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Bidder Qualification Application: Frequently Asked Questions



  1. Question 1: What is the definition of a key employee?
  2. Question 2: Question 1.12: If the Bidder is an LLC (a pass-through entity for U.S. tax), but the ultimate K-1 recipients are subject to U.S. tax, how should responses to question 1.12 be documented?
  3. Question 3: Question 1.17: What additional information is required if the servicer has been servicing loans for less than 3 years?
  4. Question 4: For Section 1.3, if the Acquisition Vehicle has not yet been determined, can this be left as "To be determined" for purposes of this form?
  5. Question 5: Question 2.2.2: What if the bidder does not have audited financial statements?
  6. Question 6: Regarding the documentation support requested for 2.3.1, is it necessary for a bidder to provide this if it currently reports into the FDIC with regard to funding/liquidity positions on a daily basis. Is a letter from our investment fund parent stating that it has sufficient funds available to fund the transaction adequate support or must such a letter be accompanied by the investment fund parent balance sheet?
  7. Question 7: Sections 2.3.2 Please provide further guidance on what is required to satisfy this requirement.
  8. Question 8: Question 2.3.2: Private Equity firms cannot have an open-ended equity funding obligation because they need to call capital from investors. Is it satisfactory to describe the ability to call capital from investors in lieu of setting aside cash for this potential funding obligation?
  9. Question 9: Question Section 2.4.1: With regard to the "Scoring Methodology," there is no scoring methodology referenced for the Fitch Special Servicer Ratings (RSS1, RSS2, etc) only the Fitch Primary Servicer Ratings. Should we include both the primary and special servicer rating for our captive platform?
  10. Question 10: Multiple servicers and investors may jointly be bidding on the LLC interests and servicing and are wondering how to respond to certain questions when multiple entities are involved. For example, how would you answer question 2.4.1 if one bidder in the group is rated and one is not rated. Does the bidder pick one member of the group to base the answer on or does the bidder look at it as a group (i.e. one of the parties is not rated; therefore the answer is "Not Rated")?
  11. Question 11: Section 2.5: In the event that a Bidder owns a Servicer, should both the Bidder and Servicer fill out section 2.5 as separate entities?
  12. Question 12: A bidder has submitted all prior paperwork and had it signed by the parent company. They are now preparing the bidder/servicer qualification document and have prepared it for a subsidiary of the parent company. The subsidiary company plans to be the "bidder" and "owner" of the SPE. Does this present a problem?
  13. Question 13: Why has Section 1.3 Minority-or Women-Owned Investors been included in the application? How will the provided information be used? Will this affect the score of the application?

1. Question:
What is the definition of a key employee?

Answer:
Key Employees are considered the senior executives, or senior management team who are considered to be managing or controlling the operations of the Bidder, including those managing or controlling the Acquisition Vehicle and Servicer.


2. Question:
Question 1.12: If the Bidder is an LLC (a pass-through entity for U.S. tax), but the ultimate K-1 recipients are subject to U.S. tax, how should responses to question 1.12 be documented?

Answer:
Please document in response to Question 1.12 that the Bidder is not subject to US tax, and provide in the explanation the tax status of the Bidder and whether the ultimate recipients are subject to US tax.


3. Question:
Question 1.17: What additional information is required if the servicer has been servicing loans for less than 3 years?

Answer:
If the answer to Question 1.17 is yes, please provide any information not captured in Section 2.4 that would provide additional support for the credentials of the servicing team. This could include additional details of the prior servicing experience of Key Employees.


4. Question:
For Section 1.3, if the Acquisition Vehicle has not yet been determined, can this be left as "To be determined" for purposes of this form?

Answer:
If the acquisition vehicle has not been determined at the time of the submission, it would be reasonable to note 'not yet determined' and provide that information at a later date. However, the Bidder should endeavor to provide the information for the key affiliates (e.g. likely stakeholders in, providers of finance to, the acquisition vehicle) at the time of submission. This section is for information purposes and will not impact scoring.



5. Question:
Question 2.2.2: What if the bidder does not have audited financial statements?

Answer:
If Bidder does not have audited financial statements, Bidder should provide the following supplementary information, if available, as noted below:
  • If no audited financial statements are available for the bidder, but they are included in consolidated audited financial statements of the parent company, please provide a copy of these parent company audited financial statements (including the auditor opinion)
  • If no audited financial statements are available for the bidder, please provide a Dunn & Bradstreet report with a composite risk and financial stress rating, available.
  • If no audited financial statements are available for the bidder please provide an unaudited balance sheet and an income statement and certification from the CFO (or equivalent) in the format required by the Application Instructions.



6. Question:
Regarding the documentation support requested for 2.3.1, is it necessary for a bidder to provide this if it currently reports into the FDIC with regard to funding/liquidity positions on a daily basis. Is a letter from our investment fund parent stating that it has sufficient funds available to fund the transaction adequate support or must such a letter be accompanied by the investment fund parent balance sheet?

Answer:
Responses to Section 2.3.1 should provide an explanation for how the Bidder intends to fund the purchase price at closing. Responses should include supporting documentation to evidence the actual dollar amount of funding available and that funds are readily accessible, or document a plan of how liquid funds will be obtained prior to the closing date (e.g. sale of securities). Responses should not comment on the Bidder's general liquidity position, but specifically address the Acquisition Vehicle's source of funds for the transaction. Examples of funding documentary support are copies of bank statements, investment statements, guaranty letters, intercompany loan agreements, third party loan agreements, and audited financial statements (audited within the last 9 months). If the Bidder intends to raise funds through a capital call, the amount of capital available (including the unfunded amount) should be provided, as well as a copy of an investor agreement documenting the number of days in which the capital can be called.


