ECIP Frequently Asked Questions on Legal Agreements, Closing Process, and the ECIP Interim Final Rule (Treasury, Updated January 25, 2024)

Summary

A U.S. Department of the Treasury document, updated January 25, 2024, of frequently asked questions on the legal agreements, closing process and interim final rule of the Emergency Capital Investment Program (ECIP). Its table of contents lists questions on whether ECIP instruments can remain outstanding after a recipient's charter change or conversion; whether the instruments can be redeemed at the recipient's option or at Treasury's direction; whether Treasury will exercise the registration rights in Annex E of the Securities Purchase Agreement; and whether every institution must deliver the legal opinion required as a closing condition. The closing answers address limits on capital distributions under 31 CFR 35.23(b)(2) and how credit unions may seek Treasury approval to exceed them.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“ECIP Frequently Asked Questions on Legal Agreements, Closing Process, and the ECIP Interim Final Rule (Treasury, Updated January 25, 2024).” Original at home.treasury.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/ecip-frequently-asked-questions-on-legal-agreements-closing-process-an-90a6d7008b/, SHA-256 0083df98b7ff4806d028331f607ff153b82f412a3b11f817b63e98b8dffd56e1.

Full text

Updated January 25, 2024

EMERGENCY CAPITAL INVESTMENT PROGRAM
U.S. Department of the Treasury
Frequently Asked Questions
on Legal Agreements, Closing Process, and the ECIP Interim Final Rule

Table of Contents
1. If an ECIP recipient effectuates a charter change or conversion, becomes owned by a new holding
company, or undergoes another corporate transaction after closing the transaction, can the ECIP
instruments remain outstanding? .............................................................................................................. 2
2. Can ECIP instruments be redeemed at the option of an ECIP recipient, or at the direction of
Treasury?................................................................................................................................................... 2
3. Will Treasury exercise the registration rights in Annex E of the Securities Purchase Agreement for
banking organizations? ............................................................................................................................. 2
4. One of the closing conditions in the Securities Purchase Agreement is that the recipient must
deliver to Treasury a written opinion from counsel to the recipient in substantially the form as in an
Annex to the Securities Purchase Agreement. Will all institutions be required to provide this legal
opinion? .................................................................................................................................................... 2
5. The deadline for approved institutions to confirm their intent to participate, the amount of ECIP
instruments they intend to issue, and their preferred transaction closing windows is April 4, 2022. Will
institutions be able to modify their responses after this date? .................................................................. 3
6. Under the ECIP Securities Purchase Agreements, an ECIP recipient that is a CDFI as of the ECIP
closing date is prohibited from revoking its status as a CDFI and must “use its reasonable best efforts to
prevent its status as a CDFI from being changed.” How does an ECIP recipient remain in compliance
with this provision if it loses its CDFI certification? ................................................................................ 3
7. Treasury has adopted an interim final rule (IFR) that establishes restrictions on capital
distributions for ECIP participants (31 CFR Part 35 Subpart B). Section 35.23(b)(1) of the IFR requires
ECIP participants that are not credit unions to obtain Treasury approval before making capital
distributions that exceed their “eligible distributable income.” Under what circumstances will Treasury
consider granting approval for a capital distribution that exceeds the limits in the IFR? ......................... 3

1
Updated January 25, 2024

1. If an ECIP recipient effectuates a charter change or conversion, becomes owned by a new
holding company, or undergoes another corporate transaction after closing the transaction,
can the ECIP instruments remain outstanding?
If the issuer of ECIP instruments undergoes a corporate transaction but will continue to exist
as a legal entity, the ECIP instruments are not required to be redeemed.

If the issuer of ECIP instruments sells, transfers, conveys, or leases all or substantially all of
its assets to any other party (including to a newly formed entity or to a holding company),
then Section 4.2(a) of the Securities Purchase Agreement would be triggered, requiring the
successor, transferee or lessee party to assume the due and punctual performance and
observance of the covenants, agreements and conditions of the Securities Purchase
Agreement, including, if applicable, the issuance by the successor party of equivalent ECIP
instruments. Any such successor entity must also be eligible, at the time of the transaction, to
participate in the ECIP unless Treasury’s prior written approval is obtained.

