A Step-by-Step Illustration of SPOE Resolution. February 2016

Transcription

1 A Step-by-Step Illustration of SPOE Resolution February 016

2 Group Structure and Hypothetical Losses Leading to Failure

3 Group Structure and Losses Leading to Failure Step 1: Group Structure Before Failure Public shareholders 5 5 advances to subs Parent Only Balance Sheet 45 Unsecured long-term in subs 45 Unsecured short-term 0 Other assets Secured liabilities 0 Total 0 Other liabilities 5 45 Total 0 3

4 Group Structure and Losses Leading to Failure Step : Hypothetical Losses Resulting in Failure Total hypothetical losses: 41 Public shareholders Model assumes losses are spread evenly among operating subsidiaries Model assumes that failure is based on the likely inability of the to pay its obligations as they come due in the ordinary course of business because of insufficient liquidity or access to liquidity as a result of the losses Red font indicates figures that changed as a result of losses advances to subs Parent Only Balance Sheet 45 Unsecured long-term in subs 9 Unsecured short-term 0 Other assets 5 Secured liabilities 0 Total 59 Other liabilities 0 9 Total 59 4

5 Two-Company SPOE Resolution Strategy* * A two-company SPOE resolution strategy can be carried out under either Title II of the Dodd-Frank Act or Chapter 11 of the Bankruptcy Code. These slides assume it is being carried out under Title II. If it were being carried out under Chapter 11, Step 4A would likely occur before the files under Chapter 11 and transfers its assets to a Bridge BHC as illustrated in Step 3A in order to maximize the value of its operating subsidiaries for the benefit of its creditors and other stakeholders in the Chapter 11 proceeding.

6 Two-Company SPOE Resolution Step 3A: Recapitalizing Business Transferred to Bridge BHC Trustee Trustee holds Bridge BHC for the benefit of the Title II receivership or bankruptcy estate. Claims left behind Long-term : : 9 in Title II receivership or Chapter 11 bankruptcy proceeding All assets, including shares in subsidiaries (Plus assumption of parent guarantee liabilities, if any) Bridge BHC 5 5 Receivership / Bankruptcy Estate Balance Sheet of Bridge BHC 59 Unsecured long-term Total 59 9 Total 59 Bridge BHC Balance Sheet Kept out of FDIC receivership proceeding Kept out of insolvency proceeding Kept out of insolvency proceeding advances to subs 45 Liabilities 0 in subs 9 59 Other assets 5 Total 59 Total 59 Kept out of insolvency proceeding 6

7 Two-Company SPOE Resolution Step 4A: Recapitalizing Operating Subsidiaries Trustee Claims left behind Long-term : : 9 in Title II receivership or Chapter 11 bankruptcy proceeding Bridge BHC Convert intercompany to equity at operating subsidiaries Red font indicates figures that have changed as a result of the recapitalization of the subsidiaries Receivership / Bankruptcy Estate Balance Sheet of Bridge BHC 59 Unsecured long-term Total 59 9 Total 59 BHC Bridge Balance Sheet advances to subs 9 Liabilities 0 in subs Other assets 5 Total 59 Total 59 This slide assumes that the SPOE strategy is being carried out under Title II of the Dodd-Frank Act. If it were being carried out as part of a Chapter 11 bankruptcy proceeding, the would likely have recapitalized its operating subsidiaries before filing under Chapter 11 and transferring its assets to a Bridge BHC as illustrated in Step 3A in order to maximize the value of its operating subsidiaries for the benefit of its creditors and other stakeholders in the Chapter 11 proceeding. 7

