Regulators are using a new financing technique to entice investors into buying multimillion-dollar packages of properties once owned by failed savings and loans, the head of the S&L; bailout said Wednesday.
L. William Seidman, chairman of the Resolution Trust Corp., said the agency hopes to use the technique to sell as much as 80% of its $100 billion in hard-to-sell commercial real estate and loans.
The trust corporation, created in 1989 to handle the thrift cleanup, will sell large portfolios of assets in exchange for a share in the cash flow generated from the portfolios, such as office rents, hotel revenues and loan collections.
"The basic deal is they bid a down payment, they bid a split on the cash flow between them and us . . . until the bid price for the assets is achieved out of the cash flow," Seidman told a Bush Administration board overseeing the bailout.
"It's in effect a partnership," he said. "It puts us (the government) at risk for longer. We'd all prefer to get cash and walk away, but the market isn't there to do that."
Cash-flow financing marks the latest attempt by the agency to deal with the unprecedented load of assets it must manage from the nearly 600 S&Ls; that have failed over the past two years.
Seidman said it has become increasingly clear that the RTC has little hope of finishing its work by the legislated goal of 1996 unless it sells most of its $100 billion in hard-to-sell property in bulk.
"If we could sell $1 million a day, it would take us 300 years to sell those assets. . . . The only way we can hope to . . . perhaps stay on the schedule the Congress set for us is to do . . . large sales to large buyers," he said.
All of the properties in the packages already will have been offered at discounted prices for at least six months without takers. Potential bidders will get some say as to what kind of packages they would like.
Seidman said the agency has compiled a list of more than 50 insurance companies, real estate firms and other investors considered to have the financial capability and expertise necessary to handle large portfolios.
The Resolution Trust Corp. has reached tentative agreements on three packages totaling $1.2 billion, he said. Cash-flow financing has been used for each.
Agency spokesman Stephen Katsanos declined to disclose details of the deals until they are finalized in about six weeks.