Show Me The Money, Or At Least Some Interest

I hope I am misunderstanding this from the Treasury term sheet on the Legacy Securities investment program:

Loans made by Treasury to any Fund will accrue interest at an annual rate to be determined by the Treasury and will be payable in full on the date of termination of the Treasury Capital Term.

Since you ask, the "Treasury Capital Term" is the wrap-up date of the fund, not to exceed ten years.

And my fright?  I don't want interest to accrue - I want it to be paid!  Annually, quarterly, monthly, whatever but unless investors are not allowed to dividend out any cash at all it is absurd that cash interest payments are not required.

My guess is that I am just overthinking this.  Presumably, they mean that the loan principal is payable at the termination of the fund and interest would be paid annually, as is normal practice.  Still, these are not normal times...

Comments

[steve sturm]

Me thinks you have it backwards, this refers to loans TO the funds from Treasury, in which case it's good for the funds that interest wouldn't be due until the wrap up date... not so good for the taxpayer.

[Fresh Air]

I'm not clear what the term "fund" means. Does it mean the structured entity, or the equity investor in the structured entity?

[Charlie (Colorado)]

You know how it is when you have to rush to get something like this out.

[Tom]

The term sheet says "Fund Managers must agree to waste, fraud and abuse protections for the Fund to be defined by Treasury in order to protect taxpayers."

Imagine the liablity risks for the five Fund Managers who will manage the shared equity investments of 3rd party investors and the US Treasury. I'd want some pretty strong disclaimers if I were on the side of the Fund Managers.

[Gmax]

Its a PIK BOND! Another one of wall street innovations! Now the government is in the structured finance ponzi scheme business!!