- Capital provided under the CAP will be in the form of a preferred security that is convertible into common equity at a 10 percent discount to the price prevailing prior to February 9th.
- CAP securities will carry a 9 percent dividend yield and would be convertible at the issuer’s option (subject to the approval of their regulator).
- After 7 years, the security would automatically convert into common equity if not redeemed or converted before that date.
- The instrument is designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit.
- With supervisory approval, banks will be able to request capital under the CAP in addition to their existing CPP preferred stock.
- With supervisory approval, banks will also be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.
The full release from the Treasury Department is here.