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LEGACY SECURITIES PUBLIC-PRIVATE INVESTMENT PROGRAM Program Update – Quarter Ended March 31, 2013 May 8, 2013 OVERVIEW Introduction This is the fourteenth quarterly report on the Legacy Securities Public-Private Investment Program (PPIP). This report includes a summary of PPIP capital activity, portfolio holdings, current pricing and program and fund performance. PPIP Overview PPIP was designed to help restart the market for non-agency residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), thereby allowing banks and other financial institutions to re-deploy capital and extend new credit to households and businesses. As the financial crisis reached its peak, many of the markets that keep credit available for families and small businesses were nearly frozen. Since it was launched in March of 2009, PPIP has helped restore the availability of credit by facilitating the purchase of these troubled legacy securities. PPIP did so by providing financing on attractive terms as well as matching the equity investment made by private investors. The investment objective of PPIP has been to generate attractive returns for taxpayers and private investors through long-term opportunistic investments in Eligible Assets (as defined below) by following predominantly a buy and hold strategy. Under the program, Treasury originally committed $22.4 billion of equity and debt in public-private investment funds (PPIFs) established by private sector fund managers for the purpose of purchasing Eligible Assets, ultimately dispersing $18.6 billion in debt and equity to the funds. The fund managers and private investors also committed capital to the funds. PPIFs had eight-year terms, which were designed to be extendable for consecutive periods of up to one-year each, up to a maximum of two years. To qualify for purchase by a PPIF, the securities (Eligible Assets) must have been issued prior to 2009 and have originally been rated AAA – or an equivalent rating by two or more nationally recognized statistical rating organizations – without ratings enhancement and must be secured directly by the actual mortgage loans, leases, or other assets. (Eligible Assets). 2 OVERVIEW Where Things Stand The investment period has now ended for all PPIFs. Five funds have now been effectively wound down (i.e., either they hold no eligible assets or have closed the fund after distributing all proceeds) and three funds remain in the program with one fund containing outstanding Treasury equity and debt. As of March 31, 2013, Treasury has fully recovered its original investment of $18.6 billion in the PPIP, plus a positive return of $2.6 billion through equity and debt repayments, interest, and proceeds in excess of original equity capital, including warrant proceeds. Future debt, equity and interest payments from the outstanding PPIFs will provide an additional positive return for taxpayers. Additional information on the performance of various markets and key indicators of the availability of credit since PPIP was launched can be found in the Timeline of the Financial Crisis and Response in the TARP Four Year Retrospective Report. The TARP Four Year Retrospective Report can be found at: http://www.treasury.gov/initiatives/financial‐ stability/reports/Documents/TARP%20Four%20Year%20Retrospective%20Report.pdf 3 CAPITAL ACTIVITY The following is a summary of the original equity and debt capital commitments by PPIF. The PPIFs completed their fundraising and closed on approximately $7.5 billion of private sector equity capital commitments, which were matched 100 percent by Treasury, representing $15 billion of total original equity capital commitments. Treasury also provided $14.9 billion of debt capital commitments, representing $29.9 billion of total original purchasing power. Of the original $29.9 billion committed to the PPIFs the PPIFs drew-down approximately $24.9 billion of the total original capital committed (83.2%percent of total original purchasing power), which has been invested in Eligible Assets and cash equivalents. Of this amount, $18.6 billion represents Treasury’s total investment in the program. Summary of Original Capital Commitments and Paid in Capital by PPIF ($ in Millions) Fund AG GECC PPIF Master Fund, L.P. Original Equity and Debt Capital Commitments (1) Gross Paid in Capital(1) Closing Private Treasury Treasury Purchasing Private Treasury Treasury Treasury Date Equity Equity Debt Power Equity Equity Debt Total Total 10/30/09 $ 1,243 $ 1,243 $ 2,487 $ 4,973 $ 1,117 $ 1,117 $ 2,235 $ 4,470 $ 3,352 AllianceBernstein Legacy Securities Master Fund, L.P. 10/02/09 1,150 1,150 