Federal Agricultural Mortgage Corporation (‘Farmer Mac’) provides a secondary market for a variety of loans made to borrowers in rural America.
The company’s secondary market activities include: purchasing eligible loans directly from lenders (such as participation interests, syndicated notes, revolving and non-revolving credit facilities, and unfunded commitments to make advances on loans); guaranteeing and purchasing securities issued by lenders and other financial institutions that are secur...
Federal Agricultural Mortgage Corporation (‘Farmer Mac’) provides a secondary market for a variety of loans made to borrowers in rural America.
The company’s secondary market activities include: purchasing eligible loans directly from lenders (such as participation interests, syndicated notes, revolving and non-revolving credit facilities, and unfunded commitments to make advances on loans); guaranteeing and purchasing securities issued by lenders and other financial institutions that are secured by pools of eligible loans (Farmer Mac refers to these securities as ‘AgVantage,’ a registered trademark of Farmer Mac); issuing and guaranteeing securities that represent interests in, or obligations secured by, pools of eligible loans (together with AgVantage, Farmer Mac refers to these securities as ‘Farmer Mac Guaranteed Securities’); servicing (including, as master servicer) eligible loans, including loans that have been purchased or securitized by Farmer Mac or that would be eligible for purchase by Farmer Mac but are owned by a third party; and providing long-term standby purchase commitments (‘LTSPCs’) for eligible loans.
The charter provides that Farmer Mac has the power to establish, acquire, and maintain affiliates under applicable state law to carry out any activities that Farmer Mac otherwise would perform directly. Farmer Mac established its two existing subsidiaries – Farmer Mac II LLC and Farmer Mac Mortgage Securities Corporation – under that power.
Farmer Mac is an institution of the Farm Credit System (‘FCS’), which is composed of the banks, associations, and related entities, including Farmer Mac and its subsidiaries, regulated by the Farm Credit Administration (‘FCA’), an independent agency in the executive branch of the United States government. Although Farmer Mac is an institution of the FCS, it is not liable for any debt or obligation of any other institution of the FCS. None of FCA, the FCS, or any other individual institution of the FCS is liable for any debt or obligation of Farmer Mac or its subsidiaries. The debts and obligations of Farmer Mac and its subsidiaries are not guaranteed by the full faith and credit of the United States of America.
Farmer Mac's two primary sources of revenue are: interest income earned on assets held on balance sheet, net of related funding costs and interest payments, and receipts on financial derivatives; and guarantee and commitment fees received for outstanding guaranteed securities and LTSPCs.
Farmer Mac funds its purchases of eligible loans and securities primarily by issuing debt obligations of various maturities in the public capital markets. Farmer Mac also uses the proceeds of debt issuance to fund liquidity investments that must comply with policies adopted by Farmer Mac's board of directors and with FCA regulations, which establish limitations on asset class, dollar amount, issuer concentration, and credit quality. Farmer Mac's regular debt issuance supports its access to the capital markets, and Farmer Mac's liquidity investments provide an alternative source of funds should market conditions become unfavorable.
Secondary Market
Farmer Mac's activities are intended to provide lenders with an efficient and competitive secondary market that enhances these lenders' ability to offer competitively-priced financing solutions to borrowers. This secondary market is designed to increase the accessibility of financing at competitive interest rates to America's rural communities and agricultural sectors, as well as to provide borrowers with the benefits of capital markets pricing and product innovation. The secondary market provided by Farmer Mac functions as a bridge between the public capital markets and the U.S. agricultural and rural credit markets to provide vital liquidity by attracting additional capital sources for financing rural America and agricultural borrowers.
Farmer Mac's purchases of loans and securities and its sale of guaranteed securities to investors increase lenders' liquidity and lending capacity and provide a stable source of funding for lenders that extend credit to the agricultural and rural credit markets. Farmer Mac's issuance of LTSPCs for loans held by lenders and its issuance of guaranteed securities to lenders in exchange for the related securitized loans could result in lower regulatory capital requirements and reduced borrower or commodity concentration exposure for many lenders, thereby expanding their lending capacity. By providing efficient and competitive financing solutions, Farmer Mac has the potential to increase lending flexibility for rural credit markets.
