Financial Institution Letter
FIL-11-2009
March 2, 2009Federal Deposit Insurance Corporation
MODIFICATION OF TEMPORARY LIQUIDITY GUARANTEE
PROGRAM
Interim Final Rule on Mandatory Convertible Debt under the TLGP
550 17th Street NW, Washington, D.C. 20429-9990
Summary: On February 27, 2009, the FDIC adopted an interim rule that allows entities participating in
the debt guarantee portion of the Temporary Liquidity Guarantee Program (TLGP) to issue certain
mandatory convertible debt (MCD). No FDIC-guaranteed MCD may be issued without the FDIC’s prior
written approval.
Distribution:
All FDIC-Insured Institutions
Highlights:
Suggested Routing:
Chief Executive Officer
President
Chief Financial Officer
Related Topics:
Temporary Liquidity Guarantee Program
• Eligibility: To be eligible for the FDIC’s guarantee,
MCD must meet the definition of senior unsecured
debt in Section 370.2(e) of the final rule; must be
newly issued on or after February 27, 2009; and
must provide in the debt instrument for the
mandatory conversion of the debt into common
shares of the issuing entity on a specified date no
later than June 30, 2012.
Attachment:
Interim Rule
Contacts:
Steve Burton, Senior Financial Analyst, Division of
Insurance and Research, (202) 898-3539; or Mark
L. Handzlik, Senior Attorney, Legal Division, (202)
898-3990
TLGP@fdic.gov
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2009/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters
may be obtained through the FDIC's Public
Information Center, 3501 Fairfax Drive, E-1002,
Arlington, VA 22226 (1-877-275-3342 or 703-562-
2200).
• FDIC permission required. No FDIC-guaranteed
MCD may be issued without the FDIC’s prior
written approval. Entities must file a written
application with the FDIC and the appropriate
federal banking agency before issuing MCD.
• No change to cap. This interim rule will not result in
a change to an eligible entity’s existing debt
guarantee cap.
• Fee. The amount of the assessment fee for the
FDIC’s guarantee of MCD will be based on the time
period from issuance of the MCD until its
mandatory conversion date.
• Disclosure. Institutions that issue FDIC-guaranteed
MCD will have to comply with specific disclosure
requirements.
FIL-11-2009
March 2, 2009Federal Deposit Insurance Corporation
MODIFICATION OF TEMPORARY LIQUIDITY GUARANTEE
PROGRAM
Interim Final Rule on Mandatory Convertible Debt under the TLGP
550 17th Street NW, Washington, D.C. 20429-9990
Summary: On February 27, 2009, the FDIC adopted an interim rule that allows entities participating in
the debt guarantee portion of the Temporary Liquidity Guarantee Program (TLGP) to issue certain
mandatory convertible debt (MCD). No FDIC-guaranteed MCD may be issued without the FDIC’s prior
written approval.
Distribution:
All FDIC-Insured Institutions
Highlights:
Suggested Routing:
Chief Executive Officer
President
Chief Financial Officer
Related Topics:
Temporary Liquidity Guarantee Program
• Eligibility: To be eligible for the FDIC’s guarantee,
MCD must meet the definition of senior unsecured
debt in Section 370.2(e) of the final rule; must be
newly issued on or after February 27, 2009; and
must provide in the debt instrument for the
mandatory conversion of the debt into common
shares of the issuing entity on a specified date no
later than June 30, 2012.
Attachment:
Interim Rule
Contacts:
Steve Burton, Senior Financial Analyst, Division of
Insurance and Research, (202) 898-3539; or Mark
L. Handzlik, Senior Attorney, Legal Division, (202)
898-3990
TLGP@fdic.gov
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2009/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters
may be obtained through the FDIC's Public
Information Center, 3501 Fairfax Drive, E-1002,
Arlington, VA 22226 (1-877-275-3342 or 703-562-
2200).
• FDIC permission required. No FDIC-guaranteed
MCD may be issued without the FDIC’s prior
written approval. Entities must file a written
application with the FDIC and the appropriate
federal banking agency before issuing MCD.
• No change to cap. This interim rule will not result in
a change to an eligible entity’s existing debt
guarantee cap.
• Fee. The amount of the assessment fee for the
FDIC’s guarantee of MCD will be based on the time
period from issuance of the MCD until its
mandatory conversion date.
• Disclosure. Institutions that issue FDIC-guaranteed
MCD will have to comply with specific disclosure
requirements.