8 Two-Company SPOE Resolution Step 5A: Distribution of (or Net Proceeds from Sale) in Satisfaction of Claims o Unsecured long-term claimants receive Bridge BHC shares worth (or the net proceeds from a public or private sale) in satisfaction of their claim for o : 0 Claimants in Title II receivership or Chapter 11 bankruptcy proceeding Shares in Bridge BHC (or net proceeds from sale) distributed to left-behind claimants in satisfaction of claims in accordance with the priority of their claims Trustee Bridge BHC Receivership / Bankruptcy Estate Balance Sheet (Revalued) of BHC Bridge Unsecured long-term Total 0 advances to subs BHC Bridge Balance Sheet (Revalued) 5 Liabilities 0 in subs 45 Other assets 0 Total Total Total Kept out of FDIC receivership proceeding Kept out of insolvency proceeding Kept out of insolvency proceeding Kept out of insolvency proceeding All other assets sold and 4 in intercompany deposits withdrawn to service Bridge BHC s liquidity needs during SPOE process. Red font indicates figures that have changed. 8

9 Two-Company SPOE Resolution Step 6A: Termination of Bridge Status Trust is terminated Trustee New shareholders (Either old holders or third parties pursuant to public or private sale) in Title II receivership or Chapter 11 bankruptcy proceeding Bridge BHC converts into New BHC (loses status as a bridge institution) New BHC 1 5 New BHC Balance Sheet advances to subs 5 Liabilities 0 in subs 45 Other assets 0 Total Total In this example, the new BHC that exits SPOE has half the balance sheet of the failed that entered SPOE. Indeed, the BHC that exits SPOE is virtually always substantially smaller than the BHC that entered SPOE because of losses and the sale of assets to provide liquidity during the SPOE process. See public summaries of 015 Title I Resolution Plans of the s, which you can access here. 9

10 One-Company SPOE Resolution Strategy* * A one-company SPOE resolution strategy can be carried out under Chapter 11 of the Bankruptcy Code with the as or-in-possession, but not under Title II of Dodd-Frank.

11 One-Company SPOE Resolution Step 3B: Recapitalizing Operating Subsidiaries before entering Chapter 11 bankruptcy proceeding Convert intercompany to equity at operating subsidiaries Red font indicates figures that have changed as a result of the recapitalization of the subsidiaries Balance Sheet advances to subs 9 Unsecured long-term in subs 45 9 Other assets 5 Total 59 Total 59 The would likely recapitalize its operating subsidiaries before filing under Chapter 11 in order to maximize the value of those operating subsidiaries for the benefit of its creditors and other stakeholders in the Chapter 11 proceeding. 11

12 One-Company SPOE Resolution Step 4B: Enters Bankruptcy as Debtor in Possession Debtor in possession assumes obligations under guarantees of QFCs of subsidiaries not in proceedings o Unsecured long-term claims: o claims: 9 Claimants Other s of BHC stayed by bankruptcy proceedings and subject to plan of reorganization in Chapter 11 bankruptcy proceeding (as or in possession) 5 5 Debtor in Possession Balance Sheet advances to subs 9 Unsecured long-term in subs 45 9 Other assets 5 Total 59 Total 59 1

13 One-Company SPOE Resolution Step 5B: Operates as Debtor in Possession while Selling or Winding Down Operating Subsidiaries o Unsecured long-term claims: o claims: 0 Claimants in Chapter 11 bankruptcy proceeding (as or in possession) 1 5 Debtor in Possession Balance Sheet advances to subs 5 Unsecured long-term in subs 45 0 Other assets 0 Total Total All other assets sold and 4 in intercompany deposits withdrawn to service Bridge BHC s liquidity needs during SPOE process. Recapitalized subsidiaries are sold or wound down under failed as or in possession. Red font indicates figures that have changed. 13

14 One-Company SPOE Resolution Step 6B: Distribution of Net Proceeds from Sales in Satisfaction of Claims and Termination of Bankruptcy o Unsecured long-term claimants receive net proceeds from sales worth in satisfaction of their claim for, pursuant to a plan of reorganization o : 0 Claimants in Chapter 11 bankruptcy proceeding (as or in possession) 1 5 Debtor in Possession Balance Sheet advances to subs 0 Unsecured long-term in subs 0 0 Cash from sales or wind-down Total Total Stakeholders of the receive distributions of net proceeds from sales of operating subsidiaries and other assets pursuant to a plan of reorganization. The failed then exits bankruptcy and would be dissolved. 14