Farmer Mac markets a mix of products to lenders who may need capital, liquidity, portfolio diversification, and/or access to a wide variety of loan products, including those with long-term fixed rates. As part of its outreach strategy, Farmer Mac engages with current and prospective lenders to identify how their use of Farmer Mac's secondary market could further support their origination efforts and drive efficient capital deployment to agricultural communities and rural America. Farmer Mac also provides wholesale funding for institutional investors in agricultural assets that qualify as eligible collateral under Farmer Mac's charter. For these potential issuers, Farmer Mac directs its outreach efforts through its business relationships within the agricultural community and through outreach to institutions. Farmer Mac seeks to maximize the use of technology to support these business development efforts.
Farmer Mac's Lines of Business
Farmer Mac engages in a variety of secondary market activities across its two lines of business—Agricultural Finance and Infrastructure Finance. Within those two lines of business are five operating segments: Farm & Ranch, Corporate AgFinance, Power & Utilities, Broadband Infrastructure, and Renewable Energy.
The loans (and interests in those loans) eligible for Farmer Mac's secondary market activities in each of Farmer Mac's lines of business include: mortgage loans secured by first liens on real estate used in agricultural production or processing, including part-time farms and rural housing loans, as well as agricultural and rural development loans guaranteed by the United States Department of Agriculture (‘USDA’) in the Agricultural Finance line of business; and loans by lenders organized as cooperatives to finance electrification and telecommunications systems and renewable energy providers or projects in rural areas in the Infrastructure Finance line of business.
Farmer Mac conducts its business within two lines of business that consist of seven operating segments: Farm & Ranch, Corporate AgFinance, Power & Utilities, Broadband Infrastructure, Renewable Energy, Funding, and Investments. Prior to the fourth quarter of 2024, the Power & Utilities segment was reported as the Rural Utilities segment that also included the financial results of Broadband Infrastructure loans. Starting in the fourth quarter of 2024, Farmer Mac renamed the Rural Utilities segment as Power & Utilities and separately reported the results of Broadband Infrastructure. All prior period information has been recast to reflect this new alignment of Farmer Mac's operating segments.
Agricultural Finance
The operations and financial results of the Farm & Ranch and Corporate AgFinance segments are within Farmer Mac's Agricultural Finance line of business. The Farm & Ranch segment includes the financial results of the USDA Securities portfolio and Farm & Ranch loans and AgVantage securities. The Corporate AgFinance segment includes loans and AgVantage securities to larger and more complex farming operations, agribusinesses focused on food and fiber processing, and other supply chain production.
Farmer Mac provides a secondary market for eligible loans in Farmer Mac's Agricultural Finance line of business by purchasing and retaining eligible loans and securities, guaranteeing the payment of principal and interest on securities that represent interests in, or obligations secured by, pools of eligible loans, servicing (including, as master servicer) eligible loans, and issuing LTSPCs for designated eligible loans. Farmer Mac is compensated for these activities through net interest income on loans and securities held on balance sheet, guarantee fees earned on securities issued to third parties, servicing fees on securitized loans and loans serviced for others, and commitment fees earned on loans in LTSPCs and on unfunded loan commitments.
Loan Eligibility
To be eligible for the Agricultural Finance line of business, a loan must either: be an agricultural mortgage loan (referred to as ‘Agricultural Finance mortgage loans’) that is secured by a fee simple mortgage or a leasehold mortgage with status as a first lien on agricultural real estate (including part-time farms and rural housing) located within the United States; and an obligation of a citizen or national of the United States, an alien lawfully admitted for permanent residence in the United States, or a private corporation or partnership that is majority-owned by U.S. citizens, nationals, or legal resident aliens that, in each case, has training or farming experience that is sufficient to ensure a reasonable likelihood that the loan will be repaid according to its terms; or be the guaranteed portion of a loan guaranteed by the USDA under the Consolidated Farm and Rural Development Act (7 U.S.C. § 1921 et seq.).
