Olden Lane – Credit Union Financial Services, Subordinated Debt, and Secondary Capital

The Credit Union Strategic Advisor

About Us

Many have asked about the origins of our firm’s name. Olden Lane is a small street in Princeton, New Jersey which comprised the majority of Albert Einstein’s daily stroll from his home on Mercer Street to the Institute of Advanced Study, where he served as a faculty member from 1933 until his death in 1955.

An inspirational figure to many, Einstein is considered the greatest physicist of all time and was named Time Magazine’s Person of the 20^th Century. At the Institute, Einstein pursued the goal of providing a framework for a unified understanding of the basic laws of the physical universe.

At Olden Lane, we are inspired by Einstein’s insatiable curiosity and his tireless spirit for inquiry. We hope to bring just a bit of that enthusiasm to the work we do for our credit union clients.

We are grounded in a culture of creativity, operational excellence, and dedication to our credit union clients. We work diligently to understand each client’s unique circumstances and offer individualized service. We can devise customized solutions across a range of funding, investment and capital needs utilizing a wide range of capital markets expertise.

News

GreenState CU Completes Private Placement of $100M of Social Subordinated Debt Notes

2/14/2023

The $11.3-billion GreenState said it issued the Social Subordinated Notes in accordance with the GreenState Social Financing Framework.

For Discussion

Six Topics for Planning Season

11/14/2022

With planning season in full swing, we highlight six topics that should be top of mind for credit unions in this dynamic market environment

For Discussion

NCUA Approves Updated

3/17/2022

The NCUA approved an update to the existing subordinated debt rule allowing longer maturities and clarifying the treatment of debt issued under the Emergency Capital Investment Program.

Thoughts

With Flying Colors: A Discussion of Subordinated Debt

August 2022

Olden Lane’s own Daniel Prezioso sits down with former NCUA Executive Director Mark Treichel to discuss the state of the credit union subordinated debt market.

Our Team

We have gathered a highly qualified team of professionals focused on solving problems. Each member of our team brings a unique background and provides a different perspective and insight. As a boutique firm, we value each client and focus on nurturing relationships. We work every day to distinguish our firm by its delivery of compelling solutions and its superior service, consistently over time. Click on any of their pictures to learn more about our team.

Making the simple complicated is easy. Making the complicated simple is hard. That’s what we strive to do here at Olden Lane.

– Mike Macchiarola

Secondary Capital

Since 1996, the NCUA has authorized Low-Income Credits Unions (LICUs) to raise uninsured secondary capital in the form of subordinated debt. For a LICU, the capital counts directly towards the PCA Net Worth ratio, a powerful tool for credit unions to strengthen their institution in the face of adverse economic conditions and to invest in improvements to the member experience. Despite this significant regulatory relief, the mechanism was sparsely used during its first decade.

Prior to the 2008 Financial Crisis, when the US Treasury invested directly in credit union secondary capital as part of its Troubled Asset Relief Program (TARP), total outstanding credit union secondary capital remained below $30 million. It served primarily as a tool to aid struggling credit unions. The program also suffered from a non-transparent and inconsistent application process which left many applicants confused and disappointed. This began to change in 2018, as financial servicers like Olden Lane focused attention on the underserved nature of the credit union market and set out to improve the application process for participating credit unions.

From 2018 to year-end 2021, LICUs added more than $700 million in secondary capital to their balance sheets, with the team at Olden Lane raising more for clients than any other advisors. This growth followed Letter to Credit Unions 19-01 from the NCUA, which articulated the requirements for approval of a secondary capital plan. This letter, combined with the maturation of the market and a diversification in the use of secondary capital, led to the aggressive growth of secondary capital. No longer a lifeboat for struggling credit unions, financially sound credit unions began taking on secondary capital to support organic and inorganic growth strategies. The market began growing at such a rate that the NCUA adopted a new set of rules altogether in the beginning of 2022. In the process, the NCUA did away with the term secondary capital and, as of January 1, 2022, all credit unions now issue subordinated debt. The new name was the least significant change.

Subordinated Debt

With the transition to the new subordinated debt regime, the universe of credit unions capable of raising subordinated debt has increased dramatically. No longer limited to just low-income designated credit unions (who can still issue under the new rule, regardless of size), now all credit unions with greater than $500 million in assets (“complex credit unions”) can raise subordinated debt following the approval of an application to the NCUA. For complex credit unions, the subordinated debt counts towards their numerator in their Risk Based Capital ratio as opposed to low-income credit unions who see the debt count towards both their PCA and Risk Based Net Worth calculations. There were additional, nuanced changes to the rule that affect how credit unions must approach the process of raising further capital.

