Bank Applications for Treasury’s Capital Assistance Program Must Be Filed by May 25
George LeMaistre, Jr.
Jones Walker Banking & Financial Services E*Lert
April 29, 2009

The deadline for the Capital Assistance Program has been extended to November 9, 2009.

Publicly held financial institutions seeking to participate in Treasury’s Capital Assistance Program (“CAP”) must apply by May 25, 2009. (Application deadlines have not been announced for private companies, mutual companies, or subchapter-S corporations.) Applications must be submitted to the applicant’s primary federal regulator, except in the case of an applicant that is a bank holding company, which must apply to both the Federal Reserve and the primary federal regulator of the largest insured depository institution controlled by the applicant. According to the Treasury, eligibility to participate in the CAP “is consistent with the criteria and process” that it employed to determine eligibility for its Capital Purchase Program (“CPP”).

Shares that are issued under the CAP will be mandatorily convertible preferred stock—which is considered tier one capital—and will pay a cumulative annual dividend of 9%, compounding quarterly. The shares may be issued in an amount not less than 1%, and not more than 2%, of the applicant’s total risk-weighted assets, plus additional such shares to the extent that the proceeds are used to redeem preferred shares that were issued to the Treasury under the CPP. (Requests to issue greater amounts of CAP shares will be considered by the Treasury, in consultation with the applicant’s primary federal regulator.)

With the approval of its primary federal regulator, an issuer may convert any or all of its CAP shares to common stock, at a conversion price equal to 90% of the average closing price of the issuer’s common stock for the 20 trading days ended February 9, 2009. Conversion is mandatory seven years after issuance. CAP shares will be held and managed by the Treasury in a separate entity called the Financial Stability Trust.  

If, at the time of application, an institution is unable to represent that when it issues shares under the program it will be in compliance with the representations, warranties, and conditions contained in the transaction documents which are prescribed by the Treasury, it will be required to submit with its application an explanation detailing the reasons. Participants also will be required to comply with the Treasury’s rules, regulations, and guidance with respect to executive compensation, transparency, accountability, and monitoring as in effect at the time of the closing of the Treasury’s investment.

After receiving preliminary approval for the CAP, an institution will have up to six months to submit final documentation and issue the CAP shares. Along with the shares issued to it, the Treasury also will receive 10-year warrants for common stock of the institution, having a market value equal to 20% of the amount of Treasury’s investment, which will be exercisable at the conversion price.

The Treasury will not release the names of institutions that apply for the CAP or of applicants whose applications are not approved. As required by law, it will publish, within 48 hours after the closing of each CAP investment, an electronic report of the transaction, including the name of the institution and the amount of Treasury’s investment.