Visa has issued a second exchange offer to release transfer restrictions on portions of Visa Class B common stock. Get details on the offer.
Visa has commenced a second exchange offer as part of its previously approved, multi-phase program to release transfer restrictions on portions of Visa Class B common stock.
Why the Visa Class B exchange offer matters to financial institutions
Many financial institutions hold Visa Class B shares which were created in 2007 as part of the Visa IPO process. Class B shares were created to provide protection to Class A and C shares from certain litigation.
Although much of that litigation has been settled, holders of Class B shares have had limited access to liquidity. Visa initiated its first offer to exchange in 2024, and the current exchange represents the second such offering.
Who qualifies for the second Visa Class B exchange offer?
This exchange offer applies to holders of Visa Class B-1 and Class B-2 common stock. Consistent with the prior exchange, participating stockholders are required to sign a make-whole agreement.
The offer is scheduled to expire prior to one minute after 11:59 p.m. (ET) on May 8, 2026. A copy of the prospectus, which includes detailed instructions and additional information, is available here.
What does the second Visa Class B exchange offer entail?
Under this exchange offer, participating Class B-1 stockholders may exchange their shares for:
- One-quarter of a newly issued share of Class B-3 common stock
- Newly issued Class C common stock (equivalent to one-half of a share of Class B-1 common stock, and one-quarter of a share of Class B-2 common stock)
- Cash consideration in lieu of fractional shares, if applicable
For Class B 1 stockholders, the exchange occurs through a two step process: Class B 1 shares are first converted into Class B 2 shares, which are then immediately converted into Class B 3 shares.
Participating Class B-2 stockholders may exchange their shares for:
- One-half of a newly issued share of Class B-3 common stock
- Newly issued shares of Class C common stock (equivalent to one half of a share of Class B-2 common stock)
- Cash consideration in lieu of fractional shares, if applicable
What are the accounting and disclosure considerations for financial institutions?
Financial institutions considering participation in the 2026 exchange offer should carefully evaluate the following accounting and disclosure considerations:
Conversion of Class B shares
There is no change in basis when Class B-1 or Class B-2 shares are converted to Class B-3 shares, as this exchange represents a continuation of restricted ownership.
Receipt of Class C shares
The portion of the exchange resulting in Class C shares represents a realization event and should be recorded at the fair value of the converted shares on the exchange date. This results in a change in basis, as the newly acquired Class C shares should be classified and subsequently measured as marketable equity securities. Under ASC 321 – Investments – Equity Securities, marketable equity securities are recorded at fair value at acquisition and subsequently measured at fair value each reporting period.
Make-whole agreement obligations
As a condition of participating in the exchange, each Class B stockholder must enter into a make-whole agreement. Cash payment obligations under the make-whole agreement will arise under certain circumstances as defined in the agreement.
Any make-whole payments would be in an amount equivalent to the loss in value that would have incurred had the financial institution not participated in the exchange. ASC 450-20 – Loss Contingencies would apply to this make-whole agreement.
An estimated loss from this contingency would be accrued if the loss was both probable of occurring and the amount of loss could be reasonably estimated. In addition, financial institutions should consider disclosure in the footnotes to the financial statements related to the make-whole agreement if the threshold for accrual is not met.
Our summary of the primary accounting considerations financial institutions should consider as part of the exchange is included below.
| Does the redenomination from Class B-1 to Class B-3 result in any change in basis? | No. The financial institution should continue to record the investment at the same cost basis as prior to the redenomination with no adjustment to fair value. |
| Does the exchange of Class B-2 to Class B-3 result in any change in basis? | No. The financial institution should continue to record the investment at the same cost basis as prior to the redenomination with no adjustment to fair value. |
| Does the exchange of Class B-1 or B-2 to Class C result in any change in basis? | Yes. The new class C shares should be recorded at the associated fair value of the converted Class A shares. This change in basis would be recorded through income in the period of exchange. |
| How should the lockout period sale restriction be accounted for during the period of time between exchange and release of the sales restriction? | FASB ASU 2022-03 clarifies a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and isn't included in the equity security’s unit of account. Accordingly, a financial institution shouldn't consider the contractual sale restriction when measuring the Visa share’s fair value. |
| How should subsequent changes in value of Visa Class A stock be recorded? | ASC 321 – Investments – Equity Securities would call for the fair value of the Class A shares to be adjusted to fair value through income at each reporting period. |
| Does the make-whole agreement result in a liability being recorded? | As a condition to participating in the exchange, each Class B-1 holder must enter into a make-whole agreement. Cash payment obligations under the make-whole agreement will arise under certain circumstances as defined in the agreement. Any make-whole payments would be in an amount equivalent to the loss in value that would have incurred had the financial institution not participated in the exchange. ASC 450-20 – Loss Contingencies would apply to this make-whole agreement. An estimated loss from this contingency would be accrued if the loss was both probable of occurring and the amount of loss could be reasonably estimated. In addition, financial institutions should consider disclosure in the footnotes to the financial statements related to the make-whole agreement if the threshold for accrual is not met. |
How CLA can help with accounting considerations for Visa Class B conversions
CLA has helped many financial institutions evaluate and determine the accounting considerations from converting their Visa Class B common stock. Reach out for accounting assistance on this or other financial matters.