Pub. 6 2017 Issue 3

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 14 BERT ELY’S FARM CREDITWATCH® Yet another congressional hearing on FCA and FCS On February 28, the Agricultural Appropriation Subcommittee of the House Appropriations Committee held an oversight hearing on the Farm Credit Administration (FCA), the first such hearing the subcommittee had held in 19 years. While the FCS is not subject to the appropriations process, the FCA is. The hearing gave subcommittee members ample opportunity to quiz FCA chairman Dallas Tonsager and FCA board member Jeffrey Hall about FCS activities; in fact, most of the members’ questions focused on FCS activities, including its lending abuses. This hearing was the third congressional hearing on the FCS over the last sixteen months: the Senate Agriculture Committee held an oversight hearing in May 2016 as did the House Agriculture Committee in December 2015. This is the most concentrated congressional attention the FCS has received in decades; hopefully it will continue with the agriculture committees holding annual FCA/FCS oversight hearings. Many questions were posed to Tonsager and Hall about FCS lending practices. Questions focused on large loans to large borrowers, lending (or lack thereof) to YBS (young, beginning, and small) farmers, and other practices — including entity lending, such as CoBank’s $725 million loan to Verizon in 2013. Rep. Rosa DeLauro of Connecticut referenced an FCW article about the extent of FCS lending to large borrowers, citing data I reported on the magnitude of such FCS lending as of the end of 2015. The next article provides an update on such lending at year-end 2016. Rep. DeLauro also posed an extremely important question: Should income limits be applied to FCS borrowers? While acknowledging that the FCS has “some advantages that have been given to it that are important,” Tonsager sidestepped DeLauro’s suggestion about imposing income limits on FCS borrowers. Given how little the FCS lends to smaller farming operations (see below), that is a legitimate question to ask. FCS increasingly focused onmaking very large loans As FCW readers know so well, the FCS increasingly focuses on making very large loans to large corporate borrowers despite how much it touts its lending to YBS borrowers. A table on page 54 in the FCS’s 2016 Annual Information Statement reinforces this point. Of the FCS total increase, from year-end 2015 to year-end 2016, in outstanding loans of $12.88 billion, or 5.5%, loans to borrowers with at least $25 million in outstanding loans accounted for $8.6 billion, or two-thirds of that increase. Loans to 60 borrowers, each in excess of $250 million, totaled $25.22 billion, for an average loan balance of $420.3 million. These are hardly loans to the typical family farm or even to relatively large farming operations. At the top end of the scale, at December 31, 2016, there were two FCS credit exposures in the $1.0 billion to $1.5 billion size range compared to one such exposure in that size range at year-end 2015. Additionally, the FCS had eight credit exposures in the $750 million to $1 billion size range at year-end 2016 compared to six such exposures at the prior year-end. At the low end of FCS loan-size categories, loans under $250,000 accounted for just 13 percent of the total amount the FCS had lent as of the end of 2016 compared to 14 percent at the prior year-end. The FCS’s relatively modest increase during 2016 in loans to those who borrowed $250,000 or less — $282 million — accounted for just 2.2 percent of the FCS’s total loan growth during 2016, a further indication of the FCS’s increased tilt towards providing taxpayer-subsidized credit to large and often nonagricultural borrowers. While the FCS now provides data as to its credit exposures by borrower loan size (something it did not do until 2015), those analyzing the FCS’s finances still have no sense as to the industries and agricultural sectors where those large credits are concentrated. On page 53 in the 2016 Annual Information Statement, the FCS provided a distribution of its total lending by borrower type (cash grains, cattle, rural power, and so on). It would be quite simple for the FCS to go one step further by presenting a matrix in future Information Statements of its various types of credit exposures by the amount borrowed. For example, at the end of 2016, the FCS had $22.653 billion of credit exposure to cattle. It would be useful to see how that risk was distributed by size of credit exposure; that is, how much had the FCS lent to cattle operations in the $250,000 to $500,000 size range versus the dollar amount for loans in the $25 million to $100 million size range. CoBank refinances $320million debt of a large Hawaiian utility On February 24, CoBank refinanced a credit agreement with Hawaiian Telcom Communications, Inc. (HTC), a wholly owned subsidiary of Hawaiian Telcom Holdco, Inc., which is the investor-owned telecommunications company that serves Hawaii. The new agreement provides $320 million of financing in two term loans. CoBank did not participate in a $90 million term loan — eight commercial banks funded that loan — but CoBank did fund 100 percent of a companion $230 million term loan; it probably will allow participation in a substantial portion of that loan by involving other FCS banks and associations. The CoBank loan will be partially amortized over six years, at which time the balance will mature. CoBank also assumed 25 percent of a $30 million revolving loan commitment provided under the agreement. HTC can borrow an additional $100 million under the credit agreement, subject to terms and conditions.