Wednesday, February 25, 2009

Term Sheet of Federal Capital Assistance Program

Just out courtesy of Timmmmay. Relevant items highlighted


  • Capital provided under the CAP will be in the form of a preferred security that is convertible into common equity at a 10 percent discount to the price prevailing prior to February 9th.
  • CAP securities will carry a 9 percent dividend yield and would be convertible at the issuer's option (subject to the approval of their regulator).
  • After 7 years, the security would automatically convert into common equity if not redeemed or converted before that date.
  • The instrument is designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit.
  • With supervisory approval, banks will be able to request capital under the CAP in addition to their existing CPP preferred stock.
  • With supervisory approval, banks will also be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.


  • Recipients of capital under the CAP will be subject to the executive compensation requirements in line with the Emergency Economic Stabilization Act of 2008, as recently amended. The Treasury will shortly be releasing rules to implement these amendments.
  • As part of the application process, banks must submit a plan for how they intend to use this capital to preserve and strengthen their lending capacity – specifically, to increase lending above levels relative to what would have been possible without government support. The Treasury Department will make these plans public when the bank receives the capital under the CAP.
  • Taxpayers will be able to monitor the performance of banks receiving capital under the CAP. Banks receiving capital will be required to submit to Treasury monthly reports on their lending broken out by category. These will be posted on
  • Recipients will also be subject to restrictions on paying quarterly common stock dividends, repurchasing shares, and pursuing cash acquisitions.

Gov Term Sheet - Free Legal Forms Sphere: Related Content
Print this post


TraderMark said...

so whats your takeaway in English

Tyler Durden said...

that govt is terrified most banks will fail stress test and wants to cushion blow in advance. alternatively they will raise the TCE threshold and all banks will pass. lose lose. read the stressing the system post from week ago