Building capital for future projects, CUNA Mutual Group said it has entered into an agreement with institutional investors to issue $85 million in fixed-rate, 20-year surplus notes.

The company will use this infusion of capital to support its credit union market and diversification strategies that will drive future profitable growth. The initiatives could include acquisitions or investments in business-to-consumer initiatives in the credit union marketplace. Six investors predominantly in the insurance industry and at least one pension fund purchased the surplus notes. Since it is a private placement, the names of the entities involved were not released.

“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.”

CUNA Mutual is looking to continue with more acquisitions and investments. Last year, it established a business development unit that completed the purchase of CPI Qualified Plan Consultants, a 401(k) provider, said Jim Buchheim, vice president, corporate communications/public relations at CUNA Mutual. In 2009, the company also acquired ProAg, a crop insurer it first partnered with in 2007. Buchheim said in the retirement services area in particular, there are more opportunities to acquire books of business and fold them into CUNA Mutual's current business model.

“Even with the additional capital obtained through our surplus notes offering, we will continue to be very prudent with any acquisition-completing due diligence, ensuring a strategic fit, and having confidence in our ability to integrate the new business,” Buchheim said.

The greatest opportunity for CUNA Mutual is helping credit unions expand with their members through programs such as CUNA Brokerage Services Inc. and a direct mail program through MemberCONNECT, Buchheim said. To build those relationships even further, the company wants to expand its e-marketing capabilities.

“We can also better integrate our existing member-facing programs to help credit unions expand share of wallet with members. There are great opportunities here, but no overnight solution,” Buchheim said. “Many have learned through the recession that the best time to add capital is when you don't need it.”

A surplus note is a bond-like instrument issued primarily by mutual insurance companies, according to CUNA Mutual. They are debt-like in that they pay an interest rate and have a finite maturity. During that period, the company said it pays an interest rate to its investors. The surplus notes was the most cost-effective approach to adding the amount of capital raised, Buchheim said.

CUNA Mutual began the private placement process in April and met with potential investors in May. After a meeting with the final group of investors in June, the placement closed at the end of the week of July 5. From a surplus notes standpoint, the issuance process is complete, Buchheim said. This is the first time the company has reached out to institutional investors in this capacity.

Similar to credit unions, CUNA Mutual is owned by those it serves, Buchheim pointed out. And, like credit unions, the primary means the company has for growing capital is through earnings, he added. One major difference is having access to surplus notes, an option available to mutual insurance companies but not credit unions.

“In this interest rate environment and as a fully taxed company, the after-tax costs of issuing notes are very attractive,” Buchheim said. “What's more, the ready acceptance of these notes by sophisticated investors is a major vote of confidence in CUNA Mutual, our strategy, and our relationship with our credit union customers.”

–msamaad@cutimes.com

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Investors Provide $85 Million in Notes to Fuel CUNA Mutual Growth

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