tarp, talf, ppip opportunities

5/27/2018 Tarp, Talf, Ppip Opportunities

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Steve Frambes (Managing Partner)Jim McKean (Managing Partner)

+ 01 (415) 690-0607

+01 (415) 373-9101www.JacksonCG.net

[email protected]

September 9, 2009

Copyright 2001-2009, Jackson Consulting Group, LLC - One Embarcadero Center, 5th Floor, San Francisco, California 94111-3610. All rights reserved.

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in any locality, state, country or otherjurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Jackson Consulting Group, LLC or any of

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representation is made by us that the report is accurate or complete. We do not undertake to advise you of any change in the reported information or in the opinions herein.

This research was prepared and issued by Jackson Consulting Group to private client(s) for distribution to intermediate or professional customers. This report is not an offer to

buy or sell any security, and it does not constitute invest tent, legal or tax advice. The investments referred to herein may not be suitable for you. Investors must make their owninvestment decisions in consultation with their professional advisors in light of their specific circumstances. The value of investments may fluctuate, and investments that are

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States and accepts responsibility for i ts contents. Any U.S. person receiving this report and wi shing to effect securities transactions in any security discussed herein should do soonly through their brokers. Jackson Consulting Group does not make a market in any securities.

TARP, TALF, PPIP Opportunities


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! Summary of Opportunity! TALF & TARP Program Highlights

! Credit Card & Mortgage Examples! Private Equity, Other Commercial Banks

! Financial Advisory Services! TARP/PPIP Evaluation

! LLP Pricing, Pooling, Modeling! FAS 91 Opportunities

! TALF Access, Evaluation & Pricing! Strategic (incl. Federal Government Policy) Questions & Investments! Private Equity, Institutional Funds, Banks and M&A Evaluation

! Capabilities, Experience & Professional BiosJackson Consulting Group, LLC 1 7/4/11


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! TARP/TALF! New Product & Service Lines! Loans & Pools, Non-Investment Grade Bonds, REITs! CRE, REO! Public/Private Equity Investment! Mergers & Acquisitions

Jackson Consulting Group, LLC 2 7/4/11


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Customers Originator SPV Underwriter Investors

Jackson Consulting Group, LLC 3

Promises of Future Pmts.

Customers Promises

Debt Securities

Tranches of Debt

Cash

Cash

Cash

Goods, Services or Cash

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! 2007 Q1 2009



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Public-Private Investment Program

* 100 B of TARP Funds--$75 B to Legacy Assets and $25 B to TALF

*Financing from Treasury and Guarantees by FDIC will create $500 B to$1 T in PP

*Federal Reserve Leverage up to $1 T in Expanded TALF

Legacy Loans Program (PPIF)

Investment

*Private Capital*Treasury Capital ($/$ Match)

Financing

*Debt Guarantee Provided by FDIC(Up to 6-1)

Legacy Securities Program (PPIF)

Investment

*Private Capital*Treasury Capital ($/$ Match)

Financing

*Non-recourse Debt Offered byTreasury for 50-100% of Investment

Expansion of TALF

Investment

*Private CapitalFinancing

*Non-recourse Debt Offered by FederalReserve

*Leverage Levels not yet Announced



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! Legacy Loan Program (LLP)! Under Umbrella of TARP/PPIP! According to SIGTARP, Legacy Loans are:

Underperforming real estate-related loans held by a

bank that it wishes to sell, but recent market disruptions

have made difficult to price.



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! Free Up Capital! Exchange Similar Assets but now with Government

Leverage

! Assets Prices are now Higher than in Future! Due to Buyers Leverage

! Only Give Up 50% of Upside! Completely Protected on Downside! Fiduciary Responsibility



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! Bank 1 to Sell Loans with Face Value $100! FDIC Determines (4)6-1 D/E is Appropriate! @ Auction, Investor has a $60 Winning Bid! W/FDIC (100% Guaranteed) Financing, the PPIF Gets a Loan for $51! Remaining $9 Split @ 50% by Investor & Treasury! Bank 1 Receives $60 for Loans! PPIF pay Interest on $51 Loan! Investor & Treasury Split Profits/Losses @ 50%