Financial Institution Letter
FIL-11-2009
March 2, 2009
MODIFICATION OF TEMPORARY LIQUIDITY GUARANTEE PROGRAM
Interim Final Rule on Mandatory Convertible Debt under the TLGP
On February 27, 2009, the FDIC adopted an interim rule that makes minor modifications to
the Temporary Liquidity Guarantee Program (TLGP). Under the interim rule, entities that are
participating in the debt guarantee program would be able to issue certain mandatory
convertible debt (MCD) that would be guaranteed by the FDIC under the TLGP. The intent
of the mandatory convertible debt amendment to the TLGP is to give eligible entities
additional flexibility to obtain funding from investors with longer-term investment horizons
and to reduce the concentration of FDIC-guaranteed debt maturing in mid-2012 that might
otherwise have to be rolled into new debt.
To be eligible for the FDIC’s guarantee, MCD must meet the definition of senior unsecured
debt in Section 370.2(e) of the final rule; must be newly issued on or after February 27, 2009;
and must provide in the debt instrument for the mandatory conversion of the debt into
common shares of the issuing entity on a specified date no later than the last date on which
the FDIC’s guarantee of the issuing entity’s senior unsecured debt is effective (unless the
issuing entity fails to timely make any payment required under the debt instrument, or
merges or consolidates with any other entity and is not the surviving or resulting entity). In
addition, the interim rule provides for specific disclosures relative to the MCD aspect of the
TLGP.
No FDIC-guaranteed MCD may be issued without the FDIC’s prior written approval. Like
other applications described in the TLGP, an eligible entity that wishes to issue MCD must
include the details of the request, a summary of the applicant’s strategic operating plan, and a
description of the proposed use of the debt proceeds. In addition, an application to issue
FDIC-guaranteed MCD must include the proposed date of issuance, the amount of MCD to
be issued, the mandatory conversion date, and the conversion rate (as described in Section
370.3(h)). Finally, since the issuance of debt that will convert into stock could raise control
issues, an applicant seeking to issue FDIC-guaranteed MCD must provide confirmation that
its appropriate federal banking agency has received all applications and all notices required
under the Bank Holding Company Act of 1956, as amended, the Home Owners’ Loan Act, as
amended, or the Change in Bank Control Act, as amended, in order to issue the debt.
Arthur J. Murton
Director
Division of Insurance and Research
2
FIL-11-2009
March 2, 2009
MODIFICATION OF TEMPORARY LIQUIDITY GUARANTEE PROGRAM
Interim Final Rule on Mandatory Convertible Debt under the TLGP
On February 27, 2009, the FDIC adopted an interim rule that makes minor modifications to
the Temporary Liquidity Guarantee Program (TLGP). Under the interim rule, entities that are
participating in the debt guarantee program would be able to issue certain mandatory
convertible debt (MCD) that would be guaranteed by the FDIC under the TLGP. The intent
of the mandatory convertible debt amendment to the TLGP is to give eligible entities
additional flexibility to obtain funding from investors with longer-term investment horizons
and to reduce the concentration of FDIC-guaranteed debt maturing in mid-2012 that might
otherwise have to be rolled into new debt.
To be eligible for the FDIC’s guarantee, MCD must meet the definition of senior unsecured
debt in Section 370.2(e) of the final rule; must be newly issued on or after February 27, 2009;
and must provide in the debt instrument for the mandatory conversion of the debt into
common shares of the issuing entity on a specified date no later than the last date on which
the FDIC’s guarantee of the issuing entity’s senior unsecured debt is effective (unless the
issuing entity fails to timely make any payment required under the debt instrument, or
merges or consolidates with any other entity and is not the surviving or resulting entity). In
addition, the interim rule provides for specific disclosures relative to the MCD aspect of the
TLGP.
No FDIC-guaranteed MCD may be issued without the FDIC’s prior written approval. Like
other applications described in the TLGP, an eligible entity that wishes to issue MCD must
include the details of the request, a summary of the applicant’s strategic operating plan, and a
description of the proposed use of the debt proceeds. In addition, an application to issue
FDIC-guaranteed MCD must include the proposed date of issuance, the amount of MCD to
be issued, the mandatory conversion date, and the conversion rate (as described in Section
370.3(h)). Finally, since the issuance of debt that will convert into stock could raise control
issues, an applicant seeking to issue FDIC-guaranteed MCD must provide confirmation that
its appropriate federal banking agency has received all applications and all notices required
under the Bank Holding Company Act of 1956, as amended, the Home Owners’ Loan Act, as
amended, or the Change in Bank Control Act, as amended, in order to issue the debt.
Arthur J. Murton
Director
Division of Insurance and Research
2