Farmer Mac's charter authorizes a maximum loan size (adjusted annually for inflation) for an eligible Agricultural Finance mortgage loan secured by more than 2,000 acres of agricultural real estate. The charter does not prescribe a maximum loan size or a total borrower exposure for an eligible Agricultural Finance mortgage loan secured by 2,000 acres or less of agricultural real estate. However, an internal policy approved by Farmer Mac's board of directors limits the cumulative direct credit exposure to any one borrower or group of related borrowers on loans secured by 2,000 acres or less of agricultural real estate to 10% of Farmer Mac's Tier 1 capital. For Agricultural Finance mortgage loans, eligible agricultural real estate consists of one or more parcels of land that is used for the production of one or more agricultural commodities or products and either consists of a minimum of five acres or generates minimum annual receipts of $5,000.
As required by Farmer Mac's charter, Farmer Mac has established underwriting, security appraisal, and repayment standards for eligible loans that consider the nature, risk profile, and other differences between different categories of eligible loans. The charter prescribes that the following minimum standards must be applied to all Agricultural Finance mortgage loans: provide that no loan with a loan-to-value ratio (‘LTV’) more than 80% may be eligible; require each borrower to demonstrate sufficient cash flow to adequately service the loan; require sufficient documentation standards; protect the integrity of the appraisal process for any loan; and confirm that the borrower is or will be actively engaged in agricultural production.
Underwriting and Collateral Standards - Farm & Ranch
Farmer Mac accepts direct credit exposure to borrowers on Agricultural Finance mortgage loans in its Farm & Ranch reportable operating segment (referred to as ‘Farm & Ranch loans’) through its loan purchases, unfunded loan commitments, LTSPCs, and Farmer Mac Guaranteed Securities that represent interests in, or obligations secured by, pools of eligible Farm & Ranch loans but that are not AgVantage securities (‘Farm & Ranch Guaranteed Securities’). Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Farm & Ranch loans.
Farm & Ranch loans typically are required to meet specific underwriting criteria established by Farmer Mac or demonstrate compensating strengths in one or more other underwriting criteria. Farmer Mac relies on the combined expertise of experienced internal agricultural credit underwriters and loan servicers, along with external agricultural loan servicing and collateral valuation contractors, to perform the necessary underwriting, servicing, and collateral valuation functions on Farm & Ranch loans.
USDA Securities are exempted from the credit underwriting, collateral valuation, documentation, and other standards that other loans must meet to be eligible for the secondary market provided by Farmer Mac and are exempted from any diversification and internal credit enhancement. Prior to 2024, Farmer Mac purchased nearly all of its USDA Securities through Farmer Mac II LLC, a subsidiary of Farmer Mac that had operated substantially all of the business related to Farmer Mac's USDA Securities. Beginning in January 2024, Farmer Mac resumed its direct purchase of USDA Securities, leaving the Farmer Mac II LLC subsidiary's portfolio in a ‘run-off’ mode with no new USDA Securities being purchased in the subsidiary's name.
Underwriting and Collateral Standards - Corporate AgFinance
Farmer Mac accepts direct credit exposure to borrowers on Agricultural Finance mortgage loans in Farmer Mac’s Corporate AgFinance reportable operating segment (referred to as ‘Corporate AgFinance loans’) through its loan purchases and unfunded commitments. Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Corporate AgFinance loans.
Corporate AgFinance loan borrowers tend to be larger and more complex operations than Farm & Ranch loan borrowers and typically are agribusinesses focused on agriculture production, food and fiber processing, and other supply chain production. The underwriting for loans to agribusinesses typically relies upon enterprise value, meaning the debt is generally secured by all business assets and common stock (in addition to first lien mortgages) of the borrower, and the value of the borrowing entity depends on its ability to generate recurring positive cash flow. Enterprise value is the estimated value of the borrower as a going concern, which is estimated using one or more valuation techniques, such as: discounted cash flow, cash flow multiples, asset liquidation, or other valuation techniques. Thus, Corporate AgFinance loans often have a different credit risk profile than Farm & Ranch loans. Farmer Mac has implemented methodologies and parameters to help assess credit risk and has established specific underwriting criteria for Corporate AgFinance loans based on the sector, borrower construct, and transaction complexity. Due to the larger loan sizes and different credit risk profiles, Farmer Mac thoroughly analyzes each prospective Corporate AgFinance loan, including assessing the borrower's leverage, cash flows, liquidity, revenue and margin trends, as well as evaluating the borrower's suppliers, customers, market share, and competition. Any underlying weaknesses are assessed and analyzed in conjunction with any compensating strengths. Corporate AgFinance loans also typically require ongoing monitoring of reporting requirements and financial and non-financial covenants. Farmer Mac relies on the experience of internal underwriters with the expertise to analyze large, complex farming operations and agribusiness loans, along with collateral valuation contractors, and legal counsel to perform the necessary diligence to assess the overall credit risk and loan structures of these transactions. Farmer Mac has developed business operating processes and skill sets to source, underwrite, close, and service Corporate AgFinance loans. Those processes and skill sets are different than those required for Farm & Ranch loans and, accordingly, have a higher operating expense profile than for Farm & Ranch loans.