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! Bank 1 to Sell Loans with Face Value $100! FDIC Determines 6-1 D/E is Appropriate! @ Auction, Investor has a $60 Winning Bid! W/FDIC (100% Guaranteed) Financing, the PPIF Gets a Loan for $51! Remaining $9 Split @ 50% by Investor & Treasury! Bank 1 Receives $60 for Loans! PPIF pay Interest on $51 Loan! Investor & Treasury Split Profits/Losses @ 50% up to $4.50! FDIC Assumes Remaining $51 Loss



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Auto

Credit Cards

Student Loans

Equipment Leases

Non-AutoFloorplans

RMBS

CMBS

AAA RatedTranches

AAA TALF

EligibleSecurities

NY Federal

Reserve Bank


Non-Recourse Loan

Initial Margin, Haircut

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! Eligible Assets! See Following Slide

! Origination! All Securities Issues in 2009

! Rating! AAA

! Funding Rate! Libor + 50 to 100 bps

! Funding Source! New York Federal Reserve

! Term! Now 5 Years



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! Auto Loans, Leases, Dealership Funding Programs! Autos, Trucks, Motorcycles, Recreational Vehicles

! Student Loans! SBA Loans

! 7(a), 504!

Credit Cards! Vehicle Leases

! Commercial, Government, Fork Lifts, Long-Haul TrucksJackson Consulting Group, LLC 13 7/4/11


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! Equipment Loans & Leases! Small: Phone systems, Computers, Copiers! Large: Cranes, Excavators! Agricultural: Harvesters, Specialty Equipment

! Floorplans (Non-Auto)! Heavy & Light Equipment

! RMBS! CMBS



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TALF Traditional

Term of Borrowing 3/5 Years Varies

Cost of Borrowing Libor + 50 to 100 bps Floating

Margin Amount Fixed Varies

Mark to Market None Daily

Re-Margin No Yes

Capital at Risk Margin Par



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Bond Spread vs. Libor Credit Card Margin 6% Auto Loan Margin 8%

150 bps 9.0%

200 17.3% 11.9%

250 25.6% 17.4%

300 33.9% 23.0%

350 28.5%Current Tighter by 125 bps


3-Year AAA Prime ABS Cash on Cash Yield

As of 5/15/09: Equip 400, Credit Cards 275, Auto 225, Student 130)

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! No Pre-Determined Term (only one)! Single Obligor 6 month! Scheduled Amortization or Revolving Period

! Master Trust! Single Trust of Changing Pool of Receivables! Each Series can Draw Upon CF of Pool of Securities! Income Dist Pro Rata Based on Master Trust



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! Consider the example structure represented below. An important feature is excess spread, reflectingthe high yield on credit card debt. In addition, a financial guaranty is included as a form of creditenhancement given the low rate of recoveries and the absence of security on the collateral. Excessspread released from the trust can be shared with other series suffering interest shortfalls.

! Performance Analysis: The Delinquency Ratio is measured as the value of credit card receivablesoverdue for more than 90 days as a percentage of total credit card receivables. The ratio provides anearly indication of the quality of the credit card portfolio.

! The Default Ratio refers to the total amount of credit card receivables written off during a period as apercentage of the total credit card receivables at the end of that period. Together, these two ratiosprovide an assessment of the credit loss on the pool and are normally tied to triggers for earlyamortization and so require reporting through the life of the transaction.

! The Monthly Payment Rate (MPR)4 reflects the proportion of the principal and interest on the poolthat is repaid in a particular period. The ratings agencies require every non-amortizing ABS toestablish a minimum as an early-amortization trigger.



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! MBS sector is notable for the diversity of mortgage pools that are offered to investors.! Portfolios can offer varying duration as well as both fixed and floating debt.! Most common structure for agency-MBS is pass-through, where investors are simply purchasing a share in the cash flow of the underlying

loans. Conversely, non-agency MBS (including CMBS), has a senior and a tranched subordinated class with principal losses absorbed in

reverse order.

! Other notable difference between RMBS and CMBS is that the CMBS is a non!recourse loan to the issuer as it is fully secured by theunderlying property asset. Consequently, the Debt Service Coverage Ratio (DSCR) becomes crucial to evaluating credit risk.

