Alert March 10, 2009

FDIC Adopts Interim Final Rule on Mandatory Convertible Debt under the Temporary Liquidity Guarantee Program

The FDIC adopted an interim rule that makes minor modifications to the Temporary Liquidity Guarantee Program (“TLGP”).  For further discussion of the TLGP, please see the February 17, 2009, November 25, 2008, and October 28, 2008 Alerts.  Under the interim rule, entities that are participating in the TLGP debt guarantee program would be able to issue certain mandatory convertible debt (“MCD”) that would be guaranteed by the FDIC under the TLGP.  To be eligible for the guarantee, MCD must (a) meet the definition of senior unsecured debt under the TLGP; (b) be newly issued on or after February 27, 2009; and (c) 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.  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.  This interim rule will not result in a change to an eligible entity’s existing debt guarantee cap.  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.  Institutions that issue FDIC-guaranteed MCD will have to comply with specific disclosure requirements.