2,301 4,602 1,064 1,064 2,128 4,256 3,192 Blackrock PPIF, L.P. 10/02/09 695 695 1,390 2,780 528 528 1,053 2,109 1,581 Invesco Legacy Securities Master Fund, L.P. 09/30/09 856 856 1,712 3,424 581 581 1,162 2,324 1,743 Marathon Legacy Securities Public-Private Investment Partnership, L.P. 11/25/09 475 475 949 1,898 475 475 949 1,898 1,424 Oaktree PPIP Fund, L.P. 12/18/09 1,161 1,161 2,322 4,643 556 556 1,111 2,223 1,667 RLJ Western Asset Public/Private Master Fund, L.P. 11/05/09 621 621 1,241 2,482 621 621 1,241 2,482 1,862 UST/TCW Senior Mortgage Securities Fund, L.P. 09/30/09 156 156 200 513 156 156 200 513 356 Wellington Management Legacy Securities PPIF Master Fund, LP 10/01/09 1,149 1,149 2,299 4,598 1,149 1,149 2,299 4,598 3,448 7,506 $ 7,506 $ Total Original Program Commitments (1) $ 14,900 $ 29,913 $ 6,248 $ 6,247 $ 12,378 $ Excludes the effect of any repayments or reductions in the amount of outstanding obligations. 4 24,873 $ 18,625 CAPITAL RETURNS The following is a summary of the total capital returned to PPIP. Treasury’s total investment in PPIP was $18.6 billion which consisted of $6.2 billion in equity capital and $12.4 billion in debt. As of March 31, 2013 Treasury had realized net income of $21.2 billion on the original investment, resulting in a realized net profit of $2.6 billion. As of March 31, 2013 Treasury had received $12.3 billion in total debt and interest payments and $8.9 billion in net equity payments which consists of equity repayments, dividends, gains and warrant payments. All future PPIP payments will be an additional profit for taxpayers. As of March 31, 2013, $240 million of equity capital and $420 million of debt remained outstanding. Summary of Total PPIP Capital Returned ($ in Millions) Total PPIP Net Income $21.2 billion Original Investment $18.6 billion Net Profit $2.6 Billion 5 CAPITAL RETURNS The following is a summary of the equity and debt that was paid in capital(1) and gross distributions by each PPIF. As of March 31, 2013 Treasury had received total gross distributions of $21.3 billion, made up of approximately $8.9 billion in net cumulative equity distributions, $12 billion in cumulative debt principal payments, $319 million in cumulative interest payments, and $36 million in warrant payments. Summary of Paid in Capital and Gross Distributions by PPIF ($ in Millions) Gross Paid in Capital(1) Treasury Private Treasury Treasury Total Equity Equity Debt Total Fund Gross Distributions(2) Private Treasury Treasury Treasury Treasury Equity Equity Debt Interest Warrant Total Treasury Total AG GECC PPIF Master Fund, L.P. 1,117 1,117 2,235 4,470 3,352 1,696 1,696 2,235 66 - 5,693 3,997 AllianceBernstein Legacy Securities Master Fund, L.P. 1,064 1,064 2,128 4,256 3,192 1,533 1,545 2,128 58 12 5,277 3,744 Blackrock PPIF, L.P. 528 528 1,053 2,109 1,581 911 921 1,053 34 10 2,930 2,018 Invesco Legacy Securities Master Fund, L.P. 581 581 1,162 2,324 1,743 717 720 1,162 18 3 2,620 1,904 Marathon Legacy Securities Public-Private Investment Partnership, L.P. 475 475 949 1,898 1,424 689 689 949 28 - 2,354 1,666 Oaktree PPIP Fund, L.P. 556 556 1,111 2,223 1,667 352 352 690 16 - 1,411 1,059 RLJ Western Asset Public/Private Master Fund, L.P. 621 621 1,241 2,482 1,862 1,031 1,041 1,241 37 11 3,361 2,330 UST/TCW Senior Mortgage Securities Fund, L.P. 156 156 200 513 356 176 176 200 0 1 553 377 1,149 1,149 2,299 4,598 3,448 1,797 1,797 2,299 61 - 5,955 4,157 36 $ 30,154 $ 21,252 Wellington Management Legacy Securities PPIF Master Fund, LP Total PPIP - Total Paid in Capital (1) $ 6,248 $ 6,247 $ 12,378 $ 24,873 $ 18,625 (1) Excludes the effect of any repayments or reductions in the amount of outstanding obligations. (2) Excludes the effects of management fees and expenses attributable to either Private Equity or Treasury Equity. $ 8,903 $ 8,939 $ 11,957 $ 319 $ Note: Some numbers may not sum due to rounding 6 PORTFOLIO HOLDINGS – SUMMARY BY SECTOR The total market value of Non-Agency RMBS and CMBS held by all PPIFs was approximately $1.6 billion as of March 31, 2013. Approximately 31% of the portfolio holdings are Non-Agency RMBS and 69% are CMBS. The chart below shows the composition of Eligible Assets by sector(1). The charts below illustrate the range of market prices of Non-Agency RMBS and CMBS held by all PPIFs as of March 31, 2013. Prices are expressed as a percent of par value. Market Value of PPIP Portfolio – $1.6 Billion Weighted Average Market Price of PPIP Portfolio 120 ($ in Millions) 108.7 100 $1,102 69% $496 31% 80 58.9 60 40 20 Non‐Agency RMBS CMBS 0 Non‐Agency RMBS (1) Please see page 9 for a glossary of Non-agency RMBS and CMBS sector definitions. CMBS 7 