please answer these questions below:
- Type of Operation - How does the business generate income?
- Size of Operation - What is the size of the operation? (Depending on the business this may be expressed in terms of production/throughput levels, asset size, market share, # of acres, or # of cows. How does this compare to peers?)
- Marketing strategy How and to whom is the product sold? Is there any reliance on key suppliers or off-takers?
- Ownership structure Who owns the Company?
- Business strategy Describe the plan for the operation on a go-forward basis. Are there or will there be any changes to the business? Examples include expansion plan, new or shift in products, relocations, asset sales/purchases, etc.
- Management Team - Briefly summarize the owners and key managers and their relevant experience. Is the business dependent on only a few key individuals?
- Industry Analysis - Describe the industry that the borrower operates in. State the near term and long term outlooks. Is the industry mature, stable, growing, or declining?
- Requests: Provide a summary of the loan(s) requested. For each loan include the following:
- State the request
- State the purpose of request/use of funds
Rabo AgriFinance Case Study Terra Farms, LLC Instructions: Using the information provided, complete the Credit Application for Terra Farms. Draw conclusions about the Company's financial position, the collateral, and the risks of the deal; decide if you will give the customer the loans it has requested, and whether the loans will be in the amounts requested, more, or less; determine key structural elements (term, amortization, payment details, guarantors, subject to conditions, reporting requirements, covenants, etc., as deemed necessary); and finally provide a recommendation. Your recommendation should provide narrative on the deal, point out key risks, including why the risks are acceptable to the Bank, and address the rationale behind the loan amounts and structural elements recommended. Your recommendation will be presented to a Credit Committee made up of banking professionals. Request: The borrower requests one-year renewal of their $1,000,000 operating line currently held by RAF (current maturity of 12/31/2019) as well as additional financing of $200,000 to support the purchase of a new Tree Shaker Tractor to replace outdated equipment. To support its request, Terra Farms has provided the information listed below. Background and Management Overview, including analysis of the industry Four years of Company Prepared financial statements 2020 Budget Personal Financial Statements for Clark and Melanie Terra Business Background: Terra Farms, LLC was created in 2010 between husband and wife team, Clark and Melanie Terra. At origination, the company leased approximately 250