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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations reduced by prepayments or amounts extinguished to cover a deficit under
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702.404a6, as required by the following schedule:

TABLE 1 TO 720.407
Balance treated as regulatory capital %

Remaining maturity Four to less than five years
Three to less than four years
Two to less than three years
One to less than two years
Less than one year

702.408 Preapproval to issue Subordinated Debt.

a Scope. This section requires all credit unions to receive written preapproval from the NCUA before issuing Subordinated Debt. Procedures related specifically to applications from federally insured, state-chartered credit unions are contained in 702.409. A
credit union seeking approval to offer and sell Subordinated Debt at one or more of its offices must also follow the application procedures in 702.406e.
All approvals under this section are subject to the expiration limits specified in paragraph k of this section.
b Initial application to issue Subordinated Debt. A credit union requesting approval to issue Subordinated Debt must first submit an application to the Appropriate Supervision Office that, at a minimum, includes:
1 A statement indicating how the credit union qualifies to issue Subordinated Debt given the eligibility requirements of 702.403 with additional supporting analysis if anticipating to meet the requirements of a LICU or complex credit union within 24 months after issuance of the Subordinated Debt;
2 The maximum aggregate principal amount of Subordinated Debt Notes and the maximum number of discrete issuances of Subordinated Debt Notes that the credit union is proposing to issue within the period allowed under paragraph k of this section;
3 The estimated number of investors and the status of such investors Natural Person Accredited Investors and/or Entity Accredited Investors to whom the credit union intends to offer and sell the Subordinated Debt Notes;
4 A statement identifying any outstanding Subordinated Debt or Grandfathered Secondary Capital previously issued by the credit union;
5 A copy of the credit unions strategic plan, business plan, and budget, and an explanation of how the credit union intends to use the
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Subordinated Debt in conformity with those plans;
6 An analysis of how the credit union will provide for liquidity to repay the Subordinated Debt upon maturity of the Subordinated Debt;
7 Pro Forma Financial Statements balance sheet, income statement, and statement of cash flows, including any off-balance sheet items, covering at least two years. Analytical support for key assumptions and key assumption changes must be included in the application. Key assumptions include, but are not limited to, interest rate, liquidity, and credit loss scenarios;
8 A statement indicating how the credit union will use the proceeds from the issuance and sale of the Subordinated Debt;
9 A statement identifying the governing law specified in the Subordinated Debt Notes and the documents pursuant to which the Subordinated Debt Notes will be issued;
10 A draft written policy governing the offer, and issuance, and sale of the Subordinated Debt, developed in consultation with Qualified Counsel, which, at a minimum, addresses:
i Compliance with all applicable Federal and state securities laws and regulations;
ii Compliance with applicable securities laws related to communications with investors and potential investors, including, but not limited to: Who may communicate with investors and potential investors; what information may be provided to investors and potential investors;
ongoing disclosures to investors; who will review and ensure the accuracy of the information provided to investors and potential investors; and to whom information will be provided;
iii Compliance with any laws that may require registration of credit union employees as broker-dealers; and iv Any use of outside agents, including broker-dealers, to assist in the marketing and issuance of Subordinated Debt, and any limitations on such use;

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11 A schedule that provides an itemized statement of all expenses incurred or expected to be incurred by the credit union in connection with the offer, issuance, and sale of the Subordinated Debt Notes to which the initial application relates, other than underwriting discounts and commissions or similar compensation payable to broker-dealers acting as placement agents. The schedule must include, as applicable, fees and expenses of counsel, auditors, any trustee or issuing and paying agent or any transfer agent, and printing and engraving expenses. If the amounts of any items are not known at the time of filing of the initial application, the credit union must provide estimates, clearly identified as such;
12 In the case of a new credit union, a statement that it is subject to either an approved initial business plan or revised business plan, as required by this part, and how the proposed Subordinated Debt would conform with the approved plan. Unless the new credit union has a LICU designation pursuant to 701.34 of this chapter, it must also include a plan for replacing the Subordinated Debt with Retained Earnings before the credit union ceases to meet the definition of new credit union in 702.2;
13 A statement describing any investments the credit union has in the Subordinated Debt of any other credit union, and the manner in which the credit union acquired such Subordinated Debt, including through a merger or other consolidation;
14 A signature page signed by the credit unions principal executive officer, principal financial officer or principal accounting officer, and a majority of the members of its board of directors. Amendments to an initial application must be signed and filed with the NCUA in the same manner as the initial application; and 15 Any additional information requested in writing by the Appropriate Supervision Office.

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