The $18 billion Western Corporate Federal Credit Union issued $1.5 billion in three-year notes last week, according to transaction information provided by the NCUA.
The fixed-rate notes yield 1.793% to investors, 13 basis points less than the $2 billion in notes issued on Oct. 14 by U.S. Central Federal Credit Union. Those three-year fixed-rate securities yield 1.922%.
Another comparison between the two deals is spread versus the three-year Treasury rate: U.S. Central's deal was 47 basis points over, while WesCorp only paid 35.9 points over Treasury. Compared to swaps, WesCorp came in five basis points under, while U.S. Central had to pay five basis points over.
That means U.S. Central had to pay a higher cost of funds than WesCorp, despite the fact that both issuances are guaranteed by the NCUA under the Temporary Corporate Credit Union Liquidity Guarantee Program. The difference could mean investors are gaining familiarity with and confidence in NCUA-backed corporate credit union debt
Like the U.S. Central deal, J.P. Morgan and Bank of America are serving as lead underwriters, with co-manager services from Barclays Capital Inc. and RBS Securities Inc.
NCUA Director of Public and Congressional Affairs John McKechnie said the notes secure another source of funding so WesCorp's investments can be held to recovery. The term sheet said WesCorp will use the proceeds "for general credit union purposes, including working capital needs, capital expenditures, the repayment of existing indebtedness guaranteed under the TCCULG Program and, if permitted by the NCUA, other NCUA-related indebtedness."
However, Callahan & Associates President Chip Filson questioned the wisdom of seeking funds from private markets in an Oct. 26 column posted on the firm's Web site (www.creditunions.com).
"In all the analysis of corporate investment problems, the difficulties caused by the leveraging of the balance sheet and creating dependence on external borrowings were common themes," Filson wrote about U.S. Central's issuance. He told Credit Union Times that corporate credit unions don't have a liquidity problem, they have a confidence problem if they can't raise funds from their own members. He noted that natural person credit unions are currently deposit heavy.
Filson stressed he had not yet seen the details of WesCorp's notes. However, he said if corporates would pay competitive rates on deposits, credit unions would be more than happy to provide them.
"Why are corporates going to banks when the credit union system is set up to be its own source of liquidity?" he asked.
Furthermore, through the CLF, the NCUA could borrow the money from the Treasury, rather than seek the funds from the private market and pay above Treasury rates, he said.
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