Real Relationships. Real Results.

Operating Credits

Don Zack, Client Relationship Manager

Brian O’Neill, Credit Solutions Manager

Real Relationships. Real Results.

Borrowing Solutions• Operating and Revolving Lines

of Credit

• Term Loans

• Scotia Leasing

Real Relationships. Real Results.

Operating Line of Credit

Qualification(Information needed):• 3 years Financial Statements;

• Detailed Capital Asset Lists (land, buildings, machinery/equipment; including market values)

Real Relationships. Real Results.

• Current year interim financials

• Current listing of inventory, accounts receivable and accounts payable.

• Farm Production Plan

• Farm Cash Flow Projection

Real Relationships. Real Results.

Features of an Operating Credit:

• Terms

• Security

• Conditions

Real Relationships. Real Results.

Terms(A Sample Credit Agreement)

Authorized Amount

$5,000,000

Type of Credit

Operating

Real Relationships. Real Results.

Purpose

General operating requirements (ie.

feeder cattle purchase, feed grains,

seed, chemical, fertilizer, labour, etc)

Availment

Direct advances evidenced by

Agreement re Operating Credit Line;

and/or Bankers’ Acceptances in

Canadian dollars

Real Relationships. Real Results.

Interest Rate / Acceptance FeeThe Bank's Prime Lending Rate from time to time with interest payable monthly.

Bankers' Acceptance Fee of 1.25% per annum

RepaymentAdvances are repayable on demand.

Real Relationships. Real Results.

Security:Security under Section 427 of the Bank Act over crops/feed and livestock (with appropriate insurance coverage, loss, if any, payable to the Bank)

General Security Agreement over all present and future personal property with appropriate insurance coverage, loss if any, payable to the Bank.

Real Relationships. Real Results.

Conditions:Borrowing Base

Operating advances, Bankers’ Acceptances and outstanding cheques, are not to exceed at any time the lesser of the operating limit and the "Borrowing Base" which is defined as the aggregate of:

Real Relationships. Real Results.

a) 75% of good quality accounts receivable (excluding accounts over 90 days, accounts due by employees, offsets and inter‑company accounts), plus;

b) 75% of the net of livestock inventory less livestock payables, valued at the lower of cost or market, plus;

Real Relationships. Real Results.

c) 75% of the net of feed inventory (excluding seed, chemicals, fertilizers) less feed payables, valued at the lower of cost or market, less

d) security interests or charges held by other parties and specific payables which have or may have priority over the Bank's security.

Real Relationships. Real Results.

SAMPLE BORROWING BASE

(test security values)

Real Relationships. Real Results.

Inventory List (provided Monthly, Quarterly)

1000 head x 1000lbs x $.90/lb = $900,000

2000 tonne barley silage x $50/tonne = $100,000

1000 tonne feed corn x $200/tonne = $200,000

TOTAL = $1,200,000

Real Relationships. Real Results.

Accounts Receivable:Cattle = $300,000Crop Insurance = $100,000

$400,000Accounts Payable:

Corn = $50,000Cattle = $150,000

$200,000

Operating Credit o/s balance = $750,000

Real Relationships. Real Results.

Borrowing Base Calculation:

Inventory:($1,200,000 - $200,000) = $1,000,000

x 75% = $750,000plusAccount Receivable:$400,000 x 75% = $300,000

Borrowing Base = $1,050,000

Real Relationships. Real Results.

Borrowing Base $1,050,000

less

Operating Credit ($ 750,000)

Result: surplus of $ 300,000

Real Relationships. Real Results.

Supplementary information to compliment operating credits:

Real Relationships. Real Results.

Currency of Trade:

Options in CAD and USD

Each currency option requires a complimentary current or checking account.

Real Relationships. Real Results.

Borrowing options under each currency:

CAD-CDN prime rate or Banker’s Acceptances.

USD-USA prime rate or LIBOR (London Interbank Offered Rate).

Real Relationships. Real Results.

Borrowing options:1) Overdraft - checking account

with a borrowing limit established based on limit;

Real Relationships. Real Results.

2) Operating loan - separate operating loan (limit based on global limit or the borrowing base) established and linked to the checking account with money management service (electronic movement of funds).

Real Relationships. Real Results.

Risk Management:

1-currency;

2-interest rates;

3-commodity.

Real Relationships. Real Results.

Currency: ScotiaCapital (division of Scotiabank) offers spot, forwards and swap transactions.

Real Relationships. Real Results.

Interest rates: (Term and Lease rates can be fixed, but operating credits generally float)

Real Relationships. Real Results.

USD - LIBOR rates are quoted in 1 week, 1, 2, 3, 6 & 12 month periods and also in 3-5 year intervals.

Real Relationships. Real Results.

CAD risk management is found in BA options of 30-180 day expiries.

Additional risk management found in capital market products of BA or prime rate collars or caps (Scotia Capital).

Real Relationships. Real Results.

Commodity Risk Management (provided by Scotia McLeod):

Provide market products to manage risk on both input or production.

Real Relationships. Real Results.

Real Relationships. Real Results.