Subordinated Debt loans are subordinated, long-term (five years or more) debt available to credit unions with low-income designation from their regulator. Subordinated Debt can count as part of net worth for regulatory purposes, and as such can help growing credit unions to achieve the required minimum capital standards. Inclusiv makes Subordinated Debt Loans of up to $2,000,000.
Subordinated Debt I and Subordinated Debt II loans are subordinated, long-term debt available to credit unions with low-income designation from their regulator. Although they are loans, Subordinated Debt counts as net worth for regulatory purposes. Subordinated Debt can be leveraged by growing CDCUs to expand safe and affordable lending to local communities.
Inclusiv offers two types of Subordinated Debt loans products -- Subordinated Debt I, which includes an expected balloon repayment of principal, and Subordinated Debt II, which includes expected repayments of amortized principal.
Subordinated Debt I Loans
Subordinated Debt I: Eligibility
Inclusiv member credit unions with low-income designation that meet our general Eligibility Criteria are eligible to apply for Subordinated Debt Loans.
Subordinated Debt I: Terms
Inclusiv makes Subordinated Debt loans of up to $500,000 with maturities of 5-7 years. Per regulatory guidelines, at the outset of a Subordinated Debt Loan, the entire principal of the loan can be counted toward net worth. In each of the last 5 years of the loan term, the amount of the loan that can be counted toward net worth reduces by 20%. In the last year of the loan, the entire loan principal is booked as a subordinated loan and can no longer be counted as net worth.
Subordinated Debt I: How to Apply
Download and complete the Subordinated Debt I application form and submit with required documents and application fee to Inclusiv per provided instructions. Applications for Subordinated Debt I are accepted on a continuous basis, but are considered for approval only at the triannual meetings of the Community Development Investments Committee.
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Subordinated Debt II Loans
Subordinated Debt I and Subordinated Debt II loans are subordinated, long-term debt available to credit unions with low-income designation from their regulator. Although they are loans, Subordinated Debt counts as net worth for regulatory purposes. Subordinated Debt can be leveraged by growing CDCUs to expand safe and affordable lending to local communities.
Inclusiv offers two types of Subordinated Debt loans products -- Subordinated Debt I which includes an expected balloon repayment of principal, and Subordinated Debt II, which includes expected repayments of amortized principal.
Subordinated Debt II: Eligibility
Subordinated Debt II applicants must meet the eligibility requirement for Subordinated Debt I and should be likely to receive streamlined approval of Subordinated Debt redemption as outlined below.
Per NCUA’s National Supervisory Policy Manual, to qualify for streamlined approval, the credit union must meet the minimum requirements specified in Section 701.34(d)(1):
1) Request to redeem Subordinated Debt. A request for approval to redeem discounted Subordinated Debt may be submitted in writing at any time, must specify the increment(s) to be redeemed and the schedule for redeeming all or any part of each eligible increment, and must demonstrate to the satisfaction of NCUA that:
(i) The LICU will have a post-redemption net worth classification of “adequately capitalized” under part 702 of this chapter;
(ii) The discounted Subordinated Debt has been on deposit at least two years;
(iii) The discounted Subordinated Debt will not be needed to cover losses prior to final maturity of the account;
(iv) The LICU's books and records are current and reconciled;
(v) The proposed redemption will not jeopardize other current sources of funding, if any, to the LICU; and
(vi) The request to redeem is authorized by resolution of the LICU's board of directors.
and the following criteria:
- Composite CAMEL rating of 1 or 2
- The credit union has properly recognized costs and impairments consistent with GAAP
- Net worth trends are stable or growing, and the credit union will have a post-redemption net worth classification of “well capitalized” under Part 702
- The credit union’s post redemption capital level will remain sufficient relative to any extraordinary risks associated with its financial and operational activities
*Note: Credit unions that do not receive streamlined approval of Subordinated Debt redemption, but do receive approval of their Subordinated Debt plan, may be considered for funding under the terms of Subordinated Debt I.
Subordinated Debt II: Terms
Inclusiv makes Subordinated Debt II loans of up to $2,000,000 with maturities of 5-10 years. Per regulatory guidelines, at the outset of a Subordinated Debt II loan, the entire principal of the loan can be counted toward net worth. In each of the last 5 years of the loan term, the amount of the loan that can be counted toward net worth reduces by 20%. In the last year of the loan, the entire loan principal is booked as a subordinated loan and can no longer be counted as net worth.
Subordinated Debt II: How to Apply
For more information about Subordinated Debt II loans and to apply, please contact capital@inclusiv.org. Applications for Subordinated Debt are accepted on a continuous basis, but are considered for approval only at the tri-annual meetings of the Community Development Investments Committee.