Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

Treasury issues term sheet for purchases of bank stock; S corporations left out for now

November 17, 2008

S corporation banks have to keep waiting to find out if they will be invited to sell equity to the Treasury under the "TARP Capital Purchase Program."

The Treasury this afternoon issued a term sheet for their plans to issue preferred securities; S corporations and mutual financial institutions don't qualify. An accompanying FAQ has this to say:

Q. Does this term sheet and deadline apply to S-Corporations and mutual organizations?
No. These structures are still under consideration. The deadline for this program will not apply to programs for S-Corporations and mutuals.

The "deadline" in the FAQ is December 8. Participants will have to sell the Treasury a minimum of 1% of their capital or a maximum of 3%, in the form of senior preferred stock with a 5% dividend that will be callable at par after three years. The Treasury will also get warrants to buy common stock worth 15% of the value of the preferred stock issued, and they will be allowed to sell their preferred stock and warrants to third parties, with some restrictions. That could make the Treasury a kingmaker in any takeover fights.

Links:

Treasury Press Release
Term Sheet
FAQ

Tags: bailout.S corporations.