! Debt Service Coverage Ratio (DSCR) = Net Operating Income / Debt Payments and so indicates a borrowers ability to repay a loan with a DSCRof less than 1.0 meaning that there is insufficient cash flow generated by the property to cover required debt payments.

! Weighted Average Coupon (WAC) is the weighted coupon of the pool which is obtained by multiplying the mortgage rate on each loan by itsbalance. The WAC will therefore change as loans are repaid but at any point in time when compared to the net coupon payable to investors, give us

an indication of the pools ability to pay.

! Weighted Average Maturity (WAM) is the average weighted (weighted by loan balance) of the remaining terms to maturity (expressed in months) ofthe underlying pool of mortgage loans in the MBS. Longer securities are by nature more volatile and so, a WAM calculated on the stated maturity

date avoids the subjective call of whether the MBS will mature and recognizes the potential liquidity risk for each security in the portfolio.

Conversely, a WAM calculated using the reset date will show the shortening effect of prepayments on the term of the loan.



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! The Weighted Average Life (WAL) of the notes at anypoint in time is:

! s = "t.PF(s) where! PF(s) = Pool Factor at s! t = actual/365.! This is not a prepayment measure since credit cards are

non-amortizing assets.



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! The CPR approach is:!

CPR = 1-(1-SMM)12

! where Single Monthly Mortality (SMM) is the single-month proportional prepayment.

! A SMM of 0.65% = approx 0.65% of remainingmortgage balance at the beginning of the month, lessthe scheduled principal payment, will prepay thatmonth



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PSA = [CPR/(.2) (m)]*100 where m = # months since origination

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Summary of Performance Metrics

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! Financial Advisory Services! TARP/PPIP/TALF Modeling! LLP Pricing, Pooling, Modeling! ABS (Straight/Hybrid) Delinquency

! TALF Access, Evaluation, Pricing & Arbitrage! (TALF + FAS 91)

! Strategic (incl. Federal Government Policy) Questions &Investments

! Private Equity, Institutional Funds, Banks and M&AEvaluation

! Capabilities, Experience & Professional BiosJackson Consulting Group, LLC 27 7/4/11


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! Legacy Loan Program Valuation Analysis! Model Commercial & Residential Real Estate

Delinquencies, Foreclosures & Pre-Payments! Forecasting: Comprehensive and Successful Model which

Utilizes all Credit Scoring Characteristics plusAdditional/Specific Residential Property Characteristics

! Scenario/Decision Tree Analysis Requirements ofForeclosure Mitigation Plans

! Unanticipated Consequences of new Programs: Services& Homeowners will Quickly Determine (Default)Incentives



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! Bank Incentivized Mortgage Workout! PV & FV Analysis:! Term! Interest Rate! Deferred Principal! Recourse Adjustments

! Other Options! REO! Sell Mortgage Note! Bundle Foreclosed Properties and/or Notes



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! Government & Quasi-Governmental Loan ModificationProgram(s)

! HMP, SMP, Hope Now & Making Home Affordable(PMMS + 250 bps)

! Treasury, FHA, FDIC, FHFA, HUD, FNM, FRE(agencies with policy reversals)

! Accounting Implications Related to FAS 91, 114, 140,and SOP03-03



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Term Term Term Term Term

BANK_ID LOAN_NUM APP SCRORE_DT SCORE_TIME

SCORE APP_FICO AVG_FICO BILLED_FICO DPD

MAX_DLQ_EVER MAX_FICO MIN_FICO NUM3060DAT NUM30P3M

NUM30P6M NUM606PM NUM90P3M NUM90P6M NUMCUR120DPD

NUMCUR120PL NUMCURR30DPD NUMCURPDNUMW120PLDPD

NUMOPNREVHLIMIT

NUMOPNREVHLIMITNUMSATPRMCRD

NUMTRDHM NUMW30PLDPD NUMW60PLDPD

NUMW90PLDPD PCTTRDNDELQ PUBREC RATBALHIGH RATBALHIGHBNKCRD

RATBALHIGHREV SINCDELQBNKCRD SINCE60PL SINCEDELQ TOTNOWPD

TIMES30 TIMES60TRDVRF12MPREMCR

DNUMINQ SATS12M

SATS6M OLDREVOPEN NUMREVOPN

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! What is Current Competitive Situation? (Present/Future/Govt/Global Aspects)?

