SUBORDINATED DEBT PROGRAM

Credit unions can benefit from subordinated debt in two ways: as an issuer and as an investor.

Credit unions eligible to receive direct net worth or risk-based capital treatment by issuing subordinated debt derive the greatest strategic benefit. To qualify for direct net worth treatment, eligible credit unions must prepare a formal application and obtain regulatory approval prior to issuance and acceptance of subordinated debt. Once approved, these deals are sold to investors.

If your credit union is not eligible for net worth or risk-based capital treatment, you may consider investing in subordinated debt issuances for the unique asset class, structural characteristics and diversification they bring to investment portfolios.

Issuing

Issuing subordinated debt is a flexible solution that credit unions use to achieve:

• Net worth rebalancing
• Growth and expansion
• Internal investment
• New and enhanced member benefits

Investing

If you determine investing is the right path for your credit union, take time to evaluate the issuer's strength and ability to make ongoing interest payments and repay the principal. Consider multiple factors in your assessment:

• Growth trends
• Earnings capacity
• Liquidity position
• Loan quality
• Risk exposure
• Business case for the issuance
• Planned use of funds

There are two primary subordinated debt solutions. Your credit union may want to craft its own application but obtain assistance with issuance and placement. Other credit unions may want assistance through every phase of the process, from application development and regulatory approval to issuance and placement. Regardless of your desired level of involvement, Catalyst Strategic Solutions and its partners can curate a package specifically for you and your goals.

Education and Training

If your credit union establishes subordinated debt as a strategic initiative, it is important to train and educate staff on its underlying strategy and nuances. Catalyst understands this process and can assist with educating members of ALCO, senior management and the Board. Catalyst tailors messages to ensure everyone understands the proposed goal.

Application Development

The initial phase of any subordinated debt strategy begins with creating the formal application to gain regulatory approval for net worth treatment of subordinated debt issuances. This phase is critical, as the strength and thoroughness of the application directly influences your ability to move forward with the strategy. Catalyst works alongside your credit union to build a unique, customized application that tells your story and outlines the best path to success. It covers operating strategies and principles and addresses how subordinated debt will help you achieve your goals in a safe and sound manner.

Issuance & Placement

After receiving regulatory approval, you will transition to the issuance and placement phase of the subordinated debt instruments. The phase begins with the development of an offering circular, offering teaser, and investor presentation. This provides the framework and outlines the structure, terms, rates, and details of the investment opportunity that will be available to investors. As an issuer, it is critical to ensure you adhere to all state and federal securities laws regarding how you present the offering to investors. For example, if making the offering via a private placement, you can only approach accredited investors. Catalyst and its partners not only help with organizing the creation of the offering document, investor presentation, and issuance teaser, but also its team of FINRA registered investment professionals work to find and secure investors.

*Investments offered through Credit Union Investment Solutions, LLC. (“CU-ISI”) member FINRA/SIPC.

Catalyst works to support credit unions and their initiatives, striving to meet their needs and timelines. In some cases, we can complete tasks much faster than outlined below. In others, the credit union's pace may call for a slower process. Our goal is to outline a schedule at the onset and work at the desired pace of each credit union, whether that means completing an application in two weeks or extending it over 10 weeks.

Below is an average timetable for working with Catalyst:

Subordinated debt is a journey. From inquiring about sub debt to making your final payment, you need partners with a comprehensive subordinated debt program that will see you through to the end of that journey.

*Issuance and Placement performed through Credit Union Investment Solutions, LLC. (“CU-ISI”), a Registered Broker/Dealer member FINRA/SIPC

Interest in issuing subordinated debt is on the increase. There are four primary drivers for this growth in sub debt interest. Subordinated debt can help credit unions:

• Increase Lending: Higher net worth supports larger loan portfolios. Subordinated debt enables credit unions to originate and portfolio more loans.
• Strengthen Growth: Achieve growth levels above the rate of organic earnings.
• Fund Expansion: Whether seeking acquisitions, expanding geographically, or looking to build out your branch network and invest in technology, subordinated debt provides capital to support these strategies, while avoiding net worth dilution.
• Restore Net Worth Levels: After a long trend of growth, net worth may need to be restored to desired levels. Subordinated debt can make this happen.

Catalyst has helped credit unions successfully obtain regulatory approval and secure funding to support their unique strategies. Our strategic partnerships provide a full-service solution for credit unions seeking to invest in or issue subordinated debt.

Catalyst Strategic Solutions partners with subsidiaries and affiliates to guide your credit union through each phase of its subordinated debt journey. 

This organization ensures regulatory compliance and the most competitive, comprehensive, thorough program on the market. We deliver a timely application, while also focusing on the details that ensure your credit union has a plan to effectively reach its goals.

Catalyst Strategic Solutions Catalyst Strategic Solutions, LLC, the wholly-owned subsidiary of Catalyst Corporate Federal Credit Union, combines 30 years of experience with a cooperative business model to provide unparalleled service to credit unions around the country. With Catalyst Strategic Solutions’  services, credit unions have access to analytical resources, strategic consultation and investment portfolio management services – all provided by professionals with deep credit union expertise.

CU Investment Solutions CU Investment Solutions assists the Corporate Credit Union Network and its member credit unions in achieving successful investment strategies. Founded in 1998, CU Investment Solutions’ initial mission focused on providing broker-dealer and investment advisory services exclusively for corporate credit unions. Since then, CU Investment Solutions has expanded its role, making it possible for credit unions to access marketable securities through its Corporate Agent Program.

Catalyst Corporate FCU Catalyst is igniting change and unlocking new possibilities for America’s credit unions and the members they serve. Whether through innovative payments, asset management or liquidity solutions, we’re passionate about transforming goals into achievements and helping credit unions grow. Smart credit unions seek smart solutions for success. And that requires knowledge, leadership and a desire to solve problems. Catalyst has those and works with you to find ways to win…because we believe collaboration makes a difference. Large or small, Catalyst helps credit unions nationwide manage money, move money and keep it safe. That’s the value of vision, that’s the value of Catalyst.

Contact us today to learn how sub debt can benefit your credit union. Like all solutions, careful analysis is important when deciding your best course of action. No matter what stage of the planning process you are in, Catalyst wants to be your partner of choice.