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Key Provisions of the German Bad Bank Concept

On May 13, 2009 the German cabinet introduced a draft bill known as the ''Bad Bank'' Act (''Draft Bill''). The proposed legislation will allow certain German institutions (each, a ''Transferring Institution'' or ''German Bank'', see 1 below) to transfer structured securities (''Structured Securities'', see 2 below) to special purpose vehicles located in Germany to be incorporated by such institutions (''SPV'' or ''Bad Bank'') in exchange for the issuance of new debt securities backed by the transferred Structured Securities from the special purpose vehicles to the Transferring Institutions (''Bonds''). The Governmental Rescue Fund (''SoFFin'') may guarantee the Bonds (''SoFFin Guarantee'' and the guaranteed Bond ''Guaranteed Bond'', see 3 below). The Transferring Institutions will have to pay to SoFFin a fee at market rate for the SoFFin Guarantee. The Structured Securities will be transferred to the SPVs at a value of 90% of their current book value (''Transfer Value'', see 4 below).

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