Farmer Mac Raises Needed Cash, At Steep Price (AGM)

By Douglas A. McIntyre Updated Apr 27, 9:11PM EDT · Published Oct 1, 7:34AM EDT

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Farmer Mac, or Federal Agricultural Mortgage Corp. (NYSE: AGM), has been up against the ropes and reviewing its alternatives. Things have been so bad that at a $4.10 close, that is down from a 52-week high of $34.93. If you just went away part of the summer and were thinking how well farmers were doing, that has changed as Farmer Mac’s investments in GSE’s and Lehman have hurt to the point that it cannot adequately make loans to farmers.

Its choices were to either sell assets or raise cash via securitysales, both of which will ultimately leave it smaller or more dilutedfor existing holders. It appears it has decided to raise cash in a saleof $65 million via the sale of non-voting series B preferred stock. Itslists the investors as AgFirst Farm Credit Bank; AgriBank, FCB; CoBank,ACB; Farm Credit Bank of Texas; U.S. AgBank, FCB and ZionsBancorporation.

Farmer Mac noted that this financing satisfies its previously announcedintent to implement strategies to restore its capital position and tomeet regulatory requirements.

This comes at a steep price tag for a company in the business of makingloans in a de-leveraged environment. This perpetual preferred issuanceis not convertible but its dividends are a step-up with year 1 at 10%,year 2 at 12%, year 3 at 14%, and 16% thereafter. These are redeemablein whole by Farmer Mac after 9 months.

Separately, Framer Mac is naming Michael Gerber as acting President& CEO of the group. He is replacing Henry Edelman immediately.Mr. Gerber has been on Farmer Mac Board of Directors since June 2007and he has been the President and Chief Executive Officer of FarmCredit of Western New York since 1998.

Shares are up over 40% at this point pre-market. Investors bettinghere better hope that it Farmer Mac can redeem those preferred sharesin 9 months. Otherwise, it’s going to have to charge unreal rates on its loans to farmers.

Jon C. Ogg
October 1, 2008

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.