As the market continues to grow, todays subordinated debt is commonly deployed to:

Support organic growth for a credit union – If asset growth outpaces retained earnings, the dilution can be harmful to an otherwise thriving credit union. This dilution can be offset with subordinated debt
Pursue an inorganic, acquisition-based growth strategy – These strategies are typically dilutive to the capital ratios of the acquiring credit union. Subordinated debt can offset these negatives
Preparation for economic headwinds – Subordinated debt can bolster the balance sheet of a credit union, absorbing losses and helping the credit union through economically turbulent periods that would otherwise harm capital ratios

Regardless of the reason for your credit union pursuing approval to raise subordinated debt, Olden Lane can help. We can assist your team in crafting an application to submit to the NCUA. Upon approval, we help place your debt across our investor network. Our team has gained approval to raise more than $250 million in subordinated debt since the onset of the new rule in January 2022.

Reach out today to see if Olden Lane can help your credit union gain low-income status, outline a bank or credit union M&A strategy, or help your credit union apply for and raise subordinated debt.

Latest Deals

We’ve taken our east-coast roots and spread nationally by building and maintaining strong relationships with our clients. Whether you’re based on the west coast, the south-east, or the mid-west, our team can help you grow.

Hedging Advisory

Olden Lane’s industry-leading work in arranging credit union subordinated debt and its related strategic dialogue with credit union leaders positions the firm to provide insight and thought leadership to these markets.

Our team brings decades of experience in derivatives, markets, and corporate finance to assist credit unions with hedging strategies and related derivative instruments, including:

Interest Rate Futures and related exchange traded options
Over the Counter derivative instruments such as interest rate swaps, swaptions, caps, and floors
TBAs
Other bespoke solutions

Olden Lane’s services can include all or portions of the following:

Development of best-in-class derivative and hedging policies and procedures
Educational materials and training for executives and board members
Evaluation of hedging strategies, including economic impact, accounting treatment and liquidity effects.
Negotiation of legal documents
Valuation Services and transaction/collateral management/monitoring
Monthly Management and Quarterly Board reports – The NCUA recently issued an Update to the Interest Rate Risk Supervisory Framework in response to the recent unprecedented movements in interest rates.

The NCUA signaled a sense of urgency, stating “[t]he level and source of IRR exposure will determine the degree of urgency in developing and implementing mitigation strategies. When assessing how credit unions are proactively monitoring IRR and related issues, examiner oversight will increase until a credit union adopts an effective program, which includes safe and sound practices.”

The NCUA signaled that an effective IRR Program should include communication, action, and controls to evaluate impact of market risks, stating that “[e]xaminers will assess the experience, effectiveness, and actions taken by the credit union personnel who guide and supervise a credit union’s IRR management. This assessment speaks to the capability of a credit union’s leadership team, which is reflected in the Management (‘M’) CAMELS component rating”

While navigating the world of hedging can be daunting, Olden Lane’s multi-disciplinary team of experts is available to help. We have successfully implemented effective hedging programs for several clients since our effort began in this space a little over a year ago.

Please reach out to [email protected] to schedule a call with our team.

Non-Member Funding

It is critical for credit unions to avail themselves of reliable liquidity sources. DTC-eligible CDs can be an important part of that mix. The recent experience of the pandemic demonstrated the value of sourcing external liquidity in a “callable” format, as many credit unions were forced to retain FHLB borrowing during a period of excess liquidity. This predicament resulted in additional pressure on balance sheet and capital ratios that did not have a convenient remedy. DTC-eligible CDs are one of the most convenient and cost-effective methods to incorporate external funding in a callable format.

Considering the length of the low interest rate environment and the speed of its reversal, many credit unions are surprised by the pace at which their liquidity posture has reversed from surplus to scarcity.
In this environment, the availability of non-member funding is as important as it has ever been. Olden Lane’s non-member funding program is designed for operational efficiency and, in a dynamic market where levels are changing constantly, we distinguish ourselves by our level of client communication and our reliable service.

If you are interested in learning more about Olden Lane’s non-member funding program, please contact us at [email protected] to schedule a call with our team.

Contact Us

Talk to the team at Olden Lane today to find out how we can help your credit union face the challenges of today. Reach out to [email protected] or fill out the form below to get in touch.