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 Frequently Asked Questions |
What is the Farm Credit System?
The Farm Credit System is a nationwide network of borrower-owned lending institutions
and specialized service organizations. The System is the oldest of the Government-sponsored
enterprises, created when Congress established in 1916 authority for certain predecessor
entities. Throughout its long history, the fundamental purpose of the System has
remained the same: to provide American agriculture with sound and dependable
credit at competitive rates of interest. Currently, there are four Farm Credit
Banks and one Agricultural Credit Bank providing funds and support services to
approximately 94 locally owned Farm Credit Associations and numerous cooperatives
nationwide. Approximately 35 percent of the real estate and non-real estate credit needs of U.S. agriculture
are met by the System (USDA Economic Research Service September 2007).
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Where can I buy Farm Credit Debt Securities?
Most major investment banks and dealer banks have access to the Farm Credit Debt Securities,
which are sold in primary and secondary capital markets globally. The Funding
Corporation works directly with certain investment banks and dealer banks worldwide to
issue Farm Credit Debt Securities. Please see How to Purchase for further information.
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What types of Farm Credit Debt Securities does the System issue?
The System, unlike commercial banks and other depository institutions, obtains
funds for its lending operations primarily from the sale of Farm Credit Debt Securities. The
System Banks, through the Funding Corporation, currently offer the following types
of Farm Credit Debt Securities:
Discount Notes
Designated Bonds
Bonds
Master Notes
For a discussion of the various risks, tax and other considerations, and terms
and conditions related to each of these types of Farm Credit Debt Securities, see the discussions
in the appropriate offering circular.
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What is the credit rating of the Farm Credit Debt
Securities?
Moody’s Investors Service has assigned a rating of Aaa to the long-term debt of the System and a rating of P-1 to the short-term debt of the System. Standard & Poor’s Ratings Service has assigned a rating of AAA to the long-term debt of the System and a rating of A-1+ to the short-term debt of the System. Fitch Ratings has assigned a rating of AAA to the long-term debt of the System and F1+ to the short-term debt of the System, along with a long-term issuer default rating of AAA. The Funding Corporation understands a number of factors contributed to these ratings, including: the Farm Credit System’s status as a Government-sponsored enterprise, which results from its public mission and ties to the federal government; the traditionally strong governmental support of the agricultural sector; and the System’s strong financial performance in recent years, including favorable earnings and strong capital ratios.
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What is the tax status of the Farm Credit Debt Securities?
Under the Farm Credit Act, Farm Credit Debt Securities and the interest thereon are exempt
from state, local and municipal income taxation. Provisions of several statutes
that are analogous to the relevant tax exemption provisions of the Farm Credit
Act have been construed by certain state courts as not exempting securities
similar to the Farm Credit Debt Securities or interest thereon from nondiscriminatory franchise
taxes or other nonproperty taxes imposed on corporations. Interest on the Farm Credit Debt
Securities is not exempt from federal income taxation. In addition, gain from
the sale or disposition of the Farm Credit Debt Securities or their transfer by inheritance,
gift, or other means is not exempt from federal taxation, and generally is not
exempt from state, local or municipal taxation. Additional information regarding
the tax consequences of purchasing, holding and disposing of the Farm Credit Debt Securities
is contained in the applicable offering circular. Holders and persons considering the purchase of the Farm Credit Debt Securities should consult with their own tax advisers regarding the tax consequences of holding the Farm Credit Debt Securities to their particular situation.
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Does the U.S. Government guarantee the
Farm Credit Debt Securities?
No. The Farm Credit Debt Securities are the general unsecured joint and several obligations
of the System Banks only. In the event of a default by a System Bank on an insured
debt obligation for which that System Bank is primarily liable, the Farm Credit
System Insurance Corporation must expend amounts in the Farm
Credit Insurance Fund to the extent necessary to insure the timely payment
of principal of and interest on the debt obligation, and the provisions of the
Farm Credit Act providing for joint and several liability of the System Banks
on the debt obligation cannot be invoked until the amounts in the Insurance
Fund have been exhausted. However, because of other mandatory and permissive
uses of the Insurance Fund specified in the Farm Credit Act, there is no assurance
that there will be sufficient funds available in the Insurance Fund.
