WEST READING, PA — Customers Bancorp, Inc. (NYSE: CUBI), a Berks County-based bank holding company, has announced an impending change in the interest rate structure for its subordinated notes issued in 2014. The notes will switch from a fixed annual interest rate of 6.125% to a floating rate starting June 26, 2024.
The subordinated notes, totaling $110 million in principal amount and maturing in 2029, were originally issued by Customers Bancorp and its wholly-owned subsidiary, Customers Bank, to accredited investors. These notes were part of a subscription agreement signed on June 24, 2014.
The original terms of these notes stipulated that from June 26, 2024, until maturity, they would carry an annual interest rate equivalent to the three-month LIBOR plus 344.3 basis points. However, due to legislative changes, this benchmark reference rate will be replaced.
The Adjustable Interest Rate (LIBOR) Act, enacted by Congress on March 15, 2022, mandates that the three-month term SOFR (Secured Overnight Financing Rate) plus a tenor spread adjustment of 26.161 basis points will replace the three-month LIBOR as the benchmark reference rate. This change will take effect from June 26, 2024.
Interest on the subordinated notes will now be payable quarterly in arrears on each March 26, June 26, September 26, and December 26. If any of these dates fall on a non-business day, the payment will be made on the next succeeding business day.
Importantly, Customers Bank retains the option to call the subordinated notes, in whole or in part, at a redemption price equal to 100% of the principal balance at specific times on or after June 26, 2024.
This transition to a floating rate aligns with the broader shift in the financial industry away from the LIBOR, a benchmark that has been widely used but is being phased out due to concerns about manipulation and lack of transparency. The SOFR, backed by the U.S. Federal Reserve, is seen as a more reliable and transparent alternative.
For Customers Bancorp investors, this switch means the return on their investment will now be linked to fluctuations in the short-term borrowing costs in the overnight U.S. Treasury repo market, rather than a fixed 6.125% annual rate. While this introduces an element of uncertainty, it also offers potential upsides if short-term interest rates rise.
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