Lenders
Farmer Mac approves lenders into its network of Farm & Ranch loan sellers based on an assessment of the lender's credit profile. Most lenders that participate in Farmer Mac's secondary market for Farm & Ranch loans meet prescribed criteria that Farmer Mac establishes for loan-selling counterparties, which typically include the requirement to: own a requisite amount of Farmer Mac common stock according to a schedule prescribed for the size and type of institution; have, in the judgment of Farmer Mac, the ability and experience to make or purchase and sell Farm & Ranch loans and service those loans in accordance with Farmer Mac's requirements either through the lender's own staff or through contractors and originators, as well as have appropriate internal controls, policies, and procedures; maintain a minimum amount of net liquidity or appropriate credit enhancements; and enter into a Seller/Servicer Agreement, which requires compliance with the terms of Farmer Mac's Seller/Servicer Guide, including providing representations and warranties about the eligibility of the loans and accuracy of loan data provided to Farmer Mac.
Farmer Mac purchases Corporate AgFinance loans and unfunded commitments from a diverse set of lenders that support financing of the agriculture sector. Lenders may be existing Farm & Ranch lenders that have larger, more complex borrowers in their territories, as well as larger financial and non-bank institutions, such as national and regional banks, insurance companies, Farm Credit System institutions, and other non-traditional lending organizations, that structure and originate transactions for larger, more complex farming operations and agribusinesses.
Farmer Mac evaluates each lender that originates Corporate AgFinance loans to assess the experience and capabilities of the lender’s ability to originate, structure, distribute, and monitor Corporate AgFinance transactions. In these cases, Farmer Mac typically assesses each arranger’s capabilities and experience in arranging syndicated loans. Because Corporate AgFinance loans are typically offered to Farmer Mac without or with few representations and warranties, Farmer Mac places a greater emphasis on underwriting and legal documentation due diligence in connection with its purchase of these loans to mitigate risks associated with the transaction, including loan documentation, borrower eligibility, and loan data.
Loan Servicing
Farmer Mac services a sizeable portion of its Agricultural Finance mortgage loan and USDA Securities portfolios, as well as a smaller portfolio of eligible agricultural mortgage loans that are held by an unrelated third party. Farmer Mac also continues to contract with other institutions to undertake most of the servicing responsibilities for the remaining portion of its Agricultural Finance mortgage loans in accordance with Farmer Mac's specified servicing requirements or in accordance with the servicing standards established by the servicing institution if the institution's standards are acceptable to Farmer Mac. For Farm & Ranch loans for which the servicer is not the originating lender, the originating lender often retains some servicing responsibility, particularly with direct borrower contact, which is referred to as ‘field servicing.’
For Farmer Mac's USDA Securities, the lender on each USDA-guaranteed loan is required by regulation to retain the unguaranteed portion of the guaranteed loan, to service the entire underlying guaranteed loan (including the USDA-guaranteed portion of that loan), and to remain mortgagee and/or secured party of record. The USDA-guaranteed portion and the unguaranteed portion of the loan are to be secured by the same collateral with equal lien priority.
Other Products - Agricultural Finance
AgVantage Securities
Under the AgVantage securities product line, Farmer Mac guarantees and purchases securities issued by lenders and other financial institutions (such as financial funds and real estate investment funds) that are secured by pools of eligible loans. Typically, Farmer Mac retains AgVantage securities in its portfolio. Most of the AgVantage securities in Farmer Mac's Agricultural Finance line of business are securities issued by agricultural lenders that are secured by pools of Farm & Ranch loans. The AgVantage securities in the Agricultural Finance line of business also include securities issued by other financial institutions (such as financial funds and institutional real estate investors) secured by mortgage loans that generally have different credit profiles, structural characteristics, and loan terms than typical Farm & Ranch loans. The loans serving as collateral for these AgVantage securities require a more comprehensive underwriting that more closely approximates Farmer Mac's underwriting for Corporate AgFinance loans.
