Dissecting the Distress: Debt & Equity Update
IT WOULD SEEM THE TREASURY DEPARTMENT’S
long-awaited Public Private Investment Program, finally
unveiled in March, would be the answer to Chip Larson’s
dreams. Larson is president of Home Equity Partners, a San
Diego-based company that was recently formed to purchase
troubled mortgages. Over the next 12 months he aims to
invest between $150 million
and $200 million.
PPIP’s intention is to purchase troubled or legacy assets
currently rotting away on the balance sheets of US financial
institutions. It’s expected to generate $500 billion of purchasing power, with the potential to expand up to $1 trillion,
through a combination of private capital and some $75 billion
to $100 billion of Troubled Asset Relief Program funding.
This will be leveraged with debt guaranteed by the FDIC and
By Erika Morphy
the New York Federal Reserve Bank. The debt-to-equity ratio
could be as high as six to one. While that’s not the ten-to-one
ratio that some had been anticipating, it’s still respectable
leverage, especially in this market.
But Larson says he is finding viable investment opportunities in the private sector without the execution of PPIP. In the
early part of the year, trading of these securities had all but
ceased, partly due to the expectation that the government
would be purchasing them. Now good deals are coming to
market, he reports.
The economic recession and credit crunch has battered
the commercial real estate sector. That said, there are still
investment opportunities and financing, albeit limited to the
strongest prospects, which can be had. Life goes on, in other
words—even if it’s life in survival mode. To be sure, these
spurts of activity have been lackluster, in part because the