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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations provide the Issuing Credit Union with a written determination on its application. In the case of a full or partial denial, including a conditional approval under paragraph e2 of this section, the written decision will state the reasons for the denial or conditional approval.
2 The written determination from the Appropriate Supervision Office may approve the Issuing Credit Unions request, approve the Issuing Credit Unions request with conditions, or deny the Issuing Credit Unions request.
In the case of a denial or conditional approval, the Appropriate Supervision Office will provide the Issuing Credit Union with a description of why it denied the Issuing Credit Unions request or imposed conditions on the approval of such request.
3 If the Issuing Credit Union proposes or the NCUA requires the Issuing Credit Union to replace the Subordinated Debt, the Issuing Credit Union must receive affirmative approval under this subpart and must issue and sell the replacement instrument prior to or concurrently with prepaying the Subordinated Debt.
f Resubmissions. An Issuing Credit Union that receives an adverse written determination on its application to prepay, in whole or in part, may cure any deficiencies noted in the Appropriate Supervision Offices written determination and reapply under the requirements of this section.
This paragraph f does not prohibit an Issuing Credit Union from appealing the Appropriate Supervision Offices adverse decision under subpart A of part 746 of this chapter.
702.412 Effect of a merger or dissolution on the treatment of Subordinated Debt as Regulatory Capital.

a In the event of a merger of an Issuing Credit Union into or the assumption of its Subordinated Debt by another federally insured credit union, the Subordinated Debt will be treated as Regulatory Capital only to the extent that the resulting credit union is either a LICU, a complex credit union, and/or a new credit union.
b In the event the resulting credit union is not a LICU, a complex credit union, or a new credit union, the Subordinated Debt of the merging credit union can either be:
1 If permitted by the terms of the Subordinated Debt Note, repaid by the resulting credit union upon approval by the NCUA under 702.411; or 2 Continue to be held by the resulting credit union as Subordinated Debt, but will not be classified as Regulatory Capital under this subpart,
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unless the resulting credit union meets the eligibility requirements of 702.403.
c In the event of a voluntary dissolution of an Issuing Credit Union that has outstanding Subordinated Debt, the Subordinated Debt may be repaid in full according to 12 CFR part 710, subject to the requirements in 702.411.
702.413

Repudiation safe harbor.

a The NCUA Board as conservator for a federally insured credit union, or its lawfully appointed designee, shall not exercise its repudiation authorities under 12 U.S.C. 1787c with respect to Subordinated Debt if:
1 The issuance and sale of the Subordinated Debt complies with all requirements of this subpart;
2 The Subordinated Debt was issued and sold in an arms-length, bona fide transaction;
3 The Subordinated Debt was issued and sold in the ordinary course of business, with no intent to hinder, delay, or defraud the Issuing Credit Union or its creditors; and 4 The Subordinated Debt was issued and sold for adequate consideration in U.S. dollars.
b This section does not authorize the attachment of any involuntary lien upon the property of either the NCUA Board as conservator or liquidating agent or its lawfully appointed designee. Nor does this section waive, limit, or otherwise affect the authority, rights, or powers of the NCUA or the NCUA Board in any capacity to take any action or to exercise any power not specifically mentioned, including but not limited to any rights, powers, or remedies of the NCUA Board as conservator or liquidating agent or its lawfully appointed designee regarding transfers or other conveyances taken in contemplation of the Issuing Credit Unions insolvency or with the intent to hinder, delay or defraud the Issuing Credit Union or the creditors of such Issuing Credit Union, or that is fraudulent under applicable law.
702.414 Regulations governing Grandfathered Secondary Capital.

This section recodifies the requirements from 12 CFR 701.34b, c, and d that were in effect as of January 1, 2021, with minor modifications. The terminology used in this section is specific to this section. All secondary capital issued under 12 CFR 701.34
revised as of January 1, 2021 before January 1, 2022, or, in the case of a federally insured, state-chartered credit union, 741.204c of this chapter, that is referred to elsewhere in this subpart as Grandfathered Secondary Capital, is subject to the requirements set forth in this section.

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a Secondary capital is subject to the following conditions:
1 Secondary capital plan. A credit union that has Grandfathered Secondary Capital under this section must have a written, NCUA-approved Secondary Capital Plan that, at a minimum:
i States the maximum aggregate amount of uninsured secondary capital the LICU plans to accept;
ii Identifies the purpose for which the aggregate secondary capital will be used, and how it will be repaid;
iii Explains how the LICU will provide for liquidity to repay secondary capital upon maturity of the accounts;
iv Demonstrates that the planned uses of secondary capital conform to the LICUs strategic plan, business plan, and budget; and v Includes supporting pro forma financial statements, including any offbalance sheet items, covering a minimum of the next two years.
2 Issuances not completed before January 1, 2022. Any issuances of secondary capital not completed by January 1, 2022, are, as of January 1, 2022, subject to the requirements applicable to Subordinated Debt discussed elsewhere in this subpart.
3 Nonshare account. The secondary capital account is established as an uninsured secondary capital account or other form of non-share account.
4 Minimum maturity. The maturity of the secondary capital account is a minimum of five years.
5 Uninsured account. The secondary capital account is not insured by the National Credit Union Share Insurance Fund or any governmental or private entity.
6 Subordination of claim. The secondary capital account investors claim against the LICU is subordinate to all other claims including those of shareholders, creditors and the National Credit Union Share Insurance Fund.
7 Availability to cover losses. Funds deposited into a secondary capital account, including interest accrued and paid into the secondary capital account, are available to cover operating losses realized by the LICU that exceed its net available reserves exclusive of secondary capital and allowance accounts for loan and lease losses, and to the extent funds are so used, the LICU
must not restore or replenish the account under any circumstances. The LICU may, in lieu of paying interest into the secondary capital account, pay accrued interest directly to the investor or into a separate account from which the secondary capital investor may make withdrawals. Losses must be distributed pro-rata among all secondary capital accounts held by the LICU at the
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