Farmer Mac has direct credit exposure to the general credit of the issuers of AgVantage securities and assumes the ultimate credit risk of an issuer default on the AgVantage securities. Before approving an institution as an issuer in an AgVantage transaction, Farmer Mac assesses the issuer's creditworthiness, as well as the credit quality and performance of the issuer's loan portfolio and loan underwriting standards. Farmer Mac continues to monitor the counterparty risk assessment on an ongoing basis after the AgVantage security is issued. In addition to being a general obligation of the issuer, all AgVantage securities must be secured by eligible loans or eligible securities guaranteed by Farmer Mac in an amount at least equal to the outstanding principal amount of the issuer's AgVantage securities. As a result, Farmer Mac has indirect credit exposure to the loans or guaranteed securities that are pledged to secure the AgVantage securities, which comprise collateral for Farmer Mac in the event of a default by the issuer.
Loans pledged under AgVantage securities are serviced by the issuers of the securities (or their affiliated servicing institutions) in accordance with these institutions' servicing procedures. Farmer Mac reviews these servicing procedures before purchasing AgVantage securities from the issuer. In AgVantage transactions, the issuer is generally required to remove from the pool of pledged collateral any loan that becomes and remains delinquent in the payment of principal or interest and to replace the delinquent loan with another eligible loan that is current in payment or to pay down the AgVantage securities to maintain the minimum required collateralization level.
For AgVantage securities secured by loans eligible for Farmer Mac's Agricultural Finance line of business, Farmer Mac currently requires the general obligation to be over-collateralized, either by more eligible loans or any of the following types of assets: cash; securities issued by the U.S. Treasury or guaranteed by an agency or instrumentality of the United States; other highly-rated securities; or other instruments approved by Farmer Mac.
The required collateralization level for the AgVantage securities secured by Agricultural Finance mortgage loans currently ranges from 103% to 125%. The required collateralization level is determined based on credit factors related to the issuer and the credit profile of the loans serving as collateral, is established when the AgVantage facility is entered into with the counterparty, and does not change during the life of the AgVantage securities issued under the facility unless mutually agreed by Farmer Mac and the counterparty.
For AgVantage securities that are secured by eligible Agricultural Finance mortgage loans, Farmer Mac requires that the loans meet the minimum standards set forth in the charter for those types of loans, with a maximum limit of $75.0 million in cumulative exposure to any one borrower or related borrowers on the loans pledged as collateral by an AgVantage issuer.
Purchase Commitments and Guarantees
Farmer Mac offers two credit enhancement alternatives to direct loan purchases for Farm & Ranch loans that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending capacity: LTSPCs and Farm & Ranch Guaranteed Securities. In LTSPCs and Farm & Ranch Guaranteed Securities, the lender effectively transfers the credit risk on their eligible loans because, through Farmer Mac's commitment to purchase the loan (in the case of LTSPCs) or Farmer Mac's guarantee (in the case of Farm & Ranch Guaranteed Securities), Farmer Mac assumes the ultimate credit risk of borrower defaults on the related loans.
An LTSPC permits the lender to retain loans in the company’s portfolio until such time, if ever, as the lender elects to deliver some or all of the loans covered by the LTSPC to Farmer Mac for purchase. Loans subject to an LTSPC must meet Farmer Mac's standards for eligible loans at the commencement of the LTSPC when Farmer Mac assumes the credit risk on the loans and are serviced by the holders of those loans in accordance with those lenders' servicing procedures, which Farmer Mac reviews before entering into those transactions. As consideration for its assumption of the credit risk on loans covered by an LTSPC, Farmer Mac receives commitment fees payable monthly in arrears. Some LTSPCs contain risk-sharing arrangements for pools of loans that provide for the counterparty to absorb up to a specified amount (typically between one percent and three percent of the original principal balance of the loan pool) of any losses incurred on the loans in the pool. At a lender's request, Farmer Mac purchases loans subject to an LTSPC at: par if the loans become delinquent for either 90 days or 120 days (depending on the agreement) or are in material non-monetary default, with accrued and unpaid interest on the defaulted loans payable out of any future loan payments or liquidation proceeds; or fair value or in exchange for cash or Farm & Ranch Guaranteed Securities, in accordance with the applicable agreement.
