Members' Subordinated Certificates

12 Months Ended

May 31, 2022


NOTE 9—MEMBERS’ SUBORDINATED CERTIFICATES

Membership Subordinated Certificates

Prior to June 2009, CFC members were required to purchase membership subordinated certificates as a condition of membership. Such certificates are interest-bearing, unsecured, subordinated debt. Membership certificates typically have an original maturity of 100 years and pay interest at 5% semi-annually. No requirement to purchase membership certificates has existed for NCSC or RTFC members.

Loan and Guarantee Subordinated Certificates

Members obtaining long-term loans, certain line of credit loans or guarantees may be required to purchase additional loan or guarantee subordinated certificates with each such loan or guarantee based on the borrower’s debt-to-equity ratio with CFC. These certificates are unsecured, subordinated debt and may be interest bearing or non-interest bearing.

Under our current policy, most borrowers requesting standard loans are not required to buy subordinated certificates as a condition of a loan or guarantee. Borrowers meeting certain criteria, including but not limited to, high leverage ratios, or borrowers requesting large facilities, may be required to purchase loan or guarantee subordinated certificates or member

capital securities (described below) as a condition of the loan. Loan subordinated certificates have the same maturity as the related long-term loan. Some certificates may amortize annually based on the outstanding loan balance.

The interest rates payable on guarantee subordinated certificates purchased in conjunction with our guarantee program vary in accordance with applicable CFC policy. Guarantee subordinated certificates have the same maturity as the related guarantee.

Member Capital Securities

CFC offers member capital securities to its voting members. Member capital securities are interest-bearing, unsecured obligations of CFC, which are subordinate to all existing and future senior and subordinated indebtedness of CFC held by non-members of CFC, but rank proportionally to our member subordinated certificates. Member capital securities mature 30 years from the date of issuance, typically pay interest at 5% and are callable at par at our option 10 years from the date of issuance and anytime thereafter. The interest rate for new member capital securities issuance is set at the time of issuance. These securities represent voluntary investments in CFC by the members. Subsequent to May 31, 2022, we revised the interest rate to 5.50% and updated the call option to five years for new member capital securities issuances. The following table displays members’ subordinated certificates and the weighted-average interest rates as of May 31, 2022 and 2021.

Table 9.1: Members’ Subordinated Certificates Outstanding and Weighted-Average Interest Rates


	May 31,
	2022				2021
(Dollars in thousands)	Amounts Outstanding		Weighted- Average Interest Rate		Amounts Outstanding		Weighted- Average Interest Rate
Membership subordinated certificates:
Certificates maturing 2025 through 2119	$	628,591			$	628,582
Subscribed and unissued (1)	12				12
Total membership subordinated certificates	628,603		4.95	%	628,594		4.95	%
Loan and guarantee subordinated certificates:
Interest-bearing loan subordinated certificates maturing through 2045	216,266				223,067
Non-interest-bearing loan subordinated certificates maturing through 2047	121,744				132,203
Subscribed and unissued (1)	45				45
Total loan subordinated certificates	338,055		2.64		355,315		2.61
Interest-bearing guarantee subordinated certificates maturing through 2044	27,333		5.90		31,581		6.06


Total loan and guarantee subordinated certificates	365,388		2.88		386,896		2.89
Member capital securities:
Securities maturing through 2052	240,170		5.00		239,170		5.00
Total members’ subordinated certificates	$	1,234,161	4.35		$	1,254,660	4.32

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(1) The subscribed and unissued subordinated certificates represent subordinated certificates that members are required to purchase. Upon collection of full payment of the subordinated certificate amount, the certificate will be reclassified from subscribed and unissued to outstanding.

The weighted-average maturity for all membership subordinated certificates outstanding was 55 and 56 years as of May 31, 2022 and 2021, respectively. The following table presents the amount of members’ subordinated certificates maturing in each of the five fiscal years subsequent to May 31, 2022 and thereafter.

Table 9.2: Members’ Subordinated Certificate Maturities and Weighted-Average Interest Rates


(Dollars in thousands)	Amount Maturing(1)		Weighted-Average Interest Rate
2023	$	17,034	4.00	%
2024	8,092		2.19
2025	8,594		2.47
2026	53,515		2.92
2027	8,716		1.87
Thereafter	1,138,153		4.47
Total	$	1,234,104	4.35

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(1)Excludes $0.06 million in subscribed and unissued member subordinated certificates for which a payment has been received, but no certificate has been issued. Amortizing member loan subordinated certificates totaling $175 million are amortizing annually based on the unpaid principal balance of the related loan. Amortization payments on these certificates totaled $12 million in fiscal year 2022 and represented 7% of amortizing loan subordinated certificates outstanding.