Retained Interest Transactions vs. Bulk Sales : Evidence from the Rtc Amda

In 1993, RTC entered into two large retained interest partnership transactions governing approximately $4 billion of troubled real estate assets. RTC retained an interest in these assets as the sole Limited Partner with a private sector General Partner operating under fully aligned incentives. These transactions, the first public/private partnerships of their kind, were engineered to align fully the financial incentives of the General Partner to maximize recoveries on the troubled asset portfolios and thus minimize the cost to the taxpayers of resolving the Savings-and-Loan Crisis. In this paper we analyze the performance of these retained interest partnership transactions vis-a-vis bulk sales undertaken by the RTC. We develop econometric methods to control for asset market value and determine the cost savings and rates of return to the taxpayers from their derived ownership of the retained interest. The empirical analysis reveals that the partnership transactions dominate bulk sales as efficient vehicles for privatizing government-held distressed assets