In Farm & Ranch Guaranteed Securities transactions, Farmer Mac guarantees securities representing interests in eligible Farm & Ranch loans held by a trust or other entity. Farmer Mac guarantees principal and interest payments on the securities in the event of a payment shortfall due to default and either retains these securities or arranges for their sale to third parties. As consideration for its assumption of credit risk on the assets underlying the Farm & Ranch Guaranteed Securities, Farmer Mac receives guarantee fees based on the outstanding principal balance of the securities it guarantees. Some Farm & Ranch Guaranteed Securities transactions include a smaller, subordinate tranche of securities issued to third parties that are not guaranteed by Farmer Mac, which helps to offset Farmer Mac's credit risk on these transactions.
Farmer Mac is obligated under its guarantee on the securities to make payments to investors of interest and principal (including balloon payments), regardless of whether Farmer Mac or the related trust has actually received those scheduled payments. Farmer Mac's guarantee fees typically are collected out of installment payments made on the underlying loans until those loans have been repaid, purchased out of the trust, or otherwise liquidated (generally as a result of default). The aggregate amount of guarantee fees received on Farm & Ranch Guaranteed Securities depends on the amount of those securities outstanding and on the applicable guarantee fee rate, which Farmer Mac's charter caps at 50 basis points (0.50%) per year.
From time to time, Farmer Mac issues and guarantees securities backed by USDA Securities that it has purchased and has also guaranteed securities issued by Farmer Mac II LLC backed by USDA Securities that it has purchased. Farmer Mac II LLC does not guarantee any USDA Securities it holds or any Farmer Mac Guaranteed USDA Securities issued by Farmer Mac or Farmer Mac II LLC.
Infrastructure Finance
The Power & Utilities, Broadband Infrastructure, and Renewable Energy segments are within Farmer Mac's Infrastructure Finance line of business through the provision in Farmer Mac's charter that authorizes the purchase of, and guarantee of securities backed by, loans for electric (including renewable electric energy) or telecommunications facilities by lenders organized as cooperatives to borrowers that have received or are eligible to receive loans under the Rural Electrification Act of 1936 (‘REA’). The REA is administered by the Rural Utilities Service (‘RUS’), an agency of the USDA.
The Power & Utilities segment includes loans to rural electric generation and transmission cooperatives and distribution cooperatives (referred to as ‘Power & Utilities loans’), as well as AgVantage securities secured by those types of loans. Farmer Mac refers to eligible loans to telecommunications facilities included in the Broadband Infrastructure segment (such as rural fiber, cable/broadband, tower, wireless, local exchange carrier, and data center projects) as ‘Broadband Infrastructure loans.’ Prior to the fourth quarter of 2024, the financial results of all Broadband Infrastructure loans were included within the Rural Utilities segment (renamed as the Power & Utilities segment starting in the fourth quarter of 2024). Farmer Mac refers to the eligible loans to rural electric solar and wind energy projects and renewable gas projects included in the Renewable Energy segment as ‘Renewable Energy loans.’
Farmer Mac's Infrastructure Finance line of business encompasses purchases of Power & Utilities, Broadband Infrastructure, and Renewable Energy loans and guarantees of securities backed by those loans, as well as LTSPCs for pools of eligible Power & Utilities loans. The vast majority of Farmer Mac's business to date under the Infrastructure Finance line of business has involved Power & Utilities loans made to electric facilities (primarily electric distribution cooperatives and electric generation and transmission cooperatives).
Underwriting and Collateral Standards
Farmer Mac's charter does not specify minimum underwriting criteria for eligible Power & Utilities, Broadband Infrastructure, or Renewable Energy loans. To manage Farmer Mac's credit risk, to mitigate the risk of loss from borrower defaults, and to provide guidance for the management, administration, and conduct of underwriting to participants in the Infrastructure Finance line of business, Farmer Mac has adopted credit underwriting standards that vary by loan product and by loan type. These standards are based on industry practices for similar Power & Utilities, Broadband Infrastructure, or Renewable Energy loans and are designed to assess the creditworthiness of the borrower, as well as the risk to Farmer Mac.
