National Rural Utilities prices 5.75% subordinated debt, $130k tranche

Rhea-AI Filing Summary

National Rural Utilities Cooperative Finance Corporation (NRUC) filed a Rule 424(b)(3) pricing supplement for a new tranche of subordinated deferrable interest notes.

The offering covers a single CUSIP (63743LAW3) with a principal amount of $130,000, priced at 100%. Underwriting gross concession is 3.150%, resulting in net proceeds of $125,905 to the issuer.

Key terms

• Coupon: 5.750% fixed, paid semi-annually.
• Maturity: 06/15/2055 (30-year tenor).
• Call provision: Redeemable at par on any day on or after 06/15/2030.
• Survivor’s option: Yes, allowing early redemption in the event of the holder’s death.
• Ranking: Subordinated to senior debt; issued under the 1996 Indenture with U.S. Bank Trust Co. as trustee.
• Denomination: Minimum $1,000; book-entry through DTC.

Distribution & settlement: Trades during the offering period (16–23 June 2025) settle flat through DTC on 26 June 2025. Selling group includes InspereX, Citigroup, RBC Capital Markets and Wells Fargo.

Legal & tax opinions: Hogan Lovells opines the notes constitute valid, binding obligations, subject to standard bankruptcy and equitable-principles exceptions. For U.S. federal income tax purposes the notes are expected to be treated as indebtedness, but there is no controlling authority; the IRS could challenge this characterization.

Investor takeaways: The 5.75% coupon may appeal to income-oriented investors, yet the subordination, 30-year maturity, call risk, and tax uncertainty elevate risk. The survivor’s option and par-call structure provide limited flexibility, whereas underwriting fees reduce proceeds to the issuer.

Positive

• 5.75% fixed coupon provides relatively high income compared with investment-grade senior utility bonds.
• Survivors option allows estate redemption, adding holder flexibility.
• Par call after five years gives NRUC optionality without penalizing investors through make-whole premiums.

Negative

• Subordinated ranking exposes investors to higher loss severity in default scenarios.
• 30-year maturity increases duration risk and sensitivity to interest-rate changes.
• Callable at par limits price appreciation potential if rates decline.
• Tax classification uncertainty could alter after-tax returns if IRS challenges debt treatment.
• Thin issue size ($130k) may result in low secondary-market liquidity.

Insights

Fixed-Income Analyst

TL;DR 5.75% coupon attractive, but long-dated, subordinated, callable; tax status uncertain—overall neutral risk-adjusted appeal.

The yield is competitive for a cooperative finance entity, yet investors assume heightened risk due to subordination and a 30-year maturity. The par-call beginning 2030 caps upside if rates fall, while exposing holders to reinvestment risk. Legal counsel confirms enforceability, but tax treatment remains unsettled—any IRS re-characterization could affect after-tax returns. Net proceeds suggest a 3.15% underwriting spread, typical for retail note programs. Given limited issue size, market liquidity will likely be thin. Overall impact is neutral; income seekers may find value, but the structure is not materially transformative for NRUC’s credit profile.

Credit Risk Specialist

TL;DR Subordination plus indeterminate tax stance increases credit and structural risk, partially offset by reasonable coupon.

NRUC’s subordinated notes rank below all senior obligations, implying higher loss-given-default. The 5.75% fixed rate is roughly in line with comparable utility coop subordinated paper, offering moderate compensation. Callability at par after five years shortens expected duration to ~5.5 years if redeemed, but investors cannot count on redemption. Survivors’ option marginally enhances estate planning flexibility. From the issuer’s standpoint, proceeds are negligible versus NRUC’s overall funding, so balance-sheet impact is minimal. The unresolved debt-vs-equity tax question is a notable red flag for certain investors. I therefore classify the filing as neutral for credit outlook and market perception.

Filed under Rule 424(b)(3), Registration Statement No. 333-275151

Pricing Supplement No. 21 - Dated Monday, June 23, 2025 (To: Prospectus Dated October 24, 2023 and Prospectus Supplement Dated November 1, 2024)

CUSIP Number

Principal Amount

Selling Price

Gross Concession

Net Proceeds

Coupon Type

Coupon Rate

Coupon Frequency

Maturity Date

1st Coupon Date

1st Coupon Amount

Survivor's Option

Product Ranking

63743LAW3

$130,000.00

100.000%

3.150%

$125,905.00

Fixed

5.750%

Semi-Annual

06/15/2055

12/15/2025

$26.99

Yes

Subordinated Notes

Redemption Information: Callable at the Issuer's option, in whole or from time to time in part, on any day on or after 06/15/2030 (the "Par Call Period") at a redemption price in cash equal to 100% of the principal amount of the notes being redeemed, plus, accrued and unpaid interest, if any, thereon to, but excluding, the redemption date.

