August 27, 2009

Public-Private Investment Program: Fund Managers Selected; Capital Raising Commences

White and Williams Legacy Asset Task Force

White and Williams LLP attorneys practicing in real estate finance, securities, workouts and financial restructuring previously formed a Legacy Asset Task Force to inform and assist companies and investors interested in opportunities presented by the federal government's Public-Private Investment Program.

This update provides you with the latest information on the federal programs for disposal of toxic financial assets. We invite you to contact us with questions regarding recent developments since these programs are still being developed and additional information is becoming available frequently.

In July 2009, the Treasury selected nine Fund Managers for the legacy securities portion of Public-Private Investment Plan (PPIP). The PPIP Funds will raise capital from investors and purchase eligible mortgage-backed securities from financial institutions pursuant to the terms of PPIP. The Treasury will provide matching equity capital and may leverage the public and private equity capital with matching non-recourse loans, subject to certain conditions. Each PPIP Fund is required to raise at least $500 million from investors over the 12-week period which commenced on July 8, 2009. Investors may include institutions such as pension funds, endowments, and members of the general public. View the list of Fund Managers.

In addition to engaging in private placements of securities to raise capital directly for the PPIP Funds, some of the Fund Managers have organized real estate investment trusts and other investment vehicles which will invest in PPIP Funds. A number of these new entities have filed registration statements with the SEC for initial public offerings which will enable the general public to participate in PPIP. Those filed to date include the following:

• AG Financial Investment Trust, Inc., a REIT organized by Angelo Gordon & Co., L.P., intends to invest a significant portion of its capital in the AG GECC Public Private Investment Fund LP, a PPIP Fund. View a copy of its registration statement.
• Foursquare Capital Corp., a REIT organized by AllianceBernstein, LP, intends to invest 30-40% of its IPO proceeds in a PPIP Fund managed by AllianceBernstein. View a copy of the first amendment to its registration statement.
• BlackRock Legacy Securities Public-Private Trust, a closed-end investment company organized by BlackRock, Inc., intends to invest in a PPIP Fund managed by BlackRock. View a copy its registration statement.
• Western Asset Mortgage Capital Corp., a REIT organized by RLJ Western Asset Management, LP, intends to invest a large portion of its proceeds in the PPIP Fund managed by RLJ Western Asset Management. View a copy of the second amendment to its registration statement.
• Invesco Mortgage Capital (NYSE: IVR), a new REIT organized by Invesco Ltd., went public earlier this year. The REIT intends to invest a portion of the $165 million raised in its IPO in Invesco's PPIP Fund. Information regarding the offering and the REIT's investment strategy is set forth in its Current Report on Form 10-Q for the quarter ended June 30, 2009, which can be found here.

These registration statements disclose numerous risks involved in an investment in such funds and state that the investments are not suitable for investors with a low tolerance for risk.

Other recently funded investment vehicles, which are not affiliated with Fund Managers, intend to make investments in PPIP Funds. For example, Starwood Property Trust, Inc., the largest IPO of the year to date, has reported that it intends to invest a portion of its funds in PPIP. View a copy of its IPO prospectus.

In an interesting and significant development, the Chinese Investment Corp. (CIC), a sovereign wealth fund, announced on August 17, 2009, that it may invest up to $2 billion in mortgage-backed securities through the PPIP program. CIC reported that it was negotiating its investment with various Fund Managers and it is expected to divide its investment among a number of PPIP Funds. Additional information about the CIC investment can be found here.

If you have any legal questions regarding an investment in PPIP Funds directly or through other vehicles, please contact the Securities Practice Group Representative to our Legacy Asset Task Force, Merritt Cole in our Philadelphia office, or contact Alexandria Kane in our New York office.

For additional information regarding our Legacy Asset Task Force, please contact Anthony Krol and Joan Rosoff.