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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
proposed offering will include any Natural Person Accredited Investors.
The Board included a question in this section of the proposed rule preamble asking if a one-year expiration would negatively impact Issuing Credit Unions. Approximately 16 commenters responded to this question and disagreed with the proposed requirement that a credit union complete a Subordinated Debt issuance within one year from the date of receiving NCUA approval. Most of these commenters stated that one year is an arbitrary deadline that may force a credit union to make a rushed decision or not be able to adequately account for the complexities necessary to execute a beneficial offering. Most of the commenters sought an extension of the one-year period, rather than an outright abolishment of it.
In addition, two commenters stated that the NCUA could use the quarterly regulatory reporting to monitor credit unions with Subordinated Debt authority and determine if there had been changes in a credit unions condition that would require a revocation of the NCUAs approval.
These commenters stated that such an approach would account for material changes in a credit unions condition without subjecting all credit unions to an arbitrary deadline.
The Board has considered these comments and will increase the expiration period to two years in the final rule. The Board understands that business and/or economic conditions can change rapidly, as has occurred during the global pandemic of 2020, and that a credit union may need a longer period to meet its strategic goals using Subordinated Debt. The Board believes this change in the final rule will provide credit unions with a longer issuance window and increased flexibility to issue Subordinated Debt. After thorough consideration, the Board has determined that a two-year expiration period strikes an appropriate balance between the competing concerns the Board noted in the proposed rule: ensuring that an Issuing Credit Union does not offer and sell Subordinated Debt Notes following a material change in the information on which the NCUA relied in approving the offer and sale of that Issuing Credit Unions Subordinated Debt Notes, and not unduly hindering the marketability of Subordinated Debt Notes.
In addition to expanding the expiration period, the Board is retaining, as proposed, a provision that allows an Issuing Credit Union to file a written request for one or more extensions of the two-year limit with the Appropriate Supervision Office,
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provided the request is filed at least 30
calendar days before the expiration of authority. The Board believes finalization of this provision, coupled with the expiration extension, will provide Issuing Credit Unions sufficient time to complete a Subordinated Debt issuance.
The Board notes, however, that in the event an Issuing Credit Unions circumstances materially change after the NCUA has approved an initial application but before the closing of the relevant offer and sale of Subordinated Debt Notes, the final rule requires an Issuing Credit Union to submit an amended application before it continues its Subordinated Debt Notes offering.
The Board believe this provision is necessary to account for material changes in an Issuing Credit Unions conditions that may occur between approval and the final sale of Subordinated Debt.
d. Pro Forma Financial Statements The proposed rule included an extension of the time horizon of the Pro Forma Financial Statements to five years compared to the Secondary Capital Rules requirement of two years.32 The Board requested comment on this extension and its impact on Issuing Credit Unions. Approximately five commenters addressed the proposed requirement that a credit union submit at least five years of Pro Forma Financial Statements with its application. Three of these commenters disagreed with the proposed increase from two to five years. One commenter stated that the NCUA should request Pro Forma Financial Statements based on the complexity of a proposed transaction rather than implementing a one-size-fits-all approach. Another commenter believed that two years of data was sufficient, as such data is mainly for the benefit of an investor.
This commenter stated that an investor could request additional years of Pro Forma Financial Statements if needed.
Two commenters agreed with the proposed increase and sought additional information as part of the application and disclosure process. One commenter agreed with the breadth of the required pro forma data but suggested that the NCUA should also require credit unions to include tables that reflect actual results for the prior three-year period and a detailed narrative on how the issuer intends to secure the level of earnings presented in its Pro Forma Financial Statement. This commenter went on to suggest that such additional data should include a modest level of 32 Id.

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sensitivity analysis indicating likely performance under stressed conditions.
The Board has considered these comments and is reducing the minimum number of years for the Pro Forma Financial Statement requirement as part of the initial application from five years to two years for the final rule. The Board believes that an extended Pro Forma Financial Statement analysis of five years, which aligns with the minimum maturity of a Subordinated Debt Note, may provide useful information.
However, the Board recognizes that the veracity of the analysis is equally important. Further, the quality of the assumptions and range of plausible scenarios used in the projections are as much a priorityand perhaps superior tothe number of years a credit union applied to those assumptions and scenarios. As such, the Board believes a reduction in the number of years from the proposed five to two is appropriate and will provide, in most cases, the necessary information for an Appropriate Supervision Office to render a decision on an initial application. The Board notes, however, that included in both the proposed rule and this final rule is a provision that permits an Appropriate Supervision Office to request additional information, such as additional years of Pro Forma Financial Statements, to support a credit unions application.
e. Filing Fees Five commenters opposed any filing fees associated with the issuance of Subordinated Debt. These commenters generally stated that such fees may make such issuance cost prohibitive and overly burdensome, particularly in light of the other requirements in the proposed rule.
In response, the Board notes that both the proposed rule and this final rule do not require a filing fee, but do reserve the right of the Board to charge such a fee if warranted. The Board believes it is important to retain this flexibility to ensure that, if needed, the Board can assess an appropriate fee on applicants to cover the NCUAs cost of reviewing and processing such application. The Board notes that it would not impose a fee without a sufficient justification and may provide exceptions for smaller or low-income credit unions. Therefore, the Board is retaining this provision as proposed. However, the Board is clarifying in this final rule that the Board will publish a fee schedule on the NCUAs website only if the Board institutes a fee in the future.

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