing the Fine Print on Executive Compensation:
The U.S. Treasury Bail-Out Legislation became law on Oct. 3, 2008. As enacted, it combines three massive pieces of legislation: (1) the Emergency Economic Stabilization Act of 2008 (the Bail-Out Act), (2) the Energy Improvement and Extension Act of 2008, and (3) the Tax Extenders and AMT Relief Act of 2008 (the AMT Act) (collectively BEAR). BEAR is a beast, at over 400 pages, containing numerous and extremely complex provisions. The Bailout Act and the AMT Act portions of BEAR contain a number of amendments to the Internal Revenue Code (the Code) which apply to the taxation of executive compensation. The changes to the Code are riddled with intricacies and cross-references to existing Code sections which require a detailed analysis to determine if the modifications in tax law apply to a given entity and employer.

Bail-Out Updates for Friday, October 3, 2008.

Fri, 3 Oct 2008 16:59:54 -0400

In a major reversal of Monday’s surprise rejection of the bail-out plan by the House of Representatives, the House this afternoon, by a vote of 263-171, approved the financial rescue plan that passed the Senate two days earlier. The House vote was the result of (a) a strong lobbying effort by Democratic and Republican Congressional leaders, (b) the addition of tax relief and incentive provisions that had been pending in other bills, and (c) the temporary increase in FDIC insurance from 100,000 to 250,000. But the strongest inducement for the vote shift came from the market and its 777+ point drop in response to the negative vote on Monday. The constituents in the districts took this to mean that the predictions of a financial meltdown may in fact be true, and sent the message to their representatives that a relief measure was necessary even if it ran counter to their ideology.

Bail-Out Updates for Wednesday, October 1, 2008.

Wed, 1 Oct 2008 14:33:31 -0400

If at first you don’t succeed (in the House), try, try again (in the Senate) appears to be the motto of the White House and the legislators favoring the financial market bail-out. The defeat of the draft legislation in the House on Monday and the subsequent one-day record decline of the Dow Jones industrial average have not derailed the rescue proposal. The Senate is scheduled to vote Wednesday evening on its own rescue bill which, while including every substantive provision of the House version (reviewed in our Monday’s alert), adds new provisions aimed at assuring the bill’s safe passage in the Senate.

Bail-Out Updates for Monday, September 29, 2008.

Mon, 29 Sep 2008 15:43:29 -0400

Breaking News: As this Alert is being finalized, reports have been received that as the final votes are tallied in the House, the bail-out bill appears to be short of the votes needed for passage. We will continue to monitor the situation in Congress and will supplement this report once reliable information is available. Last week’s effort to agree on a plan aimed at rescuing the battered financial markets resulted in one of the most dramatic weeks in recent Capitol Hill history. Thursday evening’s White House meeting among President Bush, House and Senate leaders and Senators John McCain and Barrack Obama, far from delivering the needed momentum to finalize the rescue plan, had the opposite effect of fanning the flames of opposition from many Republican lawmakers. As a result, most of Friday’s activity consisted of partisan bickering that threatened the week’s progress. Nevertheless, by Friday evening both parties had reiterated their willingness to work with each other through the weekend in an effort to find a solution to the financial crisis by Monday. By Sunday morning, it was confirmed that Congressional leaders had reached a tentative agreement, a draft of which was distributed to the public in the late afternoon, after further fine-tuning through the early part of the day. Following is a summary of the key provisions of the bipartisan bill.

Bail-Out Updates for Friday, September 26, 2008.

Fri, 26 Sep 2008 16:36:26 -0400

As of this writing, a revolt from the Republican side of the aisle has slowed progress toward Congressional passage of the federal bail-out plan. On Thursday afternoon, the Republican and Democratic congressional leaders announced that they had reached an agreement in principle (detailed below) on the bail-out legislation. The Mission Accomplished banner had to be quickly taken down after the outline was presented at the White House meeting with President Bush, Senators John McCain and Barrack Obama, and leaders from the House and Senate. The meeting was described as contentious and highlighted the fact that many Republican Congressmen are deeply troubled by the details (and, in some cases, the very concept) of the bail-out. It has also been reported that a group of Republican legislators, led by Representative Eric Cantor, has circulated yet another counterproposal to the Treasury plan. The draft legislation would differ drastically from other counterproposals in that it rejects the very idea of the Treasury’s bail-out through the purchase of troubled assets. Instead, this new proposal would have the government provide insurance to financial institutions which hold such assets, with the institutions paying insurance premiums for the coverage. House Minority Leader John Boehner has insisted that a large majority of Republicans will not support the bill unless serious consideration be given to this alternative plan.

Bail-Out Updates for Thursday, September 25, 2008.

Thu, 25 Sep 2008 14:41:40 -0400

Our Tuesday’s alert included references to the Senate bail-out bill introduced by the Senate Banking Committee Chairman, Christopher Dodd. The Dodd bill, however, is not the only existing counterproposal to the draft legislation proposed by the Treasury. A House bill entitled Troubled Asset Relief Act of 2008 was introduced by Rep. Barney Frank, chairman of the Financial Services Committee, as another alternative to govern the bail-out program. From a helicopter view, there are no major substantive differences between the Senate and the House drafts. Both proposals would authorize the Secretary of the Treasury to purchase, and to make and fund commitments to purchase, troubled assets from domestic and, possibly, foreign financial institutions. The troubled assets to be included in the program are defined in both cases as mortgage-related instruments and other assets the purchase of which the Secretary believes necessary to promote market stability. The limit of the program would not exceed $700 billion at any one time. Both versions of the bill include similar limits on the compensation of executives of the participating financial institutions and require foreclosure mitigation efforts on behalf of the Treasury.

Bail-Out Updates for Wednesday, September 24, 2008.

Wed, 24 Sep 2008 16:41:38 -0400

Those of us who cannot wait to see the final legislation authorizing and governing the Treasury’s $700 billion bail-out of financial institutions will have to be a little patient as Tuesday’s developments have put in jeopardy the administration’s plan to have the legislative framework developed and approved by the end of this week. It is no surprise that Congress has refused to give fast-track approval to the original proposal by the Treasury: the Democratic leaders have demanded significant changes to the proposal and some Republicans have expressed misgivings at the prospect of spending a massive amount of taxpayer’s money on bad securities” and the government’s interference into the capital markets. Tuesday’s developments began with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testifying on the proposed bailout legislation before the Senate Banking Committee. Paulson and Bernanke both urged a swift passage of the rescue legislation as the only alternative for addressing the root cause of the crisis, reviving the frozen credit markets and preserving the health of the U.S. economy. The testimony was met with much criticism by members of both parties. A similar hearing is taking place today in the House.

Bail-Out Updates for Tuesday, September 23, 2008.

Tue, 23 Sep 2008 09:22:17 -0400

As of this release, the Congress and the Bush administration are in their second day of debate over the largest government bail-out plan in U.S. history aimed at rescuing the ailing credit markets by having the U.S. Treasury acquire the toxic assets that are clogging the financial system. The original draft of the yet-to-be-named bail-out proposal prepared by Treasury and submitted to the lawmakers on Saturday provided the big picture of the government’s plan but was very short on the actual details of its implementation. (Under the bill the details are to be determined by Treasury, without Congressional oversight or judicial review.)