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Operating Credits

Operating Credits. Don Zack, Client Relationship Manager Brian O’Neill, Credit Solutions Manager. Operating and Revolving Lines of Credit Term Loans Scotia Leasing. Borrowing Solutions. Operating Line of Credit Qualification( Information needed): 3 years Financial Statements;

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Operating Credits

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  1. Operating Credits Don Zack, Client Relationship Manager Brian O’Neill, Credit Solutions Manager

  2. Operating and Revolving Lines of Credit • Term Loans • Scotia Leasing Borrowing Solutions

  3. Operating Line of Credit • Qualification(Information needed): • 3 years Financial Statements; • Detailed Capital Asset Lists (land, buildings, machinery/equipment; including market values)

  4. Current year interim financials • Current listing of inventory, accounts receivable and accounts payable. • Farm Production Plan • Farm Cash Flow Projection

  5. Features of an Operating Credit: • Terms • Security • Conditions

  6. Terms • (A Sample Credit Agreement) • Authorized Amount • $5,000,000 • Type of Credit • Operating

  7. 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

  8. Interest Rate / Acceptance Fee The 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.

  9. 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.

  10. 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:

  11. 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;

  12. 75% of the net of feed inventory (excluding seed, chemicals, fertilizers) less feed payables, valued at the lower of cost or market, less • security interests or charges held by other parties and specific payables which have or may have priority over the Bank's security.

  13. SAMPLE BORROWING BASE • (test security values)

  14. 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

  15. Accounts Receivable: • Cattle = $300,000 • Crop Insurance = $100,000 • $400,000 • Accounts Payable: • Corn = $50,000 • Cattle = $150,000 • $200,000 • Operating Credit o/s balance = $750,000

  16. Borrowing Base Calculation: • Inventory: • ($1,200,000 - $200,000) = $1,000,000 • x 75% = $750,000 • plus • Account Receivable: • $400,000 x 75% = $300,000 • Borrowing Base = $1,050,000

  17. Borrowing Base $1,050,000 • less • Operating Credit ($ 750,000) • Result: surplus of $ 300,000

  18. Supplementary information to compliment operating credits:

  19. Currency of Trade: • Options in CAD and USD • Each currency option requires a complimentary current or checking account.

  20. Borrowing options under each currency: • CAD-CDN prime rate or Banker’s Acceptances. • USD-USA prime rate or LIBOR (London Interbank Offered Rate).

  21. Borrowing options: • 1) Overdraft - checking account with a borrowing limit established based on limit;

  22. 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).

  23. Risk Management: • 1-currency; • 2-interest rates; • 3-commodity.

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

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

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

  27. 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).

  28. Commodity RiskManagement (provided by Scotia McLeod): • Provide market products to manage risk on both input or production.

  29. Real Relationships. Real Results.

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