2. Can ECIP instruments be redeemed at the option of an ECIP recipient, or at the direction of
Treasury?
Redemptions of the ECIP instruments are governed by the transaction documents – Section 5
of the Senior Preferred Certificate of Designations; Section 6.10 of the Credit Union
Securities Purchase Agreement; and Section 6.10 of the S-Corp/Mutual Securities Purchase
Agreement. Under those provisions, holders of the ECIP instruments “have no right to
require redemption or repurchase of any” of the instruments.

3. Will Treasury exercise the registration rights in Annex E of the Securities Purchase
Agreement for banking organizations?
As stated in Section 4.1(h) of the Senior Preferred Securities Purchase Agreement and 4.1(i)
of the S-Corp/Mutual Securities Purchase Agreement, the recipient must comply with the
terms and conditions of Annex E only upon the request of Treasury or any holder of the
instruments to which the registration rights are assigned. Treasury may determine at a future
date whether to exercise its registration rights.

4. One of the closing conditions in the Securities Purchase Agreement is that the recipient must
deliver to Treasury a written opinion from counsel to the recipient in substantially the form
as in an Annex to the Securities Purchase Agreement. Will all institutions be required to
provide this legal opinion?
Treasury intends to waive the requirement for recipients to provide a legal opinion at closing
for institutions that meet all three of the following conditions: (i) the institution is issuing
subordinated debt; (ii) the institution has $500 million or less in total assets, based on the

2
Updated January 25, 2024

methodology and data used by Treasury during the application review process; and (iii)
Treasury’s ECIP investment in the institution is $25 million or less.

5. The deadline for approved institutions to confirm their intent to participate, the amount of
ECIP instruments they intend to issue, and their preferred transaction closing windows is
April 4, 2022. Will institutions be able to modify their responses after this date?
Institutions may modify their responses at any time on or before April 4, 2022 by contacting
ecip@treasury.gov. Treasury will use the information received in the closing response forms
to plan and schedule closings, and our expectation is that all institutions will issue the amount
indicated in their closing response form. Any deviation from those amounts may affect the
institution’s ability to close the transaction.

6. Under the ECIP Securities Purchase Agreements, an ECIP recipient that is a CDFI as of the
ECIP closing date is prohibited from revoking its status as a CDFI and must “use its
reasonable best efforts to prevent its status as a CDFI from being changed.” How does an
ECIP recipient remain in compliance with this provision if it loses its CDFI certification?
If an ECIP recipient loses its CDFI certification but reapplies for certification with a
complete and accurate application within 18 months from the date of decertification,
Treasury will deem the ECIP recipient to be using its reasonable best efforts to prevent its
status as a CDFI from being changed. Treasury may provide further guidance on additional
steps an ECIP recipient that is decertified as a CDFI should take to continue to remain in
compliance with this requirement under the ECIP Securities Purchase Agreement if its re-
application for CDFI certification is unsuccessful.

7. Treasury has adopted an interim final rule (IFR) that establishes restrictions on capital
distributions for ECIP participants (31 CFR Part 35 Subpart B). Section 35.23(b)(1) of the
IFR requires ECIP participants that are not credit unions1 to obtain Treasury approval before
making capital distributions that exceed their “eligible distributable income.” Under what
circumstances will Treasury consider granting approval for a capital distribution that exceeds
the limits in the IFR?
The restrictions on capital distributions in Section 35.23 of the IFR promote the integrity of
ECIP by promoting the use of ECIP investments to provide loans, grants, and forbearance for
small businesses, minority-owned businesses, and consumers, especially in low-income and
underserved communities, including persistent poverty counties, that may have been
disproportionately impacted by the economic effects of the COVID–19 pandemic, in

1
Participants that are credit unions are also subject to restrictions on capital distributions as set out in 31 CFR §
35.23(b)(2). The process outlined in this FAQ only applies to Participants that are not credit unions. Credit unions
that seek Treasury approval to make capital distributions in excess of the limits set out in 31 CFR § 35.23(b)(2)
should contact ECIP@treasury.gov.

