Telecom Giants

Senior Democrat on House Committee on Agriculture Calls Out CoBank

Last month the House Committee on Agriculture grilled the Farm Credit Administration (FCA) on its inability to keep the Farm Credit System (FCS) in check. And word has been getting out.

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The Farm Credit Hearing: A Recap

Since no one should have to sit through two and a half hours of testimony from the Farm Credit Administration (FCA), the Reform Farm Credit team has decided to give a rundown of the committee’s best questions and the FCA’s lackluster responses.

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FCA short changes Young, Small and Beginning Farmers

The Farm Credit Administration (FCA) likes to bury the truth under mountains of data and vague platitudes, but even still, we’ve found the answer to our question: how much of the Farm Credit System’s (FCS) lending is to young, small and beginning farmers?

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CoBank Hangs Up on Farmers and Lends to Telecoms…Again

If you thought CoBank had put a stop to their irresponsible mission creep, you’d be dead wrong. This time, CoBank, an affiliate bank of the Farm Credit System (FCS), has fallen back on one of its old standards: lending to huge telecoms.

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CoBank’s Credibility Problem

After forking over an astounding $1.5 billion in credit to four of the world’s largest telecom corporations, CoBank – Farm Credit’s largest subsidiary and supposed ag lender– is at it again, this time committing hundreds of millions of dollars in new loans to major utility companies across the country.

Here’s how it unfolded:

  • On March 10, the GSE giant participated in a $450 million unsecured revolving credit facility for a California-based water utility provider. As reported in Farm Credit Watch, CoBank acted as a co-syndication agent for the NYSE-listed corporation.
  • Just days later, Fitch Ratings Service affirmed the rating for Georgia Transmission Corp., an electrical infrastructure provider, thanks in part to a CoBank-led, $250 million revolver that was established in March 2013 and later renewed until March 2018.
  • On April 13, CoBank helped Black Hills Corp., a South Dakota-based natural gas and electric utility provider, close on a two-year, $300 million unsecured term loan.

While it’s anyone’s guess as to why CoBank’s regulator does not speak out against such egregious lending activities, the fact remains that these large customers have more than enough capacity to engage the private sector rather than tap into the taxpayer-subsidized credit provided by CoBank and other Farm Credit associations.

CoBank’s seemingly endless portfolio of non-agricultural loans is unsettling because it represents a wildly stretched interpretation of the Farm Credit Act of 1971. While lawmakers passed the decades-old legislation with the intent of enabling lending to important activities and enterprises to support rural America, they likely did not foresee Farm Credit viewing it as a green light for its current “anything goes” approach.

CoBank will continue to run amok until its activities are reined in and refocused on the farm. This begs the question, when will Congress finally step in to take a look at these non-agricultural loans from CoBank and other large GSE’s masquerading as farm lenders?

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FCS: Betting the Farm

From wineries to golf courses to telecom acquisition deals, Farm Credit hardly resembles the organization originally established by Congress a century ago.

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Happy Birthday, FCA! Now, Time for a New Regulator…

This week marks the 82nd birthday of the Farm Credit Administration.

If you haven’t heard of the FCA, you’re not alone. Since being charged by President Franklin Roosevelt in 1933 to begin regulating the Farm Credit System, the little-known federal agency has eluded scrutiny. This is disconcerting because the FCA has, at least in recent times, become Farm Credit’s chief enabler.

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Farm Credit Administration in Hot Water as Congress Takes Notice

If the Farm Credit Administration continues to skirt its responsibility to oversee and regulate the Farm Credit System, Congress will have to step in to investigate and oversee both entities. This is according to Rep. Mick Mulvaney (SC-5th), who indicated last week that the time for Congress to assert its authority over these matters is near.

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Why Farm Credit Needs Immediate Oversight

The last time the Farm Credit System was subjected to a meaningful congressional oversight hearing was years, maybe even decades ago. It really depends on who you ask.

The ambiguity of it all speaks volumes about how and why the System has quietly grown into an unwieldy $266 billion government-sponsored enterprise (GSE) that is looking increasingly like the next Fannie Mae and Freddie Mac.

