Full text of Legacy Securities Public-Private Investment Program : Program Update : Program Update, Quarter Ended June 30, 2013

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

LEGACY SECURITIES PUBLIC-PRIVATE
INVESTMENT PROGRAM
Program Update – Quarter Ended June 30, 2013
August 1, 2013

OVERVIEW
Introduction
This is the fifteenth quarterly report on the Legacy Securities Public-Private Investment Program (PPIP). This
report includes a summary of PPIP capital activity 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.

OVERVIEW
Where Things Stand
The investment period has now ended for all PPIFs. All the 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 have repaid all
outstanding Treasury equity and debt.
As of June 30, 2013, Treasury has fully recovered its original investment of $18.6 billion in the PPIP, plus a
positive return of approximately $3.8 billion through equity and debt repayments, interest, and proceeds in excess
of original equity capital, including warrant proceeds. Future equity proceeds 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/financialstability/reports/Documents/TARP%20Four%20Year%20Retrospective%20Report.pdf

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

2,301

4,602

1,064

2,128

4,256

3,192

Blackrock PPIF, L.P.

10/02/09

695

1,390

2,780

528

1,053

2,109

1,581

Invesco Legacy Securities Master Fund, L.P.

09/30/09

856

1,712

3,424

581

1,162

2,324

1,743

Marathon Legacy Securities Public-Private Investment Partnership, L.P. 11/25/09

475

949

1,898

475

949

1,898

1,424

Oaktree PPIP Fund, L.P.

12/18/09

1,161

2,322

4,643

556

1,111

2,223

1,667

RLJ Western Asset Public/Private Master Fund, L.P.

11/05/09

621

1,241

2,482

621

1,241

2,482

1,862

UST/TCW Senior Mortgage Securities Fund, L.P.

09/30/09

156

200

513

156

200

513

356

Wellington Management Legacy Securities PPIF Master Fund, LP

10/01/09

1,149

2,299

4,598

1,149

2,299

4,598

3,448

7,506 $

24,873

$ 18,625

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.

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 June 30, 2013 Treasury had
realized net income of $22.4 billion on the original investment, resulting in a realized net profit of $3.8 billion. As
of June 30, 2013 Treasury had received $12.7 billion in total debt and interest payments and $9.7 billion in net
equity payments which consists of equity repayments, dividends, gains and warrant payments. All future PPIP
payments will be an additional profit for taxpayers. As of June 30, 2013, all treasury equity and debt has been
repaid and all eligible assets sold.
Summary of Total PPIP Capital Returned ($ in Millions)
Total PPIP Net Income $22.4 billion

Original Investment $18.6 billion

Net Profit
$3.8 Billion

CAPITAL RETURNS
The following is a summary of the equity and debt that was paid in capital and gross distributions by each PPIF. As of
June 30, 2013 Treasury had received total gross distributions of $22.4 billion, made up of approximately $9.6 billion in net
cumulative equity distributions, $12 billion in cumulative debt principal payments, $320 million in cumulative interest
payments, and $85 million in warrant payments.

Summary of Paid in Capital and Gross Distributions by PPIF ($ in Millions)
Gross Paid in Capital(1)
Private Treasury Treasury
Treasury
Equity Equity
Debt
Total
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

2,235

4,470

3,352

1,874

1,893

2,235

6,087

4,213

AllianceBernstein Legacy Securities Master Fund, L.P.

1,064

2,128

4,256

3,192

1,533

1,545

2,128

5,277

3,744

Blackrock PPIF, L.P.

528

1,053

2,109

1,581

911

921

1,053

2,930

2,018

Invesco Legacy Securities Master Fund, L.P.

581

1,162

2,324

1,743

717

720

1,162

2,620

1,904

Marathon Legacy Securities Public-Private Investment Partnership, L.P.

475

949

1,898

1,424

791

799

949

2,574

1,784

Oaktree PPIP Fund, L.P.

556

1,111

2,223

1,667

742

747

1,111

2,622

1,880

RLJ Western Asset Public/Private Master Fund, L.P.

621

1,241

2,482

1,862

1,031

1,041

1,241

3,361

2,330

UST/TCW Senior Mortgage Securities Fund, L.P.

156

200

513

356

176

200

553

377

1,149

2,299

4,598

3,448

1,781

1,797

2,299

5,955

4,173

$ 24,873 $ 18,625

$ 9,556

$ 9,641

85 $ 31,980

$ 22,423

Wellington Management Legacy Securities PPIF Master Fund, LP
Total PPIP - Total Paid in Capital

(1)

$ 6,248 $ 6,247 $ 12,378

(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.

$ 12,378 $

320 $

Note: Some numbers may not sum due to rounding
6

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.
Performance Since Inception as of June 30, 2013 ($ in Millions)

Program - Cumulative Performance
Total - Treasury Equity

Original Capital
Commitment
$
7,506

(1)

Paid in
Capital
6,247

Net Cumulative
Distributions
$
9,616

(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

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
260.0%
177.6%
93.9%
33.5%
132.9%
80.0%
106.3%
N/A(6)
79.6%

(1)

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

(2)(3)

(2)

Net Ending
Capital
$
86

Net Internal
Rate of Return
Since Inception
24.8%
18.7%
23.1%
18.2%
24.6%
26.3%
24.1%
N/A(6)
20.1%

(2)

(2)(4)

Net Multiple of
Paid in Capital
1.55x

Net Multiple of
Paid in Capital
1.69x
1.45x
1.74x
1.23x
1.76x
1.42x
1.69x
1.13x
1.56x

(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.
8

Full text of Legacy Securities Public-Private Investment Program : Program Update : Program Update, Quarter Ended June 30, 2013

FRASER