Under the CPP, Treasury will purchase up to $250 billion of senior preferred shares onstandardized terms. The Program is available to qualifying U.S. controlled banks, savingsassociations, and certain bank and savings and loan holding companies engaged solely orpredominately in financial activities permitted under the relevant law. We reported in detail onthe CPP in Treasury’s
First Tranche Report to Congress
Second Tranche Report toCongress
, and provided an update in Treasury’s
Third Tranche Report to Congress
, and therehave been no changes to the purpose or use of the CPP since the submission of these reports.
Automotive Industry Financing Program
Treasury announced a new program in December, the AIFP, to prevent a significant disruption of the American automotive industry, which would pose a systemic risk to financial market stabilityand have a negative effect on the economy of the United States. The program requiresparticipating institutions to implement plans that will achieve long-term viability. Participatinginstitutions must also adhere to rigorous executive compensation standards and other measures toprotect the taxpayer’s interests, including limits on the institution’s expenditures and othercorporate governance requirements. Guidelines for the AIFP are published on Treasury’s website. Between December 29 and January 2, Treasury committed to provide $19.4 billion inTARP funds under this program, with an additional $4 billion subject to certain conditions.On December 29, 2008, Treasury purchased $5 billion of senior preferred equity with an 8%annual distribution right from GMAC LLC (GMAC) through the AIFP. Under the agreement,GMAC issued warrants to Treasury to purchase, for a nominal price, additional preferred equityin an amount equal to 5% of the preferred equity purchased. These warrants were exercised atclosing of the investment transaction. The additional preferred equity provides for a 9% annualdistribution right. Additionally, Treasury committed to lend up to $1 billion of TARP funds toGM so that GM can participate in a rights offering by GMAC in support of GMAC’sreorganization as a bank holding company. The rights offering is expected to close, and the loanto GM is expected to be funded, on January 16, 2009. The loan will be secured by GMACequity interests owned by GM and those being acquired by GM in the rights offering, and it willbe exchangeable at any time, at Treasury's option, for the GMAC equity interests being acquiredby GM in the rights offering. The ultimate level of funding under this facility will depend uponthe level of current investor participation in GMAC’s rights offering.Treasury completed an additional transaction with GM on December 31. Under the GMagreement, Treasury will provide GM with up to a total of $13.4 billion in a three-year loan fromthe TARP, secured by various collateral. Treasury funded $4 billion of this loan immediately,and committed to fund an additional $5.4 billion on January 16, 2009. Treasury will provide anadditional $4 billion on February 17, 2009, subject to certain conditions. To protect taxpayers,the agreement requires GM to develop and implement a restructuring plan to achieve long-termfinancial viability. The restructuring plan is to be reviewed by a designee of the President, whowill determine whether the goals of the restructuring have been met. If the President’s Designeedoes not find that the goals have been met, the loan will be automatically accelerated and willcome due 30 days thereafter. This agreement also includes other binding terms and conditionsdesigned to protect taxpayer funds, including compliance with certain enhanced executive