7. Question:
Sections 2.3.2 Please provide further guidance on what is required to satisfy this requirement.

Answer:
Depending upon the assets in the Portfolio at Auction, there is likelihood that future cash flows may not realize as expected. As part of their due diligence Bidders are expected to obtain an understanding of the composition of the assets in the Portfolio at Auction, including an understanding of ongoing cash flows and potential future cash requirements. Responses to Section 2.3.2 should outline the Bidders rationale for determining that additional funding to the LLC will not be required, or provide evidence of incremental liquidity sources that could be used to satisfy unexpected liquidity requirements of the LLC, to the extent required by the transaction documents.

Additional liquidity sources could include, among others, parental guarantee, revolving credit facilities, uncalled committed capital.



8. Question:
Question 2.3.2: Private Equity firms cannot have an open-ended equity funding obligation because they need to call capital from investors. Is it satisfactory to describe the ability to call capital from investors in lieu of setting aside cash for this potential funding obligation?

Answer:
Please provide details of the ability to call capital from investors, as required to meet funding obligations. This can include an excerpt from a copy of an investor agreement. Please also provide documentation regarding the total amount of capital available to be called (including unfunded amounts). This documentation may include audited financial statements.


9. Question:
Question Section 2.4.1: With regard to the "Scoring Methodology," there is no scoring methodology referenced for the Fitch Special Servicer Ratings (RSS1, RSS2, etc) only the Fitch Primary Servicer Ratings. Should we include both the primary and special servicer rating for our captive platform?

Answer:
Yes, please provide the primary and special servicer ratings, where applicable, in response to Section 2.4.1. The servicer rating will be scored in a manner consistent with the rating agency definitions for the rating and rating type.


10. Question:
Multiple servicers and investors may jointly be bidding on the LLC interests and servicing and are wondering how to respond to certain questions when multiple entities are involved. For example, how would you answer question 2.4.1 if one bidder in the group is rated and one is not rated. Does the bidder pick one member of the group to base the answer on or does the bidder look at it as a group (i.e. one of the parties is not rated; therefore the answer is "Not Rated")?

Answer:
The appropriate way for an investor and servicer to complete the application depends on the role each party will take in the transaction, and post closing. Each party providing servicing of the assets should complete a separate Section 2.4 response, noting to which party each response relates. Each party with a financial interest in the transaction should provide a complete Application.
For example, in instances where an investor is not providing any servicing, but outsourcing to a third party servicing provider and that servicer does not have a financial interest in the transaction, then all sections other than Section 2.4 should be completed by the investor. Section 2.4 should be completed for the servicer, and the name of the servicer should be indicated.
In instances where the investor will be providing some servicing of the assets, and also using a sub servicer, and the sub servicer does not have a financial interest in the transaction, then all sections other than Section 2.4 should be completed by the investor.
Section 2.4 would need to be completed for the investor (as a servicer) and a separate Section 2.4 completed for the sub servicer (please submit two separate Section 2.4 responses indicating the party to which each relates). If the Servicer/Sub-servicer has a financial interest in the transaction (e.g. is a co-investor), then this would be considered a consortium/club deal and a separate Application would be required for each of the parties.



11. Question:
Section 2.5: In the event that a Bidder owns a Servicer, should both the Bidder and Servicer fill out section 2.5 as separate entities?

Answer:
Components of the response to Section 2.5 will relate directly to the servicing, while other components relate more to the strategic investment plan. As detailed in the Application, the Portfolio Management Plan provided in response to Section 2.5 should address the following four areas: 1) Overall Project Strategy, including transition plan,, 3)Operational Capacity, 4)Exit Strategy.
The first and last bullets relate to the strategic investment plan, and will likely be answered by the Bidder; the second bullet is more specifically related to the servicing of the assets over the investment period.



12. Question:
A bidder has submitted all prior paperwork and had it signed by the parent company. They are now preparing the bidder/servicer qualification document and have prepared it for a subsidiary of the parent company. The subsidiary company plans to be the "bidder" and "owner" of the SPE. Does this present a problem?

Answer:
The definition of Bidder Companies included in the instructions to the Bidder Qualification Application would include the Acquisition Vehicle and its direct parent (expected to have provided >25% of the funding of the Acquisition Vehicle). Therefore, responses to more general questions (such as Level 1 and Section 2.2) are expected to include any details specific to the parent and Acquisition Vehicle. Sections specific to providing funding and asset management of the Portfolio (Section 2.3 and 2.4) should refer to the experience of the Lead Bidder (as defined in the instructions to the Bidder Qualification Application) and its ability to fund the transaction and ongoing obligations.

The entity that actually bids (and will sign the transaction documents) must be qualified (complete the Qualification Request, Confidentiality Agreement, Purchaser Eligibility Certificate and go through the Bidder Pre-qualification process). The Bidder in this circumstance would need to resubmit the Qualification Request, Confidentiality Agreement, and Purchaser Eligibility Certificate for the Bidder as opposed to the parent company.



13. Question:
Why has Section 1.3 Minority-or Women-Owned Investors been included in the application? How will the provided information be used? Will this affect the score of the application?

Answer:
The FDIC welcomes and encourages participation of minority-or women-owned investors in bidding on portfolios of loans and other assets under the FDIC structured sales. As the FDIC is interested in understanding the level of diversity of those entities participating in the program, you have the opportunity to disclose information about being minority- or women-owned investor, if applicable. The provided information will be used by FDIC to examine participation levels and potential underrepresentation and to identify investor outreach activities to support diversity of participation. The disclosure of this information is for informational purposes only, and will not affect the scoring of the application.







Last Updated 04/13/2010 prospectivepurchaser@fdic.gov