3
Updated January 25, 2024

accordance with the statutory purpose of the program. The restrictions help ensure that ECIP
investments are not used to fund undue distributions or compensation for an ECIP
participant’s shareholders or executives.
If an ECIP participant believes that special circumstances justify a capital distribution in
excess of the limitations under the IFR, it may request Treasury approval to make such a
distribution. ECIP participants should submit any such request to ECIP@treasury.gov at least
90 days before the date of the proposed distribution. Treasury will consider requests that
meet the following criteria:

1. The ECIP participant’s primary federal banking regulator has confirmed in writing
that it has approved (or does not object to) the proposed capital distribution, or the
ECIP participant has confirmed that no such approval is required. In addition, if the
ECIP participant is a bank holding company or savings and loan holding company
and the capital distribution requires approval of the primary federal regulators of any
of its bank or savings and loan subsidiaries, such regulators must confirm in writing
that they have approved (or do not object to) the capital distribution.

2. An executive officer of the ECIP participant has represented in writing that (a) the
proposed capital distribution is permissible under applicable federal and state law and
regulation and the participant’s organizational governance documents (e.g., charter
and bylaws) and (b) all required regulatory or stockholder approvals have been or,
prior to the making of the capital distribution, will be, obtained.

3. The ECIP participant will remain “well capitalized” under the FDIC’s Prompt
Corrective Action Guidelines2 after the proposed capital distribution, calculated as of
the end of the most recently completed fiscal quarter for which the Participant has
filed a Call Report, without including the amount of the ECIP investment.

4. The ECIP participant has credibly demonstrated in writing that the proposed capital
distribution would not impair the ECIP participant's ability to use the entirety of the
benefit of its ECIP investment to increase its ECIP-related activities, including
providing loans, grants, and forbearance for small businesses, minority-owned
businesses, and consumers, especially in low-income and underserved communities,
including persistent poverty counties, that may have been disproportionately impacted
by the economic effects of the COVID-19 pandemic.

5. The ECIP participant has demonstrated that its rationale for the proposed capital
distribution includes at least one of the following:
a. the request relates to a one-time capital distribution in connection with a
repurchase of shares to enable a conversion from C-Corporation to S-
Corporation status, a mutual-to-stock conversion, or a bona fide restructuring
conducted for the purpose of enabling a reasonably foreseeable initial public
offering by the participant;

2
12 CFR § 324.403.

4
Updated January 25, 2024

b. if the participant is an S-Corporation, the proposed share repurchase is
intended to ensure that the participant maintains its S-Corporation status;
c. the proposed capital distribution is limited and routine (e.g., regular dividends,
a share repurchase program, or share repurchases effected pursuant to a
Participant’s equity compensation programs), consistent with the participant’s
historical practices in 2019 and 2020, and does not significantly exceed the
participant’s level of limited and routine capital distributions during this time
period, measured by reference to the percentage of outstanding shares to be
purchased in the case of share repurchases or by reference to percentage of net
income in the case of dividends; or
d. the participant's eligible distributable income during the relevant look-back
period under the IFR has been negatively impacted by a significant
nonrecurring or nonoperating expense, in the absence of which the proposed
capital distribution would have complied with the IFR, and the participant has
reported positive net income without any adjustments for at least the four
quarters following the most recent quarter in which the significant
nonrecurring or nonoperating expense occurred.

Any request for approval must be credibly supported with adequate documentation, such as:

1. Audited consolidated annual financial statements for the two most recently completed
fiscal years for which financial statements are available, and unaudited consolidated
quarterly financial statements for each completed fiscal quarter thereafter for which
financial statements are available.

2. The ECIP participant’s projected income statement and balance sheet as of the end of
the current fiscal year.

3. A pro forma balance sheet, including capital ratios, as of the end of the most recently
completed fiscal quarter for which the ECIP participant has filed a Call Report, giving
effect to the proposed capital distribution and excluding the amount of the ECIP
investment from calculations of equity, capital ratios, and related figures.

This FAQ only applies to ECIP participants that are not credit unions. ECIP participants that
are credit unions are subject to restrictions on capital distributions under 31 CFR 35.23(b)(2).
Credit unions that wish to request Treasury approval to make capital distributions in excess
of the limits set out in the IFR should contact ECIP@treasury.gov.

File and source

File: TREAS-Legal-Agreements-FAQs-01-25-2024.pdf
Size: 138,520 bytes
SHA-256: 0083df98b7ff4806d028331f607ff153b82f412a3b11f817b63e98b8dffd56e1
Our copy: TREAS-Legal-Agreements-FAQs-01-25-2024.pdf
Original: home.treasury.gov