Source: Bloomberg.com

Starwood Capital Group LLC, Colony Capital LLC and TPG, whose leaders profited from the 1990s savings and loan crisis, are among firms buying assets from the Federal Deposit Insurance Corp. for as little as 22 cents cash on the dollar, according to data compiled by Bloomberg.

The sales, some including no-interest financing from the agency, are part of an FDIC effort to clean out $40 billion of loans that regulators seized from failed banks. Starwood Chief Executive Officer Barry Sternlicht told potential investors in February it’s “very hard to lose money” on the deals.

The government, which was faulted two decades ago for letting bank assets go at fire-sale prices, is planning to profit along with investors. Instead of selling the loans outright, the FDIC kept stakes of 50 percent or more in at least five loan portfolios sold since September. It’s also demanding as much as 70 percent of any gains.

“They are doing a much better job this time around,” said John Bovenzi, the FDIC’s chief operating officer until last year, who also helped unwind the S&L crisis. “They have learned a lot, and they aren’t making the same mistakes.”

Loan sales planned or completed in 2010 are on pace to reach at least $10 billion in book value by mid-year, matching the total for all of 2009. The FDIC arranged at least $860 million in interest-free financing this year to support deals, according to statements from the buyers. A new sale of FDIC- owned loans with a book value of $1.97 billion is scheduled for June, according to documents obtained today by Bloomberg News.

Failed Banks

The sales involve packages of loans acquired by the FDIC from 182 banks that failed since the start of 2009. The loans typically are tied to commercial real estate and residential development, and can include debt on which borrowers stopped making payments or property seized by the bank.

Terms entitle taxpayers to a share of any money that private investors squeeze from delinquent borrowers or any profit earned reselling the assets. The FDIC-backed debt has to be repaid before the private-equity firms can take any cash generated by the loans.

Financing doesn’t go directly to investors. Instead, the FDIC is creating limited liability companies that hold the loans being sold and receive the financing.

“It’s very hard to lose money on a transaction like that,” Sternlicht said on a Feb. 11 conference call with potential investors, according to a copy obtained by Bloomberg News. “That’s the kind of asymmetric risk profile you love in a deal.”

‘So Distressed’

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