Financial Asset Sales (Joint Venture Transactions)

Every interested party, based on its own circumstances, must determine whether participating in a joint venture transaction is a suitable investment. Prospective purchasers must have the financial sophistication and resources sufficient to evaluate and bear the economic risks of this type of investment as well as the requisite expertise to manage the venture.

Parties interested in joint venture transactions may provide contact and investor status information and identify the types of financial assets, loans, and loan-related assets they are interested in purchasing by completing the Prospective Bidder Information form, and delivering the completed form electronically to: prospectivepurchaser@fdic.gov. Prospective bidders’ that submit the form will be included on a list to receive sale announcements that match their expressed interests.

The most common loan types in these transactions are loans secured by commercial or residential real estate, including acquisition, development, and constructions loans.

Typically, a joint venture transaction contains a large volume of loans with a substantial aggregate unpaid principal balance (e.g., in excess of $100 million) with similar characteristics or that meet specific criteria. Pooling considerations may include performance status, loan type, loan size, and collateral type and location.

Yes, the FDIC previously used the terminology ‘structured transaction’ to describe what is now referred to as a ‘joint venture transaction.’

The receiver forms a limited liability company (LLC), or other entity, and conveys assets from one or more failed bank receiverships to the LLC.

In exchange for the assets, the receivership is issued all (100 percent) of the equity interest in the LLC.

The winning bidder, also known as the private owner, purchases from the receivership a portion, typically ranging from 20 to 40 percent, of the equity in the LLC. The actual percentage is specific to each transaction.

Depending upon how the transaction is offered, the LLC may be leveraged, in which case the receivership will receive debt issued by the LLC in addition to the LLC’s equity upon the conveyance of the assets to the LLC.

In certain cases, the receiver may make borrowing facilities or pre-funded accounts available to allow the LLC to fund construction draws with respect to the assets and meet its working capital needs.

Cash flow from the assets, after deducting the monthly management fee, asset-related expenses, and other eligible expenses are allocated first to pay off any notes issued by the LLC to the receiver in a leveraged transaction and any other debt outstanding to the receiver and, then, to the receiver and the private owner, in accordance with their percentage interests.

Leveraged transactions include financing in the form of either amortizing or non-amortizing notes issued by the LLC as partial payment for the assets conveyed by the receiver. The notes may be guaranteed by the FDIC, in its corporate capacity, in case the receiver should decide to sell the notes in the secondary market.

Financing terms are determined by the risk and cash flow characteristics of the joint venture's underlying pool of assets.

Generally, the notes must be paid off before the equity owners receive any distributions.

The private owner is also the manager of the LLC and is responsible for the management and servicing of the assets conveyed to the LLC. The manager enters into a servicing agreement with a qualified servicer to service the assets in a manner consistent with industry standards and to maximize their value to the joint venture.

The private owner receives a monthly management fee, which is specific to each transaction and is disclosed to bidders prior to the bid date. Except for the management fee and certain reimbursable administrative expenses, the private owner, and not the LLC, bears the cost of overhead and administrative fees.

The FDIC has monitoring and oversight rights pursuant to the joint venture legal agreements. The private owner is required to deliver periodic financial statements, and monthly cash and financial reports to the FDIC. In addition, the FDIC engages third party contractors to perform periodic compliance reviews to test the private owner’s adherence to legal agreement provisions governing asset, financial, and business management activities of the LLC.

The documents governing the legal rights and obligations of borrowers do not change when their loans are conveyed in a joint venture transaction.

At FDIC’s discretion, pools proposed to be conveyed to a joint venture transaction may also be offered separately on a whole-loan all cash basis. In such a case, bidders may bid to acquire the whole loans and/or an interest in the joint venture.

Yes, the primary legal documents for past joint venture transactions are available at Historical Sales.