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2.10 The FDIC's Authority to Establish Bridge Financial Companies

<< Title II Overview

2.10 The FDIC's Authority to Establish Bridge Financial Companies

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2.10.     The FDIC's Authority to Establish Bridge Financial Companies.  The Act gives the FDIC an important element of flexibility in carrying out its liquidation responsibility by authorizing it to establish one or more companies known as a bridge financial company either in connection with an existing receivership or in anticipation of a potential receivership.  A bridge financial company has the authority to purchase assets and assume liabilities from a covered financial company as determined by the FDIC in its discretion. [§210(h)]

2.10.1.    Structure of a Bridge Financial Company.  A bridge financial company will operate under a board of directors appointed by the FDIC.  It may operate without any capital or surplus, although the FDIC may authorize the company to issue stock.  The FDIC may also make funds available to the bridge financial company for its operations in lieu of capital. 

The same principles discussed above in regard to the treatment of creditors of a covered financial company, including the potential to treat similarly situated creditors differently, subject to satisfaction of a minimum payment requirement to disfavored creditors, apply in connection with the establishment of a bridge financial company. 

            2.10.2.    Term of a Bridge Financial Company.   The status of a bridge financial company as such an entity will end 2 years after it is established, subject to the potential for up to three 1-year extensions.  A company's status as a bridge company will terminate, among other events, upon (i) a merger with another company that is not a bridge financial company, or (ii) at the election of the FDIC, the sale of a majority of the capital stock of the bridge financial company.  The FDIC also has the authority to dissolve the bridge financial company.

            2.10.3.    Borrowings by a Bridge Financial Company.   A bridge financial company is authorized to obtain unsecured credit or debt.  If the company is not able to obtain such funds, it may, with the approval of the FDIC, issue debt that has priority over any obligations of the bridge financial company, and that is secured by a lien on property of the company that is not otherwise subject to a lien.  In a notable provision, the FDIC, after notice and a court hearing with the impacted lien holders, may authorize the issuance of debt by the bridge financial company secured by a senior or equal lien on property of the company that is already subject to a lien if the company is otherwise unable to obtain such credit and there is adequate protection for the interest of the holder of the lien on the property as to which the senior or equal lien is to be granted. No credit or debt obtained or issued by a bridge financial company may impair the rights of a counterparty to a QFC other than with respect to the priority of any unsecured claim.