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US Central capital change approved
WASHINGTON (12/15/08)—The Credit Union National Association (CUNA) Friday commended the National Credit Union Administration (NCUA) on the action it took the action stabilizes U.S. Central FCU’s AA+ senior unsecured debt rating among the various rating agencies. CUNA said the agency’s action ultimately should assure lenders and lead to U.S. Central being able to borrow at favorable rates. U.S. Central FCU was given the go ahead by NCUA to convert membership capital accounts (MCA), a portion of existing capital, to a new paid-in-capital instrument (PIC2). The NCUA in a Friday morning announcement stated that the PIC2 is considered Tier 1 capital by debt ratings agencies. The agency took the action—voting by notation—to help U.S. Central “maintain robust debt ratings.” NCUA Chairman Michael Fryzel said that converting callable MCA funds to Tier 1 capital is an important facet of the NCUA’s broader efforts. The agency provided the following specifics about the elements of the conversion to PIC2:
* Total subscription is $450 million; * The allocation is proportionate to shares on deposit with U.S. Central; however, there is a cap of 15% for any one corporate; * Perpetual in nature; * Dividends are paid at the discretion of U.S. Central’s board, and may be only paid from current net income (after expenses are recorded and dividends are paid) if U.S. Central would remain adequately capitalized; and * PIC2 subscriptions do not require additional funding by member corporates, unless current MCA falls short of required PIC2.
The NCUA said of its action on behalf of U.S. Central— the nation's only wholesale corporate credit union--that increasing the amount of Tier 1 capital will enhance US Central’s AA+ debt rating and generally requires no additional funding by members. Additionally, U.S. Central members will receive more favorable returns on U.S. Central investments due to U.S. Central’s high credit quality and lower debt costs. In a statement, CUNA said it looks forward to working with the agency and corporate credit unions in serving the nation’s credit unions.

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