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CU System
CUNA Mutual issues 85M in surplus notes
MADISON, Wis. (7/12/10)--CUNA Mutual Group has entered into an agreement with several institutional investors to issue $85 million in fixed-rate, 20-year surplus notes, in a move aimed at creating opportunities for future growth. “Surplus notes are a cost-effective opportunity in this low-interest environment to take advantage of our financial strength and raise new capital,” said Jeff Post, president/CEO of CUNA Mutual. “The new capital increases our already strong financial position and gives us flexibility to invest in opportunities that will drive future growth.” A surplus note is a bond-like instrument issued primarily by mutual insurance companies. They are debt-like in that they pay an interest rate and have a finite maturity. During that period, CUNA Mutual pays an interest rate to its investors. “Investors’ willingness to purchase our surplus notes is a major achievement for CUNA Mutual,” Post said. “The ready acceptance of these notes by sophisticated investors is a major vote of confidence in CUNA Mutual’s strategy, our relationship with our customers--and our future.” CUNA Mutual will use the infusion of capital to support its credit union market and diversification strategies that will drive future profitable growth. The initiatives could include acquisitions and/or investment in business-to-consumer initiatives in the credit union marketplace, the company said. “Essentially this is a form of subordinated debt--analogous to alternative capital for a credit union--that is issued to sophisticated investors to raise capital,” Eric Richard, executive vice president and general counsel for the Credit Union National Association, explained. “The issue process is complicated, involving rating agencies, investment analysts, and other due diligence comparable to what happens in an initial public offering--except this is debt, not equity.”
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