Terms

Once upon a time I was a legal assistant for a major international law firm specializing in venture capital financings, large and small. A key element of these deals is the term sheet, a concise (relatively speaking) document containing definitions, amounts, goals, and other components of the deal. How much money, when, and under what conditions. Simple. They usually clocked in around 10 pages for an average deal, and could often be shorter. Larger deals or funds would instead have prospectuses with all sorts of research etc. But one shot investments - the term sheet is the starting point for all the other legal wrangling.

What does a short term sheet indicate? That the writer is using an economy of words? In the case of the term sheet for the Citigroup bailout, it's just another blank check. It indicates that the government either has high confidence in the value of the securities and divdends it is receiving from Citi, or, more likely, it simply doesn't want to muddy the water. It is a clear statement: 'We are rescuing you, and damn anyone who says otherwise. We also hope to receive dividends.'

What securities are being purchased? Wait, are we even purchasing distressed assets? I thought we were injecting captial now. Oh, we're doing both. Okay.

The term sheet targets assets relating to commericial and residential real estate "and their associated hedges...and other such assets" as the USG has agreed to purchase. Agreed? Where? The TARP? The only clear limit on anything is the amount, up to $306 billion. The rest of the terms are quite ordinary. There are fairly generous dividends, interest plus 300 basis points, it seems like a fair deal once you get past the part where they've done nothing to justify any of it. And comparing this to a corporate law firm is pretty pointless, given that the government has fiat power over the currency, which it is currently wielding like a broadsword in a nursery school. The government doesn't have to come up with a lot of milestones for Citi, or be specific about the executive compensation plan, because it's the government, okay?