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MADISON, Wis. – Corporate credit unions can now look to CUNA Mutual Group for investment options. CUNA Mutual says it wants to help corporates attract some of the $50 billion or so that is invested by natural person CUs outside of the corporate CU network with its new CUNA Mutual Group Notes investment product. CUNA Mutual Group is issuing notes that are fully guaranteed by CUNA Mutual Life Insurance Company. It is using its investment arm, MEMBERS Capital Advisors, to manage the program. The notes are in the one to five year range. The program carries a double AA rating by Fitch. The minimum initial investment is $1 million. So far seven corporate CUs are participating. “Because we’re an insurance company we can invest in some products that corporates can’t invest in. We’re owned by the system, and we can bring something to the system that brings a higher yield,” said Don Davidson, vice president of corporate CU relations, marketing division, for CUNA Mutual Group. NCUA’s Part 704 regulates what corporates can invest in. There are more stringent credit quality and credit concentration rules for corporates than what CUNA Mutual faces under state insurance regulations. CUNA Mutual launched the product last October during an Association of Corporate CU’s meeting. It then waited to get approval in a good number of states before aggressively marketing the product. It has visited with most corporates in-person to talk about the program. Kevin Thompson, vice president, deputy general counsel, for CUNA Mutual Group said the flexibility of the program should be an attractive element to corporates. He said in addition to the low $1 million investment requirement, corporates get to select between a one and five year maturity and choose how they want the interest payment, whether it be quarterly, semi-annually, annually, or in a bullet. He said the yields are also greater than agencies, and corporates can choose either a fixed or floating rate. “We offer an investment that is obviously more attractive than the agencies corporates invest in. A number of corporates have made purchases with floating rates. They don’t want to lock in very long at this point,” said Davidson. Some corporates were quick to move on the new investment. “I think it’s a good option for corporates. It’s a class of investment we qualify as premium asset trusts. We’ve looked at offerings from CUNA Mutual as well as other companies,” said Eric Kenealy, president/CEO of SunCorp Corporate CU. Kenealy didn’t want to give dollar amounts, but he did say SunCorp has gone through a couple of investment rounds with the product. “CUNA Mutual has really been working closely with corporates on this. They’ve been responsive to our requests. It does make me feel better knowing that it’s coming from CUNA Mutual, a long-time credit union supporter,” said Kenealy. Some corporates, however, said it may take them some time to embrace CUNA Mutual. “It’s a double AA rating. For one thing we only buy triple AAA. And we try to do our investments through U.S. Central as much as possible, that’s why we have a central corporate,” said David Savoie, president/CEO of Louisiana Corporate CU. Savoie questioned whether CUNA Mutual was coming into the corporate investment arena to cherry-pick what it might see as a profitable business. Mark Schroeder, president/CEO of Wisconsin Corporate Central CU said the CUNA Mutual product is a good alternative to agencies, corporate debts, and other investments that most corporates don’t typically go to U.S. Central for. “It might siphon some funds out of U.S. Central, but so might agencies and other legal investments for corporates. It’s simply a niche investment to enhance yield. We’re not going to abandon U.S. Central to load up on these,” said Schroeder. Wisconsin Corporate is one of the seven corporates participating. At this point, Schroeder said Wisconsin Corporate has not repackaged the CUNA Mutual investment for its member CUs, but that’s an option down the line. Because of concerns of credit concentration, like any other investment, Wisconsin Corporate has set internal dollar limits on investing in the CUNA Mutual product. “I’m all for it. We plan on participating in the near future. It’s a very good rate. Any time I can funnel more yield back to my members I’m interested,” said Pete Pritts, president/CEO of FirstCorp, Phoenix. Pritts said FirstCorp will do its due diligence on the product, however he is not concerned about the double AA rating because it is guaranteed by CUNA Mutual Life Insurance Company. Davidson said CUNA Mutual and U.S. Central have agreed to disagree on the competition issue. “We believe strongly that we’re offering a nice alternative here. We recognize U.S. Central doesn’t do a lot from one to five years,” said Davidson, who said CUNA Mutual has been sensitive to U.S. Central, with CUNA Mutual President/CEO Mike Kitchen even visiting with U.S. Central President/CEO Dan Kampen to explain CUNA Mutual’s strategy. CUNA Mutual is basically staying away from shorter-term investments (one year and under) where it believes U.S. Central excels, and focusing on longer-term where CUs are often going outside of the system for investments. Davidson said no corporate invests 100% in U.S. Central anyway. “Our objective is to help corporates diversify. Obviously we consider U.S. Central an important part of the credit union system,” said Davidson, who noted that U.S. Central and all corporates are customers of CUNA Mutual Group in one way or another, whether it be fidelity bond or pension plans. He said CUNA Mutual wouldn’t do anything to jeopardize that relationship. Despite the U.S. Central competition talk, U.S. Central itself doesn’t see CUNA Mutual as a competitor. “We don’t see them as a competitor. We’re not a competitor in the double AA market. Those notes should really be compared to similar investments. When you invest in U.S. Central; we’re a financial institution, the risk and rewards are different,” said Margaret Blankers, vice president of public and government relations for U.S. Central. U.S. Central could invest in the CUNA Mutual Notes, but likely won’t. “We don’t see their product as a fit for us at all,” said Blankers. Although CUNA Mutual did check with NCUA to ensure its investment program was permissible and provided a letter to that fact from the Office of Corporate CUs to all of the corporates, some corporates want more guidance from NCUA on the new offering, said Thompson. “We’ve had some inquiries from corporates asking if we could go back and get further guidance from the NCUA. We have not done this at this point. Our experience with NCUA is they’re not in the business of providing endorsements and guidance on how you do this,” said Thompson. Thompson did say some corporates have raised their eyebrows at the double AA rating and are staying away on those grounds, however other corporates have gone back and changed their policies dictating only triple AAA ratings, so they could invest in the CUNA Mutual product. Thompson and Davidson stressed that the principal and interest is guaranteed by CUNA Mutual Life Insurance Company. “What it really looks like to me more than anything else is kind of a wrapped product. You have their investment arm that can invest in securities that are not eligible for corporate credit unions. They can go down on the credit curve, take on a little more NEV sensitivity than a corporate,” said Bart Salazar, vice president of investments for Empire Corporate FCU. “Our management has kind of been of the opinion that there hasn’t been a compelling reason to do it. The one advantage of it is similar to a U.S. Central product we can tailor the principal a lot more. If I go in the marketplace and need to buy a double AA industrial bond, I have to buy a big piece, say $20 to $50 million,” said Salazar, whereas the CUNA Mutual product lets a corporate come in with a $1 million minimum investment. [email protected]

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