Ann Arbor, Mich.-based UniversityBank, a unit of UniversityBancorp Inc., issued a $2.5 million Tier 1 participatory note certificateto a private investor group, according to an April 6 news release.
The certificate is perpetual and has no maturity date. Furthermore,the additional capital will increase University Bank's regulatory capital by approximately18.5% to support recent and future growth.
The return on the certificate will be tied to a designated portfolioof financial assets, portfolio loans, held by a subsidiary of University Bank. Thenote carries a maximum participant profit of 5.75%. However, under current economicconditions, the bank should pay an approximately 5.00% per annum participation profitto the subscriber, based on the current returns from the bank subsidiary's portfolioloans.
If the bank is unable to pay the participant profit to the subscriberbecause of insufficient net income and retained earnings or other factors, underthe terms of agreement it will not constitute an event of default.
Furthermore, University Bank, subject to the satisfaction ofcertain regulatory criteria, has the option to liquidate the note five years afterissuance, or under certain other conditions.
Linklaters LLP law firm served as the primary legal adviser onthe transaction.