Invesco (LSE:IVZ)
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From Jun 2019 to Jun 2024

U.S. Treasury Secretary Timothy Geithner announced Wednesday that the much anticipated toxic asset purchase program will be running in six weeks, but distressed debt investors hardly rushed in to buy these securities ahead of the launch.

Uncertainty about how the program will work and skepticism about whether the government will be able to work out the kinks by July have kept trading of distressed assets like home loans and securities to just $2 million to $5 million lots.

"The Treasury still is sifting through the program manager applications, and until they pick managers they are not in a position to put the program in place," said Jim Dougherty, managing director of NewOak Capital, a New York-based advisory and asset management firm that specializes in distressed debt.

The Public-Private Investment Program, or PPIP, is designed to help banks rid themselves of the toxic assets that clog their balance sheets. The $1.1 trillion program will provide guarantees and leverage to private investors to purchase these assets, mostly commercial and residential loans and securities.

Concerns about the scope and the size of the government program have stalled active trading of distressed mortgage debt, except for small performing loans, said Jeremy Smith, chief strategy officer at SecondMarket, a trading platform for distressed debt.

"There is a lot of private capital on the sidelines awaiting PPIP's details," he said.

One of the concerns investors have is whether banks and other sellers would still feel compelled to sell distressed assets in the PPIP program.

The government plans have given holders of distressed debt some cushion, giving them the option to hold and work out these assets, rather than try and sell them at distressed prices, Dougherty said.

So far, there has been a wide discrepancy on price between buyers and sellers.

"Prices haven't come together," said Jeff Freud, founder and CEO of LoanMarket.Net, which operates an online platform to sell real estate loans.

However, other investors are using this time to prepare for the program's launch.

Invesco Ltd. (IVZ), an investment management company, filed to register a separate company called Invesco Mortgage Capital Inc. to invest and manage residential and commercial mortgage bonds and loans that it could purchase through the PPIP and Term Asset-Backed Securities Loan Facility. The company hopes to raise money, and leverage government funds through the programs for its investment.

In addition, Invesco's distressed debt affiliate, WL Ross, has committed to invest $1 billion in the program - $500 million on loans and $500 million on bonds, when it launches.

 
   -By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com