			Offering Date: Monday, June 16, 2025 through Monday, June 23, 2025			National Rural Utilities Cooperative Finance Corp
National Rural Utilities Cooperative Finance Corp			Trade Date: Monday, June 23, 2025 @12:00 PM ET			Subordinated Notes (Subordinated Deferrable Interest Notes)
			Settle Date: Thursday, June 26, 2025			Prospectus dated October 24, 2023 and
			Minimum Denomination/Increments:$1,000.00/$1,000.00			Prospectus Supplement dated November 1, 2024
			Initial trades settle flat and clear SDFS: DTC Book Entry only
			DTC Number: 0235 via RBC Dain Rauscher Inc.
			Agents: InspereX LLC, Citigroup Global Markets Inc., RBC Capital Markets, LLC, Wells Fargo Clearing Services, LLC
			Trustee: U.S. Bank Trust Company, National Association
			Validity of the Notes
			In the opinion of Hogan Lovells US LLP, as counsel to the Issuer, following (i) receipt by the Issuer of the consideration for the notes specified in applicable resolutions of the board of directors of the Issuer and (ii) the due execution, authentication, issuance and delivery of the notes pursuant to the terms of the Indenture, dated as of October 15, 1996, between the Issuer and U.S. Bank Trust Company, National Association, as successor trustee (the “Indenture”), and the applicable underwriting, agency or distribution agreement against payment therefor, the notes offered by this pricing supplement will constitute valid and binding obligations of the Issuer, subject to the effect of: (a) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors' rights and remedies (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances and fraudulent, preferential or voidable transfers), and (b) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in a proceeding in equity or at law), including, without limitation, principles limiting the availability of specific performance and injunctive relief.
			This opinion is based as to matters of law solely on applicable provisions of the following, as currently in effect: (i) the District of Columbia General Cooperative Association Act of 2010 and (ii) the laws of the State of New York (but not including any laws, statutes, ordinances, administrative decisions, rules or regulations of any political subdivision below the state level). In addition, this opinion is subject to customary assumptions about the trustee's authorization, execution and delivery of the Indenture and its authentication of the notes and the validity, binding nature and enforceability of the Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 1, 2024, which has been filed as an exhibit to a Current Report on Form 8-K by the Issuer on November 1, 2024.

U.S. Federal Tax information

There is uncertainty regarding the U.S. federal income tax classification of the notes due to the lack of governing authority. You should review carefully the sections entitled “Certain Material U.S. Federal Tax Considerations” in the accompanying prospectus supplement. The determination of whether a security should be classified as indebtedness or equity for U.S. federal income tax purposes requires a judgment based on all relevant facts and circumstances. There is no statutory, judicial or administrative authority that directly addresses the U.S. federal income tax treatment of securities similar to the notes. In the opinion of Hogan Lovells US LLP, under current law and based on the facts contained in the prospectus supplement and this pricing supplement, the terms of the Indenture and the notes, and certain assumptions stated in the opinion and representations relied upon in rendering the opinion, the notes will be classified for U.S. federal income tax purposes as indebtedness of the Issuer (although there is no controlling authority directly on point). The opinion of Hogan Lovells US LLP is not binding on the Internal Revenue Service (“IRS”) or the courts. Moreover, no rulings have been or will be sought from the IRS with respect to the transactions described in the prospectus supplement and this pricing supplement. Accordingly, the Issuer cannot assure you that the IRS will not challenge the opinion described herein or that a court would not sustain such a challenge. The Issuer agrees, and by acquiring an interest in a note, each beneficial owner of a note will agree, to treat the notes as indebtedness of the Issuer for U.S. federal income tax purposes. You should consult your tax advisors regarding the tax consequences that will arise if the notes are not treated as indebtedness of the Issuer for U.S. federal income tax purposes.

FAQ

What is the coupon rate on NRUCs new subordinated notes?

The notes carry a 5.750% fixed coupon paid semi-annually.

When can NRUC redeem the notes?

NRUC may call the notes at 100% of principal on any day on or after 06/15/2030.

What is the maturity date of the NRUC subordinated notes?

The notes mature on 06/15/2055.

Do the notes include a survivors option?

Yes. Beneficiaries can request early redemption upon the holders death.

How much will NRUC receive from the offering?

Net proceeds are $125,905 after a 3.150% underwriting concession.

Is the U.S. tax treatment of the notes certain?

No. Counsel believes the notes should be treated as debt, but the IRS could challenge this classification.