Despite the fact that no Subchapter S institution has yet received TARP Capital funds, and a term sheet for mutual organizations has not yet been announced, the Treasury has now provided documentation on how a TARP Capital recipient would redeem their investment, as permitted by the American Recovery and Reinvestment Act of 2009. On March 25, 2009, the Treasury published TARP Capital Purchase Program repurchase documents for public and private TARP Capital recipients.
Both the public and private documents contemplate the repurchase of all, or a portion of, the Company’s TARP Capital investment. Under the public company repurchase documents, if a Company repurchases 100% of the Treasury’s preferred stock, then the Company is also given 15 days to either repurchase the warrant for common stock at fair market value, or to issue a replacement warrant that does not contain the adjustment to reduce the number of shares covered by the warrant in the event of a qualified equity offering. Under the private company repurchase documents, once a Company repurchases 100% of the primary preferred shares (the ones initially paying 5%), it can also repurchase up to 100% of the warrant preferred shares (paying 9%).
According to the Wall Street Journal, the Treasury is now “conservatively” projecting $25 billion in redemptions, although the timing of such redemptions is unknown. Despite public statements appearing to insist on immediate redemption, it would appear unlikely that any of the largest receipients would elect to redeem shares until the Treasury’s stress test is complete and the bank is assured that it would not be required to accept funds under the TARP Capital Assistance Program.