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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations previously, because this is a new endeavor for many Complex and New Credit unions and this is the first time LICUs will be permitted to issue Subordinated Debt to natural persons, the Board believes it is important to take a measured approach to the issuance of these instruments. The Board believes a walk before you run approach in this area is both prudent and necessary.
Finally, the Board believes that third parties may produce Offering Document templates to help credit unions issue Subordinated Debt more efficiently, while still complying with this rule and applicable securities laws. The creation of such templates may help defray some of the cost for Issuing Credit Unions.
The Board encourages such collaboration in the industry, provided it is compliant with the final rule and all applicable securities laws. The Board notes, however, that the use of any template Offering Document must be customized to a credit unions specific issuance and accurately disclose the specific aspects that are unique to the Issuing Credit Union.
For the reasons discussed above, the Board is finalizing the Offering Document, and sections related thereto, as proposed.
3. Preapproval To Issue Subordinated Debt The proposed rule required that eligible credit unions submit an application and receive written preapproval from the NCUA before issuing Subordinated Debt. The proposed application process consisted of an eligible credit union providing the Appropriate Supervision Office information on 15 topics as part of the initial application. In addition, the Board proposed to amend the NCUAs review time of such application from 45
days with automatic approval as in the Secondary Capital Rule to 60 days, with no automatic approval. The Board also proposed to expire any approval granted under the rule one-year from the date of such approval.
Most of the commenters that supported the proposal addressed at least some aspect of the proposed application process. The commenters generally focused on:
Reducing the complexity of the application process;
The timing for NCUA approval of an application;
The requirement to issue Subordinated Debt within one-year from the approval of an application;
Subordinated Debt Note restrictions; and
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The requirement to provide at least five years of Pro Forma Financial Statements.
a. Application Requirements Approximately 13 commenters either stated that the preapproval requirements to issue Subordinated Debt were too burdensome or requested that the NCUA
streamline the process. While some commenters appreciated the clarity in the proposed preapproval requirements, this subset of commenters felt that the preapproval requirements were too cumbersome and would discourage many credit unions from issuing Subordinated Debt.
Some commenters stated that the preapproval process should not be a one-size-fits-all approach, but should reflect the complexity of the proposed issuance. Several of these commenters stated that the NCUA should retain its current Secondary Capital Plan requirements. In addition, two commenters stated that if the NCUA
retains the proposed preapproval requirements, the final rule should provide for a streamlined process for subsequent preapproval requests from previously approved credit unions.
As stated in the proposed rule, the Board remains dedicated to a requirement for an eligible credit union to obtain written preapproval before issuing Subordinated Debt, as it views this step as an important prudential safeguard. The Board believes a preapproval process is part of a credit unions sound management plan, and will help the NCUA ensure that a planned issuance of Subordinated Debt is structured in such a manner as to appropriately protect the Issuing Credit Union and the NCUSIF.
While the Board recognizes the many potential benefits that an issuance of Subordinated Debt Notes may confer on an Issuing Credit Union, it also appreciates the complexities and risks of such issuance. The decision to offer and sell Subordinated Debt Notes should be made only after careful consideration, preparation, and diligence by the Issuing Credit Union, including seeking professional advice as warranted. For these reasons, the Board is retaining this important prudential safeguard and will adopt the preapproval requirements as proposed.
b. NCUA Review Time of Application As noted previously, the proposed rule increased the review time of an initial application to 60 days from the Secondary Capital Rules period of 45
days.31 In addition, the proposed rule 31 12

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removed the automatic approval that exists in the Secondary Capital Rule if the NCUA fails to respond before the expiration of the 45-day period.
Approximately 13 commenters opposed these proposed changes.
Generally, these commenters stated that a longer approval process with no automatic approval would impose unnecessary burdens on credit unions seeking to issue Subordinated Debt.
These commenters urged the NCUA to retain the approval timing and structure in the Secondary Capital Rule. One commenter stated that the NCUA should concurrently review a credit unions application and Offering Document, asserting that consecutive rather than concurrent reviews could place a credit union at a competitive disadvantage and frustrate a credit unions efforts to issue Subordinated Debt. Further, this commenter stated that an overly long review process could result in stale data, which may not be useful to the NCUA or investors.
As stated in the proposed rule, the Board believes the expanded requirements for initial applications are broader than the Secondary Capital Rule requirements and that the enhanced description of diligence expectations will require a more thorough review by the Appropriate Supervision Office.
While the Board anticipates that the clear, transparent structure of the application requirements will lead to increased efficiency from both credit unions and the agency, the Board believes the extra time is warranted to ensure an application is sufficient for an Appropriate Supervision Office to make a well-informed decision. Further, the Board notes that the complexity of a Subordinated Debt issuance will drive both the veracity of a credit unions application and the NCUAs review time. As such, the Board anticipates that the increased time for review will have little impact on most smaller, simple issuances. Therefore, the Board is retaining, as proposed, the 60-day timeframe for NCUA review of applications.
c. Expiration of Authority The proposed rule included a provision that would require the expiration of an Issuing Credit Unions authority to issue Subordinated Debt Notes one year from the later of:
The date the Issuing Credit Union received NCUA approval of its initial application if the proposed offering is to be made solely to Entity Accredited Investors; or The approved for use date of the applicable Offering Document if the
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