Treasury released today updated guidance for the legacy securities portion of its recently announced Public-Private Investment Program (PPIP). Specifically, Treasury clarified certain aspects of the public-private investment funds (PPIFs), including its relationship to the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), and also extended the application deadline for PPIFs from April 7, 2009, to April 24, 2009.

In its initial release, Treasury indicated it would approve up to five investment funds and possibly more depending on interest. In its release today, Treasury clarified that after the initial pre-qualification of PPIF managers, it will consider opening the program to managers not selected in the initial pre-qualification process. Treasury also stated that it will encourage small, veteran, minority- and women-owned businesses to partner in some way with private asset managers. Treasury noted further that although its initial release indicated that approval of PPIFs would be subject to a specified list of criteria that each fund manager would be required to satisfy, Treasury clarified today that the list of criteria would be viewed “holistically” and that failure to satisfy a particular criterion would not automatically disqualify a manager. This latter clarification seems aimed at recent criticisms that the requirement for fund managers to have an existing $10 billion (market value) of assets under management would preclude all but the largest investment firms from participating in the program.

Treasury outlined additional clarifications regarding leverage ratios for PPIFs depending on the source of the debt obtained and whether such debt is secured or unsecured. Treasury indicated that it would impose certain restrictions on debt depending on the source and the amount as a percentage of equity capital. In addition, Treasury clarified the relationship between the PPIP and TALF, noting that TALF would remain a Federal Reserve program while the legacy securities part of the PPIP would remain a Treasury program. “Legacy TALF” – the term most commonly used to describe TALF’s expansion to cover previously issued mortgage- and asset-backed securities – will be available to all investors who meet Federal Reserve eligibility standards, and not just to PPIFs. Similarly, PPIFs may utilize the Legacy TALF program to help fund their acquisitions; however, they will not be required to do so.

Finally, Treasury's initial release indicated eligible legacy securities would include not only mortgage-backed securities but also previously issued, AAA-rated asset-backed securities. Treasury's announcement today, however, indicates that the current group of eligible securities would consist solely of mortgage-backed securities, with Treasury to consider opening the class of Eligible Assets to additional classes.