For Power & Utilities loans, Farmer Mac reviews lenders' credit submissions and analyzes borrowers' audited financial statements and financial and operating reports to confirm that loans meet Farmer Mac's underwriting standards for Power & Utilities loans. It is customary with these loans for the lender or lender group to take a security interest in substantially all of the borrower's assets. When Farmer Mac purchases a Power & Utilities loan with a pledge of all assets and a lender also has a lien on all assets, Farmer Mac verifies. When debt indentures are used, Farmer Mac determines if available collateral is adequate to support the loan program and Farmer Mac's investment. Farmer Mac also purchases unsecured Power & Utilities loans (primarily electric generation and transmission loans) that meet Farmer Mac's underwriting standards for unsecured Power & Utilities loans.
Broadband Infrastructure loans tend to be larger operations focused on providing communication and data services to rural areas, including fiber, cable/broadband, tower, wireless, local exchange carrier, and data centers. The underwriting for Broadband Infrastructure loans typically relies on enterprise value, meaning that the value of the borrowing entity depends on its ability to generate recurring positive cash flow. The debt is generally secured by all business assets and common stock of the borrower; however, on occasion Farmer Mac purchases unsecured debt of the highest quality borrowers. Enterprise value is the estimated value of the borrower as a going concern, which is estimated using one or more valuation techniques, such as: discounted cash flow, cash flow multiples, asset liquidation, or other valuation techniques. Farmer Mac has implemented methodologies and parameters to help assess credit risk and has established specific underwriting criteria for Broadband Infrastructure loans based on the sector, borrower construct, and transaction complexity. Due to the larger loan sizes and different credit risk profiles, Farmer Mac thoroughly analyzes each prospective Broadband Infrastructure loan, including assessing the borrower's leverage, cash flows, liquidity, revenue, and margin trends, as well as evaluating the borrower's capital expenditures, customer/subscriber growth, market share, and competition. Any underlying weaknesses are assessed and analyzed in conjunction with any compensating strengths. Broadband Infrastructure loans also typically require ongoing monitoring of reporting requirements and financial and non-financial covenants. Farmer Mac relies on the experience of internal underwriters with the expertise to analyze Broadband Infrastructure loans and engages legal counsel to perform the necessary diligence to assess the overall credit risk and loan structures of these transactions.
For Renewable Energy loans, Farmer Mac has direct credit exposure to the related standalone renewable energy project. These projects are typically financed on a non-recourse or limited recourse basis and underwritten on a projection basis with significant reliance placed on assumptions used in each project’s analysis. Farmer Mac has implemented methodologies and parameters to assess credit risk and has established specific underwriting criteria based on the project and transaction construct and complexity. Farmer Mac thoroughly analyzes each prospective Renewable Energy loan. Farmer Mac performs quantitative assessments typically focused on projected debt service requirements, term and amortization review, interest rate sensitivity, and collateral analysis. Farmer Mac also performs qualitative assessments typically focused on the project sponsor's credentials and experience, off-take (cash flow) considerations, and concentration and other market considerations. Farmer Mac also typically reviews the project contracts and agreements for each Renewable Energy loan. Renewable Energy loans are typically secured by a first lien on the borrower's project assets, an assignment of the project contracts and agreements, a land or leasehold interest, and in certain cases, a pledge of the equity interests in the borrower entity.
Lenders and Loan Servicing
Farmer Mac's charter requires loans in Farmer Mac's Infrastructure Finance line of business to involve a lender organized as a cooperative. Farmer Mac does not directly service the Power & Utilities, Broadband Infrastructure, or Renewable Energy loans held in its portfolio. Typically, these loans are serviced by the lender or other organization designated by Farmer Mac that has experience in servicing loans to utilities and renewable energy providers and in the context of project finance, as applicable.