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Who are the System Banks?
At December 31, 2007, the nation is served by five System Banks - AgFirst FCB in Columbia, SC; AgriBank, FCB in St. Paul, MN; CoBank, ACB in Denver, CO; FCB of Texas in Austin, TX; and U.S. AgBank, FCB in Wichita, KS. The Banks and their affiliated Associations are referred to as Districts. CoBank also has additional nationwide lending authorities for cooperatives and other eligible entities. The Banks obtain their funds through the issuance of Farm Credit Debt Securities. The Banks use these funds in their lending operations, which principally include loans to their Associations and, in the case of CoBank, also loans to cooperatives and other eligible borrowers on a nationwide basis. The System Banks and Associations may maintain
service entities to provide a variety of services to System institutions and
their borrowers.
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What is the Funding Corporation?
The System Banks utilize a fiscal agent, the Federal Farm Credit Banks Funding Corporation, to issue, market, and handle the
Farm Credit Debt Securities. The Funding Corporation, established by Congress and owned
by the System Banks, is located in the greater New York City area. The Funding
Corporation currently utilizes a selling group of approximately 30 investment
banks and dealer banks that can offer Farm Credit Debt Securities. The Funding Corporation selling groups distribute these Farm Credit Debt Securities on a worldwide basis to all types of investors, including commercial
banks, states, municipalities, pension and money-market funds, insurance
companies, investment advisers, corporations, foreign banks and governments,
and other investors. The Funding Corporation has the responsibility for establishing,
subject to Farm Credit Administration
approval, the amounts, maturities, rates of interest, terms, and conditions
of participation by the System Banks in each issue of Farm Credit Debt Securities. The conditions of participation by the System Banks in each issue of Farm Credit Debt Securities are prescribed in an agreement between the Funding Corporation and the System Banks. The Funding
Corporation also provides financial advisory services and assists the System
Banks in the management of interest-rate risk. As the System's financial spokesperson,
the Funding Corporation is responsible for financial disclosure and the release
of public information concerning the financial condition and performance of
the System as a whole.
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What is Farmer Mac?
As provided in the Farm Credit Act, the Federal Agricultural Mortgage Corporation (Farmer Mac) was established to attract new capital for the financing of agricultural real estate and to provide liquidity to agricultural lenders. The board of directors
of Farmer Mac has 15 members, five of whom are elected from the System. Farmer
Mac is regulated by the Farm Credit Administration and is designated by statute
as a System entity. However, the accounts of Farmer Mac are not included in
the combined financial statements of the System. Farmer Mac is not liable for
any debt or obligation of any other System institution, and no System institution
other than Farmer Mac is liable for any debt or obligation of Farmer Mac.
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What is the Insurance Fund?
The System has an insurance fund to insure the timely payment of principal and interest on Farm Credit Debt Securities, to the extent funds are available. Also, the provisions of the Farm Credit Act providing for joint and several liability of the System Banks cannot be invoked until the amounts in the Insurance Fund have been exhausted. However, because of other mandatory and permissive uses of the Insurance Fund specified in the Farm Credit Act, there is no assurance that there will be sufficient funds available in the Insurance Fund.
The Farm Credit System Insurance Corporation administers the Farm Credit Insurance Fund. The Insurance Corporation is a Government-controlled corporation that was established in the late 1980s. The Insurance Corporation is administered by a board of directors consisting of the Farm Credit Administration Board.
To achieve or maintain the Insurance Fund at the statutorily defined "secure base amount" of 2% of aggregate insured debt obligations (or such other percentage as the Insurance Corporation determines is actuarially sound), the Insurance Corporation has the authority to assess premiums on the System Banks. When the amount of the Insurance Fund exceeds the secure base amount, the Insurance Corporation is required to reduce the premiums, but it still must ensure that reduced premiums are sufficient to maintain the level of the Insurance Fund at the secure base amount.
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