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Treasury Dept. Issues RFPs for Assistance with the Troubled Asset Relief Program

Investment Management Alert

Authors: Gregory J. Nowak and Matthew R. Silver

10/07/2008

The Department of the Treasury has issued three solicitations to parties interested in servicing Troubled Asset Relief Program (TARP)1 assets under the new Economic Stabilization Act of 2008 (the Stabilization Act). The solicitations are to parties interested in providing (a) custodial, accounting, auction management and other infrastructure services (the Custodial RFP), (b) securities asset management services (the Investment Adviser RFP), and (c) whole loan asset management services (the Whole Loan RFP).

 

Pepper Point: All responses to these RFPs are due by 5 p.m. Eastern time on October 8, 2008.

 

Applicant eligibility for all three RFPs is subject to a common qualifier: no party awarded a contract may “be subject to any pending or current enforcement actions or regulatory investigations.”

Pepper Point: Because regulators are required to keep confidential any pending or current regulatory investigations, it is unclear how an applicant could be certain whether or not it was an eligible party.

The Custodial RFP

Only a select number of entities are eligible to submit a response to the Custodial RFP2 and only a single candidate will be chosen for this position. Among the various minimum requirements for eligibility is that the Financial Institution (as defined by the RFP)3 have at least $500 billion in domestic assets under custody.

The Investment Adviser RFP

The Treasury intends to designate multiple asset managers and sub-managers to handle the various asset classes that may be acquired for the dollar-denominated mortgage-related securities to be acquired from Financial Institutions under the TARP program, a portfolio that may reach several hundred billion dollars. Managers are expected to provide portfolio management and trade execution services, operations support, and portfolio analytics and reporting.4 Eligible entities are “Financial Institutions” as defined by the RFPs that also are federally registered investment advisers, and having some brokerage capability appears preferable. Minimum requirements also include having:

  • at least $100 billion in dollar-denominated fixed-income assets under management
  • received an unqualified auditor’s opinion for the last five years
  • been continuously engaged, as a principal business, in managing assets comparable to the type described in the Investment Adviser RFP for at least the last five years
  • a primarily portfolio manager to be assigned to the TARP assets that has had at least 10 years of experience in managing fixed income assets.

Proposals may not be longer than 20 pages, plus a cover letter.

Pepper Point: A separate RFP may be issued later for small and minority- and women-owned businesses that do not meet the current requirements noted in the RFP for the amount of assets under management. Such entities would be designated as sub-managers.

The Whole Loan RFP

Several candidates may be chosen as asset managers to handle different types of mortgage whole loans that may be acquired under the TARP program. These managers will be expected to provide a suite of services, ranging from pre-transactional diligence on loans offered for sale, through determination of fundamental loan values and loan acquisition, through loan servicing and foreclosure mitigation, to liquidation of physical assets and underlying property, if necessary.5 Key minimal qualifications include that:

  • the Financial Institutions selected must have been continuously engaged, for at least the last five years and as a principal business, in managing whole loans assets comparable to the types of assets described in the Whole Loan RFP
  • the Financial Institutions selected must currently manage a portfolio of at least $25 billion in mortgage loans, or provide clear and credible evidence that the institution can scale its capacity to manage a portfolio of at least this size.

The main body of proposals may be up to 25 pages.

Pepper Point : A separate RFP may be issued later for small and minority- and women-owned businesses that do not meet the current requirements noted in the RFP for the amount of assets under management. These smaller entities would act as contractors or sub-managers.

ENDNOTES

1 The Stabilization Act authorized the Secretary of the Treasury (the Secretary) to establish TARP to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary under the Stabilization Act. The Secretary can spend up to an initial outstanding limit of $250 billion with an increase of up to a total of $350 billion upon a certification of need by the President to Congress and up to $700 billion upon a certification and written report by the President to Congress (unless there is Joint Resolution of Disapproval by both houses of Congress).

2 The specifications and requirements for submission of a Custodial RFP are provided by the Department of the Treasury at the following URL: http://www.treas.gov/initiatives/eesa/docs/notice_custodian-services.pdf

3 The term “Financial Institution” is somewhat vaguely defined as “any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.”

4 The specifications and requirements for submission of an Investment Adviser RFP are provided by the Department of the Treasury at the following URL: http://www.treas.gov/initiatives/eesa/docs/notice_securities-asset-mgr.pdf

5 The specifications and requirements for submission of a Whole Loan RFP are provided by the Department of the Treasury at the following URL: http://www.treas.gov/initiatives/eesa/docs/notice_whole-loan-asset-mgr.pdf

Gregory J. Nowak and Matthew R. Silver

The material in this publication is based on laws, court decisions, administrative rulings and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.