Thursday, August 2, 2012

NCUSIF Subsidized Capital Notes

NCUA is providing subsidized Section 208 capital notes to two credit unions that are currently under conservatorship.

I filed a Freedom of Information Act request (see letter below) looking for information regarding the maturity date and interest rate terms of the two capital notes.

Note 1 matures on December 31, 2026. It has an initial fixed interest rate of 1.4855 percent through December 31, 2018. Thereafter, the rate is variable and tied to the six-month average of interbank LIBOR rate plus a margin. The margin is 265 basis points and will increase to 365 basis points after December 31, 2022.

Note 2 matures on December 31, 2025. The capital note initially has a fixed interest rate of 0.125 percent plus the seven year fixed rate Treasury Constant Maturity through December 31, 2019. Thereafter, the rate is variable and is tied to the three month LIBOR rate plus a margin. The margin is 200 basis points beginning on January 1, 2020; 300 basis points beginning January 1, 2022; and 400 basis points beginning January 1, 2024.

It is very doubtful that these two credit unions, which were insolvent before the capital injection from the NCUSIF, could have funded themselves from the private sector under such favorable interest rates.

The only conclusion is that these two credit unions received a bailout from the NCUSIF.


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