Current through Register Vol. 48, No. 12, March 22, 2024
Subordinated indebtedness agreements (debenture) shall be
submitted for the approval of the Director as required by Section 2-9 of the
Act.
a) The agreement must state that:
1) All payments of principal and/or interest
may be made only after the HMO has obtained approval from the
Director;
2) The obligation of the
HMO under the debenture may not be offset or be subject to recoupment with
respect to any liability or obligation owed to the HMO; and
3) No agreement or interest securing the
debentures, whether existing on the date of the debenture or subsequently
entered, applies to the obligation under the debenture.
b) The agreement shall bear interest either:
1) At a fixed rate not exceeding the
corporate base rate as reported by the largest bank (measured by assets) with
its principal office located in Chicago, Illinois, in effect on the first
business day of the month in which the subordinated indebtedness agreement is
executed, plus 3% per annum; or
2)
At a variable rate equal to the corporate base rate determined on the first
business day of each month during the term of the loan, plus 2% per
annum.
c) In no event
shall the variable interest rate for any month exceed the initial rate for the
loan or advance by more than 10% per annum. The HMO shall elect at the time of
execution of the agreement whether the interest rate is to be fixed or floating
for the term of the agreement. The following shall be submitted for the
Director's approval prior to execution of the subordinated indebtedness
agreement:
1) Duplicate copies of the entire
subordinated indebtedness agreement.
2) A certified copy of the resolution of the
board of directors or the appropriate authoritative body of the HMO. This
resolution shall stipulate the maximum amount of subordinated indebtedness
authorized.
d) The
Director shall be notified immediately in writing upon the execution of any
subordinated indebtedness agreement as to the amount of the agreement and to
whom payable.
e) Accounting for the
subordinated indebtedness on the HMO's financial statements shall be as
follows:
1) All outstanding subordinated
indebtedness and interest accrued on the indebtedness shall be reported
separately in the Annual Statement on page 3 and in any other financial
statements of the company as a special surplus account.
2) The issuance and repayment of the
subordinated indebtedness, as well as the payment of the interest, shall be
reflected as direct debits or credits to the net worth of the HMO's financial
statement.
3) The interest expense
incurred on the subordinated indebtedness during the current period shall be
reflected on the Statement of Revenue, Expenses and Net Worth of the HMO's
financial statements.
f)
An HMO may only repay principal and make payment of interest on any
subordinated indebtedness as provided under Section 2-9 of the Act. No payment
shall be authorized by the Director unless:
1) The HMO's net worth is reasonable in
relation to its outstanding liabilities and adequate for its financial needs;
and
2) The payment is consistent
with the terms of the subordinated indebtedness agreement approved pursuant to
subsection (a).