Farmer Mac raises $250 million of capital
Company Repurchasing Preferred Stock
The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today reported that it has raised additional capital in a private offering of shares of non-cumulative perpetual preferred stock of Farmer Mac II LLC, a recently organized Delaware limited liability company in which Farmer Mac owns all of the common equity. Farmer Mac II LLC is now operating the Farmer Mac II business that has operated since 1992 purchasing and holding USDA-guaranteed loans. Farmer Mac is using the proceeds from the sale of the $250 million of Farmer Mac II LLC preferred stock to repurchase and retire $150 million of Farmer Mac’s currently outstanding Series B preferred stock and to further enhance Farmer Mac’s regulatory capital position.
Farmer Mac’s President and Chief Executive Officer Michael Gerber said, “Today’s transaction further strengthens Farmer Mac’s financial position in support of our core business. It provides Farmer Mac with additional capital at a significantly lower cost. In the fall of 2008, our business partners invested in Farmer Mac when we needed to raise capital. This sale of our subsidiary’s preferred stock allows us to pay back those business partners in full while further strengthening our balance sheet to support the continued fulfillment of our Congressional mission.”
The stated dividend rate on the new $250 million of preferred stock is 8.875 percent, and, after consideration of the consolidated tax benefits to Farmer Mac, the net effective cost is 5.77 percent. As a result, the net cost on Farmer Mac’s consolidated financial statements will be approximately $3.6 million per quarter, or $14.4 million per year. The 8.875 percent dividend rate is in effect until March 30, 2015 when the preferred stock becomes callable and there is a rate step-up. The quarterly and annual cost of the existing $150 million of Series B preferred stock was $4.5 million and $18.0 million, respectively, based on the 2010 dividend rate of 12 percent, which was scheduled to increase to 14 percent at the end of 2010 and 16 percent in 2011. The benefit of this reduction in dividend costs can be used to further capitalize new growth and improves Farmer Mac’s stockholder value.
Mr. Gerber further stated, “With the completion of this transaction, Farmer Mac is well positioned to actively partner with agricultural and rural utilities lenders, as well as lenders participating in USDA’s guaranteed loan programs, to provide the needed capital and liquidity to Rural America.”
Source: Farmer Mac