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Alabama credit unions can invest in NCUA Guaranteed Notes (NGN)

The National Credit Union Administration has completed its initial offering of NCUA Guaranteed Notes (NGN 2010-R1), backed by an unconditional NCUA guaranty for timely payment of principal and interest. As a part of the corporate resolution plan, the transaction, which closed October 28th, featured two series of senior notes, each backed by a separate pool of residential mortgage backed securities.

Details of the transaction follow:

  • Senior Series I-A – $3.28 billion notes are backed primarily by senior floating rate securities and will pay a floating-rate coupon of one-month LIBOR plus .45 percent per annum, subject to a maximum note interest rate cap equal to 7.00 percent per annum.
  • Senior Series II-A – $566.5 million notes are backed primarily by fixed-rate pass-through securities and will pay a fixed-rate coupon of 1.84 percent per annum.

The Senior Notes will receive monthly payments of principal and interest from cash flows of the related underlying securities. The timely payment of principal and interest due on the notes are guaranteed by the NCUA, and that guaranty is backed by the full faith and credit of the United States.

The transaction was met with strong investor demand and was oversubscribed. Over 35 investors participated in the transaction, including credit unions, banks, broker-dealers, insurance companies, money management funds, pension funds, and government agencies. Consistent with the level of their subscriptions, credit unions received almost 10 percent of the total allocation for both series.

Barclays Capital served as the sole structuring agent and financial advisor to the NCUA on the structured sale of NCUA Guaranteed Notes (NGN 2010-R1). Purchase of the NGNs was also made available through a syndicate of co-managers and selling group members.

NGNs, backed by an unconditional NCUA guaranty for timely payment of principal and interest, carry a zero- percent risk weight in accordance with clarification the NCUA gained coordinating with the Federal Reserve Board, Office of the Comptroller of the Currency, FDIC and the Office of Thrift Supervision (federal banking agencies).

The NCUA's sale of NGNs is a key component of the recently announced Corporate System Resolution. The NCUA has been working closely with the federal banking agencies to gain clarification on the appropriate risk weight required under regulatory capital risk weighting regulations. In Alabama, the Alabama Credit Union Administration (ACUA) responded positively to LSCU inquiries about purchase permissibility stating that ACUA would not object to an Alabama state chartered credit union investing in the NGNs as currently offered because of the U S Government backing of the ABS. Similar inquiries have been made to the Florida Department of Financial Regulation and positive results are expected but not received as yet.

For more information regarding investing in NCUA Guaranteed Notes, click here. The risk weight clarification letter is available online by clicking here.