This article was originally published 2 March, 2009
On February 27, 2009, the Federal Deposit Insurance Corporation ("FDIC") issued an interim rule (the "Interim Rule") to extend the Temporary Liquidity Guarantee Program ("TLGP") to include issuances of certain mandatory convertible debt. Under the TLGP, the FDIC guarantees certain senior unsecured debt of participating insured depository institutions and insured depository institution holding companies that matures on or prior to June 30, 2012.1 The FDIC has determined that its guarantee under the TLGP is backed by the full faith and credit of the United States. The Interim Rule will become effective on the date it is published in the Federal Register. Comments are due on the Interim Rule 15 days from the date on which the rule is published in the Federal Register.
Mandatory convertible debt was originally excluded from the TLGP when the FDIC promulgated its regulation authorizing the TLGP in November 2008 (the "TLGP Regulation"). The FDIC's stated intent for expanding the TLGP to cover mandatory convertible debt is to give eligible entities additional flexibility to obtain funding from investors with longer-term investment horizons and to reduce the concentration of FDIC-guaranteed debt maturing mid-2012, which might otherwise have to be rolled into new debt.
Definition of Mandatory Convertible Debt; Eligibility.
The Interim Rule defines "mandatory convertible debt" to mean "senior unsecured debt that is required by the terms of the debt instrument to convert into common shares of the issuing entity on a fixed and specified date, on or before June 30, 2012, unless the issuing entity (1) fails to timely make any payment required under the debt instrument, or (2) merges or consolidates with any other entity and is not the surviving or resulting entity."
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