Note 12. Junior Subordinated Debt Owed to Unconsolidated Trusts
First Busey Corporation has established statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities. The proceeds from such issuances were used by the trusts to purchase junior subordinated notes of the Company, which are the sole assets of each trust. Concurrent with the issuance of the trust preferred securities, the Company issued guarantees for the benefit of the holders of the trust preferred securities. The trust preferred securities are issues that qualify, and are treated by the Company, as Tier I regulatory capital. The Company owns all of the common securities of each trust. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.
The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of December 31, 2011:
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First Busey Statutory Trust II |
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First Busey Statutory Trust III |
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First Busey Statutory Trust IV |
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|
|
|
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Junior Subordinated Notes: |
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|
|
|
|
|
|
Principal balance |
|
$15,000,000 |
|
$10,000,000 |
|
$30,000,000 |
|
Annual interest rate(1) |
|
3-mo LIBOR + 2.65% |
|
3-mo LIBOR + 1.75% |
|
3-mo LIBOR + 1.55% |
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Stated maturity date |
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June 17, 2034 |
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June 15, 2035 |
|
June 15, 2036 |
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Call date |
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June 17, 2009 |
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June 15, 2010 |
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June 15, 2011 |
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|
|
|
|
|
|
|
|
Trust Preferred Securities: |
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|
|
|
|
|
|
Face value |
|
$15,000,000 |
|
$10,000,000 |
|
$30,000,000 |
|
Annual distribution rate(1) |
|
3-mo LIBOR + 2.65% |
|
3-mo LIBOR + 1.75% |
|
3-mo LIBOR + 1.55% |
|
Issuance date |
|
April 30, 2004 |
|
June 15, 2005 |
|
June 15, 2006 |
|
Distribution dates(2) |
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Quarterly |
|
Quarterly |
|
Quarterly |
|
(1) First Busey Statutory Trust IV maintained a 5-year fixed coupon of 6.94% through June 10, 2011, subsequently converting to a floating 3-month LIBOR +1.55%.
(2) All cash distributions are cumulative.
The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at par value at the stated maturity date or upon redemption of the junior subordinated notes on a date no earlier than June 17, 2009, for First Busey Statutory Trust II, June 15, 2010, for First Busey Statutory Trust III, and June 15, 2011, for First Busey Statutory Trust IV. Prior to these respective redemption dates, the junior subordinated notes could have been redeemed by the Company (in which case the trust preferred securities would also be redeemed) after the occurrence of certain events that would have had a negative tax effect on the Company or the trusts, would have caused the trust preferred securities to no longer qualify for Tier 1 capital, or would have resulted in a trust being treated as an investment company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligations under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above, but does not expect to exercise this right.
In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred securities in their Tier I Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill and other intangible assets less any associated deferred tax liability. The final rule provided a five-year transition period, which was extended to March 31, 2011, for applications of the aforementioned quantitative limitation. As of December 31, 2011, 100% of the trust preferred securities noted in the table above qualified as Tier I capital under the final rule adopted in March 2005.
The Dodd-Frank Act mandates the Federal Reserve to establish minimum capital levels for bank holding companies on a consolidated basis that are as stringent as those required for insured depository institutions. The components of Tier 1 capital will be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. As a result, the proceeds of trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets. As First Busey has assets of less than $15 billion, it will be able to maintain its trust preferred proceeds as capital but it will have to comply with new capital mandates in other respects, and it will not be able to raise Tier 1 capital in the future through the issuance of trust preferred securities. |