Similar to the TARP Capital Purchase Program (CPP), Sub S banks or bank holding companies will issue senior unsecured subordinated debentures to Treasury. Unlike the CPP, however, these subordinated debentures will not qualify for Tier 1 capital treatment. Presumably, the reason for this is because of the Collins Amendment to the Dodd-Frank Act.
The Tier 2 capital treatment will likely discourage all but a small number of organizations from applying for SBLF funds. Small bank holding companies—BHCs with less than $500 million in total assets—are not subject to the Federal Reserve’s capital adequacy guidelines and, therefore, should be less concerned with the regulatory capital treatment. Per the term sheet 90% of SBLF funds must be downstreamed to subsidiary banks.
For Sub S institutions still interested in participating in the SBLF, the terms are as follows:
- Capital Treatment: Tier 2
- Investment Amount: Institutions with $1 billion or less in total assets – 5% of risk-weighted assets; institutions with $1 billion to $10 billion in total assets – 3% of risk-weighted assets
- Ranking: Subordinated to all senior indebtedness and claims of depositors; senior to common stock
- Term: 10 years
- Interest Rate:
SBLF funds may be used to redeem prior Treasury investments under the CPP or the Community Development Capital Initiative (CDCI). Additionally, there will generally be no restrictions on the payment of common dividends or stock repurchases so long as the issuer’s total risk-based capital would be at least 90% of the amount existing at the time of Treasury’s SBLF investment.
For additional information about the SBLF Subchapter S institution term sheet, please contact us by phone at (210) 228-0961.
To view the full term sheet, please visit: