Current through Register Vol. 49, No. 6, March 15, 2024
PURPOSE: This regulation authorizes associations to
establish finance subsidiaries whose sole purpose is to issue debt or equity
securities and remit the proceeds of such issuances to the
association.
(1) Definitions.
As used in this regulation-
(A) Assets
collateralizing means any assets of a finance subsidiary securing, pledged to
or committed to a securities issuance by a finance subsidiary;
(B) As used in this regulation-
1. Assets transferred or transferring assets
means assets of or liabilities issued by a parent association that are
transferred or made available by such association to a finance subsidiary.
Assets transferred include guarantees of a finance subsidiary's securities
issuances by its parent association.
2. For the purpose of calculating the thirty
percent (30%) aggregate and two hundred and fifty percent (250%) per-issuance
transfer limitations set forth in paragraphs (3)(A)1. and 2., respectively, of
this regulation, assets transferred by an association to a finance subsidiary
include:
A. Assets or liabilities used to
capitalize a finance subsidiary, to collateralize an issuance of securities by
an established finance subsidiary or to maintain collateral levels for any
security issued by a finance subsidiary;
B. Any guarantee issued by a parent
association with respect to the securities issued by a finance subsidiary or
any collateral for such guarantee as provided in subsection (3)(D) of this
regulation;
C. Any portion of the
proceeds of a securities issuance by a finance subsidiary held by a finance
subsidiary for collateral maintenance, fee payment or other necessary expenses
related to the securities issuance or collateralizing assets; and
D. Any assets or liabilities received by a
finance subsidiary from its parent association by or after remitting to the
parent association the proceeds of a securities issuance by such finance
subsidiary. The remittance of proceeds of a securities issuance to a parent
association by any method, including those set out in section (5) of this
regulation, shall not decrease the amount of assets transferred for the
purposes of paragraphs (3)(A)1. or 2. of this regulation; and
(C) Finance subsidiary
means an association's subsidiary subject to the provisions of this regulation
whose sole purpose is to issue securities that the association is authorized to
issue directly (or, if the parent association is a mutual association, would be
authorized to issue if it converted to the stock form) and to remit the net
proceeds of such securities issuances to its parent
association.
(2)
Establishment of Finance Subsidiaries. An association may establish one (1) or
more finance subsidiaries as defined in subsection (1)(C) of this regulation.
Prior to the establishment of any finance subsidiary, the board of directors of
the association shall, by resolution, vote to authorize the creation of a
finance subsidiary in furtherance of a written business plan to reduce interest
rate risk and to control credit risk and shall agree to make the books and
records of its finance subsidiary available to the director. The board of
directors of an association shall be responsible for monitoring the use of all
proceeds obtained through the issuance of securities by the finance subsidiary
and shall ensure compliance with the business plan pursuant to which the
finance subsidiary was established.
(3) Transactions Between a Parent Association
and its Finance Subsidiaries.
(A) An
association may provide the capital to establish one (1) or more finance
subsidiaries by transferring assets to such a finance subsidiary provided that-
1. The aggregate current book value of all
assets transferred by an association to a finance subsidiary shall not, without
the prior written approval of the director, exceed thirty percent (30%) of the
current book value of the association's total assets determined as of the date
of any transfer of assets; and
2.
The aggregate current market value of all assets transferred shall not, without
the prior written approval of the director, exceed the amount necessary and
customary for the issuance of the type of securities to be issued by a finance
subsidiary (which may be the amount required by the rating criteria of a
nationally recognized investment rating service) or two hundred and fifty
percent (250%) of the gross proceeds of a finance subsidiary's securities
issuance, whichever is less.
(B) A finance subsidiary shall not be
consolidated with its parent association for purposes of calculating the
net-worth requirement of the parent association pursuant to applicable federal
regulations.
(C) An association may
guarantee any securities issued by its finance subsidiary, provided that the
guarantee shall not exceed the sum of the unpaid principal balance, any accrued
but unpaid interest, any redemption premium and any post-default interest on
such securities, and provided further, that the guarantee shall provide that
the assets collateralizing the payment of such securities of the finance
subsidiary shall be exhausted before recourse may be had to the
guarantee.
(D) If a guarantee of a
finance subsidiary's securities by its parent association is collateralized or
if a liability issued by a parent association to its finance subsidiary is
collateralized, then the greater of the face amount of such guarantee or
liability or the current book value of the collateral shall be included in the
total amount of assets transferred by a parent association under the limitation
of paragraph (3)(A)1. of this regulation. The greater of the face amount of
such guarantee or liability or the market value of the collateral shall be
included in the total amount that may be transferred by a parent association
under the limitation of paragraph (3)(A)2. of this regulation.
(E) The amount of assets transferred (as
defined in subsection (1)(B) of this regulation) by an association to a finance
subsidiary shall not be subject to the loans-to-one-borrower limitations
imposed by applicable federal regulations.
(4) Issuance of Securities by Finance
Subsidiaries.
(A) A finance subsidiary of an
association may issue, either directly or through a third party intermediary,
any security that its parent association is authorized to issue (or, if the
parent association is a mutual association, would be authorized to issue if it
converted to the stock form), subject to the provisions of this
regulation.
(B) A finance
subsidiary shall not issue or deal in the deposits or savings accounts of its
parent association or state or imply that securities issued by it are insured
by the Federal Deposit Insurance Corporation.
(C) A finance subsidiary shall not issue any
security the payment, maturity or redemption of which may be accelerated upon
the condition that its parent association is insolvent or has been placed into
receivership.
(D) Voting Stock of
Finance Subsidiary.
1. An association
providing capital to a finance subsidiary shall own one hundred percent (100%)
of the finance subsidiary's outstanding voting common stock. An association
shall not transfer or otherwise assign any interest in its finance subsidiary's
common stock to any other person or entity without the prior written approval
of the director.
2. A finance
subsidiary may provide for voting rights for holders of preferred stock in the
manner, for the time period and to the extent customary to protect the rights
of such preferred stockholders, provided that upon the expiration of any event
giving rise to the exercise of such voting rights, such rights shall be vested
exclusively as provided in paragraph (4)(D)1. of this regulation. Such events
include, without limitation, the following:
A.
The finance subsidiary fails to pay dividends for at least one (1) dividend
period;
B. Authorization is sought
for any merger, consolidation or reorganization of the finance subsidiary or
its parent association (except in a supervisory case) in which the issuing
finance subsidiary or its parent association is not the survivor and the net
worth of the resulting finance subsidiary or parent association available for
payment of any class of preferred stock is less than the net worth available
for such class prior to the merger, consolidation or reorganization;
C. Authorization is sought to create a class
of preferred stock having a preference or priority over an outstanding class or
classes of preferred stock;
D.
Authorization is sought for any action that would adversely change the specific
terms of a class of preferred stock;
E. Authorization is sought to increase the
number of shares of a class of preferred stock; and
F. Authorization is sought for the issuance
of an additional class or classes of preferred stock without the finance
subsidiary having met specified financial standards.
(5) Transfer of
Proceeds of the Issuance of Securities. All proceeds from the issuance of any
security by a finance subsidiary, net of the reasonable costs (including any
proceeds held in the subsidiary for collateral maintenance, fee payment or any
other necessary expenses related to the finance subsidiary's securities
issuances or collateralizing assets) associated with the issuance of securities
by the finance subsidiary and the organization of the finance subsidiary, shall
be remitted to the finance subsidiary's parent association. Such remittance may
be made by the payment of dividends on the common stock issued by a finance
subsidiary to its parent; by a redemption of the common stock issued by the
finance subsidiary to its parent association; by the repayment of any loan made
by the parent to the finance subsidiary as part of the capitalization of the
subsidiary; or by the purchase of assets of, or liabilities issued by, the
parent association (subject to the limitations of subsection (3)(A) of this
regulation on the aggregate and per-issuance transfers by a parent association
to a finance subsidiary) provided that, any capital stock (common or
preferred), mutual capital certificate, subordinate debt or any other security
that would otherwise be considered to be regulatory net worth as defined in
applicable federal regulations shall not, if issued by the parent association
to its finance subsidiary, be included in the parent association's regulatory
net worth unless no assets of the parent association have been transferred to
the finance subsidiary, the transaction transfers the risk of equity ownership
to parties other than the finance subsidiary or any insured institution and the
director approves the transaction. The remittance of proceeds to a parent
association by any method shall not reduce the amount of assets transferred to
a finance subsidiary for purposes of the transfer limitations of subsection
(3)(A) of this regulation.
(6)
Notification to the Director.
(A) Prior to
the establishment of any finance subsidiary, the transfer of any additional
assets to an existing finance subsidiary, or the issuance of any additional
securities by an existing finance subsidiary, the board of directors of the
parent association, or a duly authorized executive committee, shall submit
written notification to the director specifying-
1. The name of the finance
subsidiary;
2. The jurisdiction of
incorporation of the finance subsidiary;
3. The amount of assets of the parent
association to be transferred (including the terms of any guarantee to be
issued by the association or any affiliate of the association); the current
book value of all such assets previously transferred to the finance subsidiary;
and the amount representing thirty percent (30%) of the current book value of
the parent association's total assets; and
4. When known and to the extent permitted by
the Securities Act of 1933.
A. A description
of the securities to be issued by the finance subsidiary, including the
term;
B. The aggregate amount of
the securities issuance; the anticipated amount of gross proceeds of the
securities issuance; and the current market value of assets collateralizing the
securities issuance;
C. The
anticipated interest or dividend rates and yields, or the range, and the
frequency of payments on the finance subsidiary's securities;
D. The minimum denomination of the finance
subsidiary's securities; and
E.
Where the finance subsidiary intends to market the securities.
(B) Within ten (10)
days after the issuance of any securities through a finance subsidiary, its
parent association shall send to the director written notification and a copy
of any prospectus, offering circular or other similar document concerning such
an issuance of securities.
(C)
Prior Approval of the Director.
1. Any
association that fails to meet its net-worth requirement, as provided in
applicable federal regulations, or that is operating under any supervisory
agreement, shall not establish a finance subsidiary, transfer assets to an
existing finance subsidiary or issue additional securities through an existing
finance subsidiary without the prior written approval of the director. To
obtain the written approval of the director, the board of directors of the
association or an authorized executive committee shall submit a written
application containing the information specified in subsection (6)(A) of this
regulation, as well as any additional information required by the
director.
2. Within ten (10) days
of the filing of an application specifically designated as filed pursuant to
paragraph (6)(C)1. of this regulation or any additional information by an
association subject to such paragraph, the director shall notify the applicant
in writing either that all information required has been filed or that
additional specified information must be filed. If the director does not act on
the application within thirty (30) days of the date of written notice that all
required information has been filed, such application shall be deemed to be
approved.
3. The director shall
approve the application of an association, subject to the requirements of
paragraph (6)(C)1. of this regulation, unless the director finds that the
establishment and operation of a finance subsidiary, the transfer of assets to
an existing finance subsidiary or the issuance of additional securities by an
existing finance subsidiary is likely to affect adversely the financial
condition or the safe and sound operation of the parent association. An adverse
determination made by the director may be challenged by filing, within fifteen
(15) days after notice of the director's decision is mailed, a notice of appeal
as provided for in section
369.319, RSMo.
(7) Examination of
Finance Subsidiaries. A finance subsidiary shall agree in writing to permit and
to facilitate examinations and to pay any costs of such examinations as the
director and the appropriate federal agency may deem necessary or
appropriate.
Copies of all referenced federal regulations are available
to any interested party at the Division of Finance, Room 630, 301 West High
Street, Jefferson City, Missouri or the Office of the Secretary of State at a
cost established by state law.
*Original authority: 369.144, RSMo 1971, amended 1982,
1983, 1984, 1989, 1994 and 369.299, RSMo 1971, amended
1994.
