The Value of Expertise in Bespoke Loan Agreements for Agriculture

A high-performing ag operation can be an attractive investment opportunity for lending organizations. However, when the business is compounded with on-site processing facilities, unique lease agreements, complex ownership structures and other elements not addressed in standard loan agreements, the transaction requires a more tailored approach that typically exceeds the resources of many lenders.

These complex transactions are often referred to as bespoke credit facilities. These are tailored to meet the specific needs of the borrower and address the various areas of their business structure, earnings and asset profiles. What this means is building a custom agreement from the outset.

“In these agreements, every line is negotiated down to the definitions,” says Brandon Lytle, Vice President of Institutional Lending.

Tailored loan agreements with Agri-Access

To participate in these complex transactions, lenders often need to tap additional resources to complete the level of financial and legal analysis needed to structure the agreement in a way that meets the needs of the borrower, but without amplifying the risk to the lender.

That’s where Agri-Access comes in. As a secondary lender, Agri-Access can provide the capital structure for the transaction. We also work with our lending partners throughout the negotiation process, offering a deep bench of resources to ensure a legally and financially sound agreement through:

  • financial, property and legal analyses
  • expert business plan review across multiple ag markets
  • negotiation

Additionally, throughout the life of the loan, the originator remains the lender of record.

As this case study of a vertically integrated fruit operation demonstrates, bespoke transactions can present great opportunities for a lender; however, the unique features of the business require an elevated level of due diligence to bring them to completion.

Challenge: Unique business structure of a fruit operation

A lending organization approached Agri-Access to participate in a loan transaction for a fruit operation, but its unique business structure introduced multiple complexities into the lending process, which required a deep level of review and negotiations to complete the deal. The operation had several unique features, including:

  • The fruit business was vertically integrated, meaning it had two separate facets that each required underwriting, which were the farming operation and on-site packing and processing facilities. Each had different collateral types, with permanent plantings for the farming operation, and sheds, buildings and various equipment for packing and processing.
  • Multiple improvements on the land, which would call for a different amortization profile from a standard 30-year amortization.
  • The borrower had a distinctive capital stack. In addition to the owner’s equity and assets, the transaction was structured to include a buyout, which introduced a loan hierarchy into the agreement.
  • Nearly 35% of the acreage was leased, featuring permanent plantings that belonged to the collateral pool. Owned assets on leased acres require a deeper level of analysis during the title review.
  • Given the span of the sprawling acreage, there were a number of easements to verify and account for during title review.

Solution: Agri-Access provides expertise and support to help complete the transaction

Agri-Access provided resources and support to complete this transaction in partnership with the lender.

To structure this bespoke agreement, Agri-Access engaged with the lender and a team of financial and legal experts to conduct an analysis of the business and its collateral. The team identified additional financial reporting requirements to verify the capability of the operation along with various covenants that addressed the unique features of the fruit business. Upon completion of the analysis, Agri-Access partnered with the lender to negotiate the terms of the agreement.

As a result, the fruit operation and the lender had a financially and legally sound agreement that addressed the exceptional features of the business and was calibrated to address the risks involved with the transaction.

Grow your lending power with Agri-Access

When it comes to complex agricultural transactions, Agri-Access can provide resources and guidance your lending organization can rely on to bring these agreements to completion.

Connect with us today to find support and services for ag lending.

Let’s discuss how we can expand your ag lending power.