Pub. 4 2015 Issue 2

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 22 BERT ELY’S FARM CREDIT WATCH ® SHEDDING LIGHT ON THE FARM CREDIT SYSTEM, AMERICA’S LEAST KNOWN GSE ©2014 Bert Ely CoBank does big financing deals with AT&T, U.S. Cellular In just two days this past January, CoBank committed to providing $425 million of taxpayer-subsidized funding to two of the largest stockholder-owned telecommunications companies – $225 million on January 22 to U.S. Cellular and $200 million on January 21 to AT&T. These loans follow on the heels of CoBank’s $350 million loan last June to Frontier Communications and CoBank’s $725 million loan to Verizon last February. These four credit extensions to stockholder- owned corporations total $1.5 billion. According to an SEC 8-K filing on the U.S. Cellular deal, it appears that CoBank sold participations of at least $5 million each to the Farm Credit Bank of Texas and twelve FCS direct-lending associations. An interesting question is whether these associations have the authority, under the Farm Credit Act, to lend money to U.S. Cellular. These loans lie far outside CoBank’s authority to lend to cooperatively owned telephone companies, yet it appears the FCS’s regulator, the Farm Credit Administration (FCA), has done nothing to prohibit CoBank’s lending to corporate America. In fact, it appears that the FCA has green-lighted CoBank’s expansion into financing stockholder-owned utilities. Perhaps that light flashed green for CoBank when FCA board member and former chairman Leland Strom vigorously defended the Verizon loan at the secret symposium the FCA held last January where FCS insiders and selected guests discussed the future of the FCS. Strom stated that “greater lending capacity provides opportunity for [FCS] institutions like CoBank to participate in large corporate banking transactions such as the recent Verizon purchase of Vodaphone’s stake in Verizon Wireless. This loan was made under the Farm Credit Act’s similar lending authority as it relates to rural telecom lending. ” [emphasis supplied] Leaving aside the fact that AT&T, U.S. Cellular, Verizon, and Frontier Communications can hardly be characterized as rural telecom companies even though they may serve rural areas, it is hard to imagine that Congress, when it granted the FCS the authority to lend to rural cooperatives in 1933, envisioned that the FCS, and CoBank specifically, would use that authority “to participate in large corporate banking transactions.” It also is hard to believe that when Congress granted what today is CoBank the authority to lend to “similar entities,” that is, businesses “functionally similar” to the telephone cooperatives eligible to borrow from CoBank, it intended for CoBank to be providing taxpayer-subsidized credit to large firms readily able to tap global capital markets. These four loans certainly warrant congressional scrutiny as they are excellent examples of, one, the FCS, and CoBank in particular, abusing its lending authority and, two, the FCA turning a blind eye towards these deals. Indiana college obtains $27 million loan from the FCS An even more egregious FCS lending abuse occurred in May 2013, when St. Joseph’s College in Rensselaer, Indiana, borrowed $27 million from Farm Credit Mid-America (FCMA); FCMA, headquartered in Louisville, is the second- largest FCS direct-lending association. According to a St. Joseph’s news release, the college refinanced “its long term debt obligations through partnerships with DeMotte State Bank [of DeMotte, Indiana] and [FCMA].” The loan “will be locked in at a fixed interest rate for a 20 year term.” Reportedly, the bank, with assets of $364 million, merely services the loan on behalf of FCMA. Clearly the FCS is not authorized to lend to educational institutions, which raises the question: How could FCMA make this loan to the college? According to news reports, the late Juanita Kious Waugh, upon her death in 2010, bequeathed 7,634 acres of farmland, valued at approximately $40 million, to St. Joseph’s, which already owned another 800 acres of farmland. The farmland is leased and actively farmed; in