Pub. 9 2014-2015 Issue 2

www.nebankers.org 18 Extraordinary Service for Extraordinary Members. O N JUNE 2, ON THE HEELS OF ITS $750 million loan to Verizon, CoBank entered into a $350 million “credit agreement” with Frontier Communications Corp. to partially finance Frontier’s $2 billion “acquisition of AT&T Inc.’s Connecticut wireline business.” Frontier is hardly your average farmer, rancher, or utility cooperative of which CoBank is autho- rized to lend. Instead, Frontier is amajor stockholder-owned telecommunications company that had $16.6 billion of assets and $4.1 billion of equity capital at the end of 2013. It appears CoBank played a key role in organizing this credit agreement as it is credited with serv- ing as the “administrative agent, lead arranger, and a lender” for a term loan that could mature as late as December 2019. Although Frontier is less than an investment-grade credit risk, with credit ratings in the BB range, this should be a profitable loan for CoBank given an interest rate on the loan of LIBOR plus 1.875 to 3.875 percent. Since the Farm Credit System (FCS) can borrow for less than LIBOR, CoBank’s spread will be even richer. As reported in May’s Farm Credit Watch (FCW), CoBank’s self-imposed lending limit is estimated to fall in the range of $150 million to $175 million. Therefore, it is likely CoBank will have to syndicate at least half of the Frontier credit risk to other lenders. Based on the amount of the Verizon loan CoBank syndicated to other FCS institutions, Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2014 Bert Ely CoBank Finances Another Mega Communications Deal