Pub. 4 2015 Issue 5

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 16 BERT ELY’S FARM CREDIT WATCH ® SHEDDING LIGHT ON THE FARM CREDIT SYSTEM, AMERICA’S LEAST KNOWN GSE ©2014 Bert Ely COBANK GETS MORE AGGRESSIVE IN LENDING OUTSIDE ITS CHARTER C OBANK, THE FCS’S SOLE AUTHORIZED lender to utility and agricultural cooperatives, has ranged further afield in lending to investor-owned utilities and energy companies, and taking on more credit risk in doing so. As I have reported in the past, CoBank has purchased participations in debt raised by large, well-known investor-owned telecommunication companies – Verizon, AT&T, U.S. Cellular and Frontier Communications. CoBank lent a total of $1.5 billion to these companies. I am now learning that CoBank also has been lending to smaller, less credit worthy investor-owned companies. In April, CoBank provided $50 million of a new $300 million unsecured two-year term loan to Black Hills Corp., rated BBB. The interest rate on the loan is LIBOR plus 90 basis points. Since the FCS can borrow for approximately 10 basis points below one-month LIBOR, CoBank’s spread on this loan is about 100 basis points. Black Hills serves 785,000 natural gas and electric utility customers in seven western states. It also generates wholesale electricity and produces natural gas, oil and coal. Leaving aside whether CoBank should provide taxpayer-subsidized credit to any investor-owned company, the underlined activities hardly fit within the scope of the activities the FCS is authorized to finance. Much more questionable is CoBank’s long-term lending relationship with Otelco, Inc., a NASDAQ-listed telephone company with operations in seven states scattered from Maine to Missouri. CoBank’s Otelco loan came to my attention due to a disclosure in a recent Otelco SEC filing