Treasury Turns to Nine Top Managers for Toxic-Debt Program

July 9th, 2009 by narcompany

In a scale down from the initially promoted program calling for a potential reach of about $1 trillion, the fund managers will raise $10 billion and  the Treasury will invest $10 billion in addition to $20 billion which the Treasury will lend to the public-private funds. Other participants named were GE Capital Real Estate, Marathon Asset Management LP, and Alliance Bernstein LP. Operator of the world’s largest bond fund, Pacific Investment Management, Co., pulled out.

For investors, they will have a choice if they’d like to accept 100 percent debt-to-equity ratio or take only 50 percent debt and retaining the eligibility for the Fed’s Term Asset-Backed Securities Lending Facility. The TALF is open to a different set of securities and has different eligibility terms in comparison to the PPIP who is targeting commercial mortgage -backed securities and non-agency mortgage backed securitites issued before 2009, with an initial rating of AAA or equivalent. This is a market for these securities totalling about $2 trillion.

Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben S. Bernanke, and Federal Deposit Insurance Corp. Chairman Sheila Bair all agree that, “While utilization of legacy securities will depend on how actual economic and financial market conditions evolve, the programs are capable of being quickly expanded if these conditions deteriorate.”

Comments are closed.