In fact, the System may have actually foreshadowed Fannie and Freddie, as it was the recipient of the first-ever federal government bailout in 1987.

While lawmakers had anxiety about injecting taxpayer money into a GSE with an economic model that had clearly failed, such alarm is – for the most part – oddly absent from today’s debate on Capitol Hill. This despite the fact that the Farm Credit System is vastly larger than it was in 1987.

Given its implicit backing of taxpayer funds, one would not be incorrect to say that the System is also a far greater liability.

With this in mind, the American public would stand to benefit from active congressional oversight to realign the System to its intended purpose.

In June 2014, during a House Agriculture Subcommittee hearing on Credit Availability in Rural America, several members commendably took a positive first step in questioning the System’s $725 million loan to Verizon to finance its purchase of a European cellular company.

Let’s hope the new Congress will carry this momentum into a full oversight hearing of its own.

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Farm Credit Watch: CoBank does big financing deals with AT&T, U.S. Cellular

In just two days this month, 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 addition, windmills
on the land generate substantial revenue. Presumably this valuable farmland
collateralizes the FCMA loan. But there are two problems with this

First, is St. Joseph’s an eligible FCS borrower? More specifically, to use the
language of the Farm Credit Act, is St. Joseph’s a bona fide farmer, rancher,
or producer or harvester of aquatic products given that the college leases its
farmland to persons who do the actual farming? FCA regulations define a
bona fide farmer as “a person owning agricultural land or engaged in the
production of agricultural products, including aquatic products.” [emphasis
supplied] However, the first portion of the regulation, “a person owning,” goes
beyond a plain reading of the phrase “bona fide” as that phrase is used in the
Farm Credit Act. The dictionary meaning of “bona fide” is genuine or
real. Synonyms include authentic, true, actual, legitimate, and valid. All of
these meanings apply to a person actually engaged in farming – they
certainly do not apply to a person, or a college, who merely owns the
farmland and leases that land to actual farmers. Hence, the FCA regulation
governing who is eligible to borrow from the FCS has a far broader scope
than the statute on which that regulation is based.

Second, even if St. Joseph’s is an eligible FCS borrower, can FCMA establish
a valid first lien on the farmland Ms. Waugh donated to the college given that
the Farm Credit Act requires that FCS real estate loans must be secured by a
first lien on the real estate securing the loan. Ms. Waugh, reportedly a savvy
businesswoman, “worried that the church might one day overturn any
agreement she had with the college and sell her land if it needed
cash.” Therefore, to prevent the sale of the land, “she stipulated in her will
and written agreements with the college that neither the college nor the
church could sell the farmland, going so far as to stipulate in the transfer deed
that the land could be used only for farming and wind-energy production and
never sold.” This restriction raises this crucial question: Can FCMA place a
valid first lien on the farmland given that the college is barred from selling the
land under any circumstance? If not, then is FCMA’s loan to the college a real
estate loan or an unsecured loan, which clearly FCMA cannot make to an educational institution.

In November, I asked the FCA if St. Joseph’s could be considered to be a
“bone fide” farmer as Congress meant that term to be interpreted. I also sent
the FCA information about the FCMA loan, including copies of news articles
reporting that the Waugh farmland cannot be sold. Michael Stokke, the FCA’s
Director of Congressional and Public Affairs, responding to my email, stated
that my inquiry “does not involve a loan for which you are obligated,” which is
how the FCA often blows off complaints about improper FCS
lending. Stokke’s letter then stated that “we assure you that, under our
examination authority, we have reviewed [FCMA’s] relationship with the
College and determined that, in its business dealings with the College,
[FCMA] has complied with our regulations.” Hence, it appears that the FCA is
saying that an FCS institution can make an unsecured loan to an educational
institution that is not actually engaged in farming. Presumably FCA Chairman
Jill Long Thompson, who used to represent a congressional district near
Rensselaer, agrees with Stokke’s response. I also asked a representative of
FCMA about the appropriateness of this loan. To date, FCMA has not
responded, which is not surprising. This is another FCS loan that merits
congressional inquiry.

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