Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian...

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Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian O’Neill, Credit Solutions Manager

Transcript of Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian...

Page 1: Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian ONeill, Credit Solutions Manager.

Real Relationships. Real Results.

Operating Credits

Don Zack, Client Relationship Manager

Brian O’Neill, Credit Solutions Manager

Page 2: Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian ONeill, Credit Solutions Manager.

Real Relationships. Real Results.

Borrowing Solutions• Operating and Revolving Lines

of Credit

• Term Loans

• Scotia Leasing

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Operating Line of Credit

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

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

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• Current year interim financials

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

• Farm Production Plan

• Farm Cash Flow Projection

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Real Relationships. Real Results.

Features of an Operating Credit:

• Terms

• Security

• Conditions

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Terms(A Sample Credit Agreement)

Authorized Amount

$5,000,000

Type of Credit

Operating

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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

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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.

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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.

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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:

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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;

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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.

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SAMPLE BORROWING BASE

(test security values)

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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

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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

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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

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Borrowing Base $1,050,000

less

Operating Credit ($ 750,000)

Result: surplus of $ 300,000

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Supplementary information to compliment operating credits:

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Currency of Trade:

Options in CAD and USD

Each currency option requires a complimentary current or checking account.

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Borrowing options under each currency:

CAD-CDN prime rate or Banker’s Acceptances.

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

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Borrowing options:1) Overdraft - checking account

with a borrowing limit established based on limit;

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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).

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Risk Management:

1-currency;

2-interest rates;

3-commodity.

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

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

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

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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).

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Commodity Risk Management (provided by Scotia McLeod):

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

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