Treasury Solicits Asset Managers and Other Agents for Troubled Asset Relief Program
Responses Due by 5:00 p.m. (ET), Wednesday, October 8, 2008
October 7, 2008
Pursuant to the Emergency Economic Stabilization Act of 2008 (the "EESA"), the U.S. Department of the Treasury has formally begun soliciting asset managers and other agents for the Troubled Asset Relief Program ("TARP") established by the EESA. Interested applicants must submit a response by 5:00 p.m. (ET), Wednesday, October 8, 2008.
Types of Agents Sought
Pursuant to three notices published yesterday on its website, Treasury announced its solicitation of asset managers and other agents to serve as financial agents under TARP in one of three distinct roles: (i) asset manager for a portfolio of mortgage-related securities, (ii) asset manager for a portfolio of mortgage whole loans and (iii) infrastructure service provider.[1]
With respect to the first role, the respective notice indicates that Treasury "intends to designate multiple asset managers and sub-managers to handle different asset classes that may be acquired for the securities portfolio." The securities portfolio may comprise Prime, Alt-A and Subprime residential mortgage backed securities ("MBS"), commercial MBS, MBS collateralized debt obligations and other securities as may be designated by Treasury.
As to the second role, the respective notice states that Treasury is seeking one or more agents "to provide asset management services for a portfolio of dollar-denominated mortgage whole loans that the Treasury will acquire from Financial Institutions." The whole loan portfolio may include "residential first mortgages, home equity loans, second liens, commercial mortgage loans, and possibly other types of mortgage loans acquired to promote market stability, that were originated or issued on or before March 14, 2008."
With respect to the third role, the respective notice states that Treasury seeks one agent "to provide custodian, accounting, auction management and other infrastructure services for a portfolio of dollar-denominated mortgage-related assets that the Treasury will acquire from Financial Institutions having significant operations in the United States." Specific assets acquired for the portfolio may include "(i) securitized products, including Prime, Alt-A, and Subprime residential mortgage backed securities (MBS), commercial MBS, and MBS collateralized debt obligations, and (ii) whole loans, including residential first mortgages, home equity loans, second liens, and commercial mortgage loans."
Any applicant selected by Treasury to serve in any of these three roles will be considered a financial agent of the United States. As such, each notice states, the agent "will have a fiduciary responsibility to perform all services in the best interests of the United States."
Eligibility Standards
In order to be eligible for any of these three roles, an applicant must be a "financial institution" as defined in the EESA.[2] In addition, to be a mortgage-related securities manager, an applicant must also be an investment adviser registered under the U.S. Investment Advisers Act of 1940. Each notice also sets forth additional, detailed minimum qualification requirements for each of the three roles.
Response Format and Timing
A financial institution interested in any of the three roles must submit a response to Treasury by 5:00 p.m. (ET), Wednesday, October 8, 2008. Any response must address certain specific items described in the respective notices and, in addition to a one page cover letter, may not exceed 25 one-sided pages (20, in the case of the securities portfolio manager role). In addition, potential applicants for the role of infrastructure service provider should be aware that Treasury anticipates an extremely expedited selection process, such that this financial agent will be selected by October 10, an agreement signed by October 11, and services commenced by October 11.
The Notices and Related Documents
- See a copy of the Treasury notice for managers of the mortgage-related securities portfolio
- See a copy of the Treasury notice for managers of the whole loan portfolio
- See a copy of the Treasury notice for infrastructure service provider
- See a copy of the Treasury procedures for selecting asset managers pursuant to the EESA
- See a copy of the Treasury interim guidelines for conflicts of interest under the EESA
* * *
If you have any questions regarding this newsflash, please call your Davis Polk contact.
1. In addition to the three notices soliciting agents, Treasury published two other related documents yesterday. The first describes its procedures for selecting asset managers under TARP. (The substance of these procedures is essentially also described in the three soliciting notices.) The second sets forth Treasury’s interim guidelines for managing potential conflicts of interest under the EESA.
2. The EESA defines "financial institution" as:
"[A]ny institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Marianas Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government."