! Competitor Analysis! Products & Services, Distribution, Mktg, Operations, R&D,

Overall Costs, Financial, Organization, Mgmt, Corp

Portfolio, Exit/Other(C/WM/WB

! Societal Analysis (Government & Political)! Strengths & Weaknesses Relative to Competitors



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! What Should We Be Doing?! Tests of Assumptions and Strategy/Are We Current?

! Strategic Alternatives/Which Options Are Feasible forUs?! Fragmented/Emerging/Mature/Declining/Global

Industries

! Strategic Choice! Which Strategic Alternative Best Relates Our Current

Internal Situation with New External Opportunities andThreats

! Vertical Integration/Capacity Expansion/Entry/ExitBus Lines



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! Specific Questions! Should I Consider Selling/Buying into the LLP?! What About Pooling Student Loans, Credit Card Accounts, SBA

Loans?! Which of My Competitors is Likely to Participate in LLP &

What are Implications?

! Which of My Competitors is Gaining/Losing CompetitiveAdvantage as Banks Close?

! Do I Know Which Banks are in Trouble and What Can I do totake Advantage of This?

! What is on My Competitors Balance Sheets and How Reliable isthe Data?



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! Specific Questions! What Opportunities do We have at the Moment and Which will we Have

in Six Months?

! Do We Have Capabilities to Pursue Current Opportunities Now (inHouse)?! Where are Our Five Closest Competitors Likely to be in 3/6/9/12

Months?

! Do Opportunities Exist in DIP/Retail/REIT/Commercial Financing?! What are Implications of First Mover Advantage (Analysis) for Any of

the Above?

! Do We Think Community Banking will look the Same in 5/10 yrs?! Who Will be the Winners and Losers?



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! Private Equity, Other Investors! New FDIC/FED Regulations & 6 Month Review! Outcomes & Implications

! Are We Prepared?! Have We Considered All Options?! Other Similar Deals?! FDIC Asset Sales! Terms



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! Real Estate Property Valuation: Geography, PropertyAttributes, Multifamily, Comparables & Rentals,

Individual Tenant Credit, Local Economy, ReplacementCost

! Immediate, Complete, Transparent Analysis, Valuation(Multiple Standard and Proprietary Methods) of

Identified Assets



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! Asset (Debt) Valuation! Effective Duration and Effective Convexity (Drift/Yield/

Maturity)

! Dollar Rolls & Synthetics (Reverse Repos Stripped MBS, ZBonds, IOs, PACs)

! Advanced Analytics & Modeling - Option Adjusted SpreadAnalysis

! Binomial & Trinomial Interest Rate Trees!

Maturity Gap and NII Sensitivity Analysis, Simulation Models! Hedging Strategies (Incorporating Observable Futures,

Forwards, Interest Rate Floors/Caps and CompoundOptions)



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! Asset (Debt) Valuation! Interest Rates/Principal/Interest Payments

! Spreads, Yield Curve/Default, Prepayment/Floaters & InverseFloaters! Redemption & Call Features (Mandatory, Optional, %,

Cleanups)

! Compare Similar LLP Pools to Securities with SecurityRatings, Individual Tenant Credit, Coverage Tests & Ratios

! Collateral Quality Tests (Diversity, Rating Distributions)! Weighted Average Coupon, Price, Life, Time, Recovery Rate



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! Mr. Frambes (18 years)is a Managing Partner at Jackson Consulting Group. Previously, he was a VicePresident at Shoreline Pacific Institutional Finance where he successfully completed numerous corporatefinance and strategic engagements in the US, Europe, India and China. Earlier in his career, Mr. Frambes wasa Director in the Global Capital Markets Group at CB Richard Ellis where he lead valuation teams focused onFinancial Institutions and Real Estate (property and mortgage) Debt, Equity and Derivative Securities.Previously, Mr. Frambes began his career as a Convertible Securities Analyst at Robertson Stephens &Company. Mr. Frambes is a Graduate of the Stanford Executive Program (SEP) from the Graduate School ofBusiness at Stanford University, earned an M.B.A. from the BI Norwegian School of Management and a B.S.from Clemson University.

