Farmer Mac Gets New Capital (AGM)

The Federal Agricultural Mortgage Corporation (NYSE: AGM), a.k.a. Farmer Mac, today raised additional capital.  The capital came via a sale in a private offering of shares of non-cumulative perpetual preferred stock of Farmer Mac II LLC.  This is a recently organized Delaware LLC that is owned in the common equity by Farmer Mac, which is now operating the Farmer Mac II business that has operated since 1992 purchasing and holding USDA-guaranteed loans.

Farmer Mac plans to use the proceeds from the sale of the $250 million to repurchase and retire $150 million of Farmer Mac’s currently outstanding Series B preferred stock, as well as to further enhance its regulatory capital position.

This will give Farmer Mac with additional capital, at what the company calls ‘a significantly lower cost.’  This sale of subsidiary preferred stock is meant to pay back its business partners in full that invested in 2008 and meant to strengthen the books under its Congressional mission.

The stated dividend rate is 8.875%, 8 7/8, while after consideration of the consolidated tax benefits to Farmer Mac the net effective cost is only 5.77%.

The net cost on Farmer Mac’s consolidated financial statements will be about $3.6 million per quarter, which comes to $14.4 million per year.  The 8.875% dividend rate is in effect until March 30, 2015, when the preferred stock becomes callable and there is a rate step-up.  The quarterly and annual cost of the existing $150 million of Series B preferred stock was $4.5 million and $18.0 million based on the 2010 dividend rate of 12%.  That rate would have risen to 14% at the end of 2010 and 16% in 2011.

The company further noted that the benefit of this reduction in its dividend costs can be used to further capitalize new growth whiling improving Farmer Mac’s stockholder value.  Federal Agricultural Mortgage Corp. (AGM) shares closed higher by 3.9% on an unofficial basis at $7.16 for the common equity.  The 52-week range is $2.40 to $11.49, while the common equity market cap value is listed as $72.7 million without any effect of this financing.

Because of the size and because of the former structure, we show no real analyst expectations and have no formal coverage of this one.

JON C. OGG