The TARP Capital Program was designed with large, exchange-traded institutions in mind. Although the Treasury Department and other federal banking regulators have indicated that they welcome and desire participation by banks of all sizes, the program—at least in its current form—presents problems for banks in these categories:
- Smaller, exchange-listed public companies
- Non-exchange-listed public companies
- Private companies
- Subchapter S corporations
Each document linked to below briefly identifies the issues presented by the Treasury Department’s Public Term Sheet. Given the public statements of the Treasury Department and other government agencies, we anticipate that Treasury will design one or more additional term sheets for banks in the categories listed above to address these issues.
FDIC’s Financial Institution Letter FIL-109-2008 explicitly notes:
“Treasury is aware of potential legal and tax obstacles in these corporate structures in relation to the terms of the CPP senior perpetual preferred shares and warrants. Accordingly, Treasury is investigating possible alternatives. State nonmember institutions with these nonpublic structures that are interested in applying should submit their CPP application to their FDIC Regional Office by November 14, 2008, and describe any structural conditions that may not comply with the Treasury’s guidelines.”
We provide below potential “structural conditions” for community banks that may not comply with the Treasury’s guidelines under the terms of the Public Term Sheet. Each institution should also consider any unique “structural conditions” that may apply to them as well as if there are any issues in complying with the Treasury’s investment documents (when they become available). With the introduction of the Private Term Sheet, any issues related to the registration of the securities and the pricing of the warrants have been resolved; however, issues related to the issuance of preferred stock may remain.
Even if a public company is comfortable complying with the terms of the Public Term Sheet, the company may want to consider requesting the option to review the terms of capital being offered to private companies in the event that those terms make more sense for the public company.