Ag Services of America, an Iowa-based farm products and loans provider, has 60-90 days to secure a credit facility to continue operations for the 2004 growing season after one of its banks pulled out of a $500 million credit facility at the last minute, said John Roth, cfo of Ag. If Ag is unable to secure a new credit line, it may be forced to liquidate. Ag is currently seeking a facility in the $250-300 million range, and is open to taking out both revolvers and term loans. "We are in discussions with a lot of financial institutions--some in the preliminary stages, others a little further along," said Roth, although he did not name the institutions.
"We thought we had [the credit facility] put together, we were within two to three weeks of closing, but one of the financial institutions pulled out right at the end," said Roth. "We did not get very good answers as to why they pulled out," he added. Roth said that it was the lead lender with the largest commitment to the loan that left, causing the deal to fall apart, although he declined to name the institution. While the reason for the break-up has not been publicly disclosed, Roth said the terms that the bank negotiated with Ag diverged from what the bank's credit committee had initially approved.
The covenants on Ag's current facility, a $265 million interim revolver with Rabobank and US Bank put in place after Ag's previous facility expired in late 2002, allowed the company to approve loans for the 2003 growing season only. Generally, Ag provides farmers with loan commitments from January through March, just prior to the growing season, and Ag collects on the loans at harvest time. Roth declined to say whether Rabobank and US Bank were involved in the recently nixed credit, or whether Ag is currently in discussions with those banks about new financing.
In 2002, Ag was able to provide $460 million in loans with a combined $450 million facility, which included a $375 million securitization loan from MBIA Insurance and a $75 million syndicated revolver led by Rabobank. It could not be determined whether MBIA discontinued the facility, or if MBIA was involved in the latest negotiations. Ag was forced to contract its business by 40% to $260 million in 2003 due to the reduced size of the interim revolver, since the amount of business Ag does in a year depends directly on the size of the credit it obtains.
As a result of the collapsing credit agreement, a $70 million equity investment by American Securities Capital Partners (ASCP) was terminated because the terms of the deal depended on Ag's ability to land the credit. The equity investment would have given ASCP voting control of Ag. An official at ASCP declined comment. Rabobank advised Ag in the investment deal with ASCP and Roth said Ag was no longer using Rabobank's advisory services.
"We've been a very profitable company since we started and have actually never lost money up until this current fiscal year. It's just been a difficult credit market for us," said Roth. Calls to MBIA officials were not returned. US Bank officials referred questions to Rabobank's Thomas Levasseur, a sector head in the corporate banking department, who did not return repeated calls.