! Mr.McKean (18 years)is a Managing Partner at Jackson Consulting Group. His experience includes large-scale business process re-engineering efforts at both Fannie Mae and Freddie Mac. He led systemsdevelopment and integration of fixed-income and derivative valuation engines, development of riskmanagement and risk reporting capabilities, development of internal controls framework and financial

advisory services for the management and disposition of multiple government portfolios. Previously, Mr.McKean held multiple management positions in the Diversified Product Division at Wells Fargofor nineyears. Mr. McKean holds a B.S. from the University of Maryland.



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! Mr. Brennan (16 years) is a Partner at Jackson Consulting Group where he brings hiscombined experience in real estate and investment banking. Previously, Tom was a VicePresident on the Equity Capital Markets team at Robertson Stephens &Company, where hewas responsible for the marketing, pricing and allocation of the firms lead managedtransactions. During his tenure he worked on over 230 deals in the emerging growth sectors,

raising more than $17 billion. He was also a member of the firms Commitment Committeethat determined which transactions the firm would commit its capital to. Tom began his careerat Genesis Merchant Group as an Assistant Trader. He received an AB in Architecture fromPrinceton University.

! Ms. Pavlova (18 years)is a Partner at Jackson Consulting Group. Previously, Ms. Pavlova wasthe Head of Google Strategic Partnerships in Russia and prior to Google, Ms. Pavlova served

as a Managing Director at Shoreline Pacific Institutional Finance and as a Portfolio Managerat Wentworth, Hauser and Violich where she focused on Real Estate and Debt securities. Ms.Pavlova has an M.B.A. from Stanford University, an M.A. and B.A. from Moscow Universityand is a Chartered Financial Analyst (CFA).



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! Mr. Ellis(17 years)is a Partner at Jackson Consulting Group. Mr. Ellis is an expert in commercialreal estate finance with a concentration in multifamily mortgage finance valuations over the last 9years. Mr. Ellis has specialized in underwriting and originating Fannie Mae, Freddie Mac and HUDloans and has lead transactions totaling roughly $2 Billion. Mr. Ellis has concentrated on market-ratemultifamily transactions but has also closed student housing, seniors housing, manufactured housing,

bond financing and tax-credit affordable as well as numerous large asset/mortgage backed creditfacilities. Mr. Ellis is a graduate of the University of Maryland, a member of the Mortgage BankersAssociation and is active in several Washington D.C. based real estate finance consortiums.

! Mr. Backe (11 years) is Partner at Jackson Consulting Group and brings broad experience in portfoliodesign, financial modeling and fixed income asset/risk management. Previously, Mr. Backe workedfor Morgan Stanley & Co advising management teams, owners, investment companies and pensionfunds on equities, debt, hedging and derivative instruments as well as broader capital markets. Prior to

this he held similar positions at DnB NOR (Norway) and at JCG designing Business Process Modelsin Norway & India. He also worked as a Flight Operations Assistant in the Norwegian Air Force. Hehas an M.B.A and BSc in International Management from the BI Norwegian School of Management.



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! Mr. Johnson (15 years)is a Senior Adviser to Jackson Consulting Group and is a Public Affairs Professionalfocused on political campaigns and helping clients interact with local, state and the federal government. On

the campaign side he has worked with candidates including Jack Kemp, John McCain, Newt Gingrich, MittRomney and Haley Barbour mostly in a fundraising capacity. Most recently, he has formed his own firm to

give strategic counsel to corporations and associations representing financial services, insurance,pharmaceutical and the tobacco industries. Alex serves on the Board of the American Council of YoungPolitical Leaders and is a frequent political contributor on MSNBC, CNBC and Fox Business.

! Mr. Ahmad (35 years)is a Senior Adviser to Jackson Consulting Group. Previously, he was a founding partnerof Palo Alto Capital Advisors, a silicon-valley based firm which provides advisory services to institutionalinvestors, venture capital firms, and companies. Prior to his role as an institutional investor, he was a venturecapitalist and earlier the founder of a venture backed software company. Mr. Ahmad has a B.S. degree from

the Massachusetts Institute of Technology, an M.S. degree in Computer Systems from Stanford University, andan M.B.A. degree from Stanford University.


tarp, talf, ppip opportunities

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