Subordinated Debt—A New Path to Raising Capital for Credit Unions

On Dec. 17, 2020, NCUA adopted a final rule that, for the first time, allows federally insured credit unions (both federally and state-chartered) with more than $500 million in assets and without a low-income designation to raise capital outside of retained earnings through the issuance of subordinated debt. 

Beyond increasing regulatory capital levels, a subordinated debt issuance could be utilized by credit unions to finance strategic growth initiatives, such as acquisitions of banks, branches, and fee-based businesses, to boost earnings and increase membership, reduce high member business lending concentrations, provide balance sheet protection, and enhance liquidity. 

This whitepaper from CUES Supplier member Luse Gorman, a Washington, D.C.-based law firm, provides details about a subordinated debt offering, including its basic terms, the NCUA’s pre-approval process and securities laws considerations, what credit unions should know about the final rule, and what credit unions should consider doing before and after it takes effect on Jan. 1, 2022.