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On Wednesday, October 5, 2022, the National Credit Union Administration (“NCUA”) issued a proposed rule (“Proposed Rule”) to amend its Subordinated debt rule (the “Sub-Debt Rule”), which they previously published in December 2020 and which came into effect on January 1, 2022.1 Under the Sub-Debt Rule, credit unions designated as low-income credit unions (“LICUs”), complex credit unions, and new credit unions are permitted to issue subordinated debt for corporate purposes. treatment of regulatory capital. The NCUA must receive comments on the proposed rule by December 5, 2022.
The NCUA is proposing two changes to the Secondary Debt Rule regarding (i) secondary grandfathered capital (“GSC”), as defined in the Secondary Debt Rule, and (ii) the maturity of subordinated debt (“notes”). First, the proposed rule would extend GSC’s regulatory capital treatment to the later of 30 years from the date of issue, January 1, 2052. the issued secondary capital. under the Emergency Capital Investment Program (“ECIP”), and align the treatment of regulatory capital across GSC.
Second, the proposed rule would replace the maximum maturity of notes with a requirement that any credit union seeking to issue notes with maturities greater than 20 years must demonstrate how those notes would continue to qualify as “debt” under NCUA regulations. Since January 1, 2022, the maturity of the Notes is limited to a minimum of five years and a maximum of 20 years. In accordance with this maximum maturity, the treatment of regulatory capital ends after 20 years, from the date of issue or from January 1, 2022.
The NCUA also makes four minor changes to the sub-debt rule. The NCUA proposes to:
- amend the definition of “qualified adviser” to clarify that such person(s) need not be licensed to practice law in every jurisdiction that may be related to an issue;
- Remove “statement of cash flows” from the requirement for pro forma financial statements in the sub-debt rule and replace it with a requirement for “cash flow projections”;
- Revise the filing requirements and document inspection provisions of the Sub-Debt Rule to align with current NCUA procedures; and
- Removed a bracketed reference related to GSC which no longer counts as regulatory capital to align with recent changes to the call report.
1. See 86 Fed. Reg. 11060 (23 February 2021).
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