PERFORMANCE The following is a summary of Treasury’s equity performance by fund manager since the program’s inception. Performance will vary among PPIFs due to different risk/return objectives, leverage ratios, and sector allocations among other reasons. The influence of these factors as well as others on performance may evolve over time based on market conditions. While all PPIFs have completed their three-year investment periods, it would be premature to draw long-term conclusions about the performance from the data reported on funds that have yet to complete their investment strategies. It should be noted that the current and past performance of a PPIF is not indicative of its future performance. Performance Since Inception as of March 31, 2013 ($ in Millions) Program - Cumulative Performance Total - Treasury Equity Original Capital Commitment $ 7,506 Paid in Capital 6,247 (1) $ Net Cumulative Distributions $ 8,912 (1) Excludes the effect of any repayments or reductions in the amount of outstanding obligations. (2) Net of management fees, warrants and expenses attributable to Treasury's equity. (3) Calculated as the sum of Net Cumulative Distributions received and Ending Capital balance of Treasury's equity position as a multiple of Paid in Capital. Fund AG GECC PPIF Master Fund, L.P. AllianceBernstein Legacy Securities Master Fund, L.P. Blackrock PPIF, L.P. Invesco Legacy Securities Master Fund, L.P. Marathon Legacy Securities Public-Private Investment Partnership, L.P. Oaktree PPIP Fund, L.P. RLJ Western Asset Public/Private Master Fund, L.P. UST/TCW Senior Mortgage Securities Fund, L.P. Wellington Management Legacy Securities PPIF Master Fund, LP (1) Inception Date 11/12/09 10/23/09 10/16/09 10/13/09 12/15/09 02/19/10 11/23/09 10/19/09 10/19/09 Investment Period End Date 10/30/12 10/02/12 10/02/12 09/26/11 11/25/12 12/18/12 07/15/12 12/04/09 10/01/12 (1) Net Time Weighted Cumulative Return Since Inception 151.1% 177.6% 93.9% 33.5% 127.1% 85.8% 106.3% N/A(6) 79.6% (2)(3) (2) Net Ending Capital $ 760 Net Internal Rate of Return Since Inception 24.5% 18.7% 23.1% 18.2% 24.7% 27.2% 24.1% N/A(6) 20.1% (2) (2)(4) Net Multiple of Paid in Capital 1.55x Net Multiple of Paid in Capital 1.67x 1.45x 1.74x 1.23x 1.76x 1.40x 1.69x 1.13x 1.56x Expires on or before the third anniversary of the PPIF's Initial Closing. (2) Net of management fees and expenses attributable to Treasury's equity. (3) Time-weighted geometrically linked return calculated on a consistent basis across all PPIFs. (4) Dollar-weighted rate of return calculated on a consistent basis across all PPIFs. (5) Calculated as the sum of Net Cumulative Distributions received and Ending Capital balance of Treasury's equity position as a multiple of Paid in Capital. (6) Not materially significant 8 (2)(3) (2)(5) GLOSSARY OF TERMS Non-Agency Residential Mortgage-Backed Securities (RMBS) Non-Agency Residential Mortgage Backed Securities (RMBS): Type of mortgage-backed security that is secured by loans on residential properties that are not issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, or any other United States federal government-sponsored enterprise (GSE) or a United States federal government agency. Non-Agency RMBS are typically classified by underlying collateral / type of mortgage. Commercial Mortgage-Backed Securities (CMBS) Commercial Mortgage Backed Securities (CMBS): Type of mortgage-backed security that is secured by loans on commercial properties such as office buildings, retail buildings, apartment buildings, hotels, etc. CMBS are typically classified by position in the capital structure. Neither this report nor the information contained herein constitutes an offer to sell or the solicitation of an offer to buy any securities. Any such offer or solicitation with respect to any PPIF may only be made by the applicable fund manager. This presentation has not been reviewed by any of the fund managers. The performance-related returns and valuations in this report are calculated using an independent third-party market methodology and are not official Treasury estimates as reported in the Financial Statements or the President’s Budget. Furthermore, performance-related returns, as used in this report, may differ materially from estimates reported in the Financial Statements or the President’s Budget, which are calculated pursuant to the requirements of the Federal Credit Reform Act of 1990. Treasury’s Financial Statements and the President’s Budget can be found at www.treasury.gov/initiatives/financialstability/Pages/default.aspx and www.whitehouse.gov/omb/budget, respectively. 9
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