Other Products - Infrastructure Finance
AgVantage Securities
Farmer Mac's portfolio of AgVantage securities in its Infrastructure Finance line of business includes securities issued by cooperative lenders that are secured by pools of Power & Utilities loans. For these AgVantage securities, Farmer Mac requires: the counterparty issuing the general obligation to have a credit rating from a nationally-recognized statistical rating organization (‘NRSRO’) that is at least investment grade, or be of comparable creditworthiness as determined through Farmer Mac's analysis; and the collateralization (consisting of current, performing loans) to be maintained at the contractually prescribed level, in an amount at least equal to the outstanding principal amount of the security.
Although Farmer Mac has only indirect credit exposure on the Power & Utilities loans pledged to secure AgVantage securities, the same underwriting standards that apply to loans made to Power & Utilities borrowers on which Farmer Mac assumes direct credit exposure also apply to loans made to Power & Utilities borrowers that secure the AgVantage securities. Farmer Mac's charter does not prescribe a maximum loan size or a total borrower exposure for an eligible Power & Utilities loan, but Farmer Mac's current limit for AgVantage transactions is $75.0 million for cumulative loan exposure to any one borrower or related borrowers.
Competition
Farmer Mac's ability to obtain competitive funding in the debt markets is essential to its ability to maintain its relative position with its customers. As a result, competition for debt investors with other debt-issuing institutions, such as the FCS, Federal Home Loan Banks, Fannie Mae, Freddie Mac, and financial institutions.
Regulatory Oversight
Farmer Mac's charter assigns to FCA, acting through the separate Office of Secondary Market Oversight (‘OSMO’) within FCA, the responsibility for the examination of Farmer Mac and the general supervision of the safe and sound performance of the powers, functions, and duties vested in Farmer Mac by the charter. The charter also authorizes FCA, acting through OSMO, to apply its general enforcement powers to Farmer Mac. Farmer Mac's charter requires an annual examination of the financial transactions of Farmer Mac and authorizes FCA to assess Farmer Mac for the cost of FCA's regulatory activities, including the cost of any examination. Farmer Mac is also required to file quarterly reports of condition with OSMO. As a publicly-traded corporation, Farmer Mac also must comply with the periodic reporting requirements of the SEC.
Government Regulation
Farmer Mac's primary committees of jurisdiction in Congress – the Committee on Agriculture of the U.S. House of Representatives and the U.S. Senate Committee on Agriculture, Nutrition and Forestry – added requirements for Farmer Mac that had not been included in any of the other statutes establishing other GSEs. Unlike the other existing GSEs at the time, Farmer Mac was required to be regulated by an independent regulator, FCA, which has the authority to regulate Farmer Mac's safety and soundness. The statute creating Farmer Mac expressly requires that eligible Farm & Ranch loans meet minimum credit and appraisal standards that represent sound loans to profitable businesses. The enabling legislation also did not contain a specific federal securities law exemption, which had the effect of requiring Farmer Mac to comply with the periodic reporting requirements of the SEC, including filing annual and quarterly reports on the financial status of Farmer Mac and current reports when there are significant developments. Farmer Mac's charter also requires offerings of securities backed by eligible loans and guaranteed by Farmer Mac to be registered under the Securities Act of 1933 and related regulations (collectively, ‘Securities Act’), unless an exemption for an offering is available that is not based on Farmer Mac's status as an instrumentality of the United States.
As an institution of the FCS, Farmer Mac (including its subsidiaries) is subject to the regulatory authority of FCA. Farmer Mac's charter assigns to FCA, acting through OSMO within FCA, the responsibility for the examination of Farmer Mac and the general supervision of the safe and sound performance of the powers, functions, and duties vested in Farmer Mac by its charter. The charter also authorizes FCA, acting through OSMO, to apply its general enforcement powers to Farmer Mac. Farmer Mac (including its subsidiaries) is the only entity regulated by OSMO, which was created as a separate office in recognition of the different role that Farmer Mac plays in providing a secondary market, as compared to the roles of other FCS institutions as primary lenders.
Farmer Mac's charter requires an annual examination of the financial transactions of Farmer Mac and authorizes FCA to assess Farmer Mac for the cost of its regulatory activities, including the cost of any examination. Each year, OSMO conducts an examination of Farmer Mac to evaluate its safety and soundness, compliance with applicable laws and regulations, and mission achievement.
History
Federal Agricultural Mortgage Corporation was founded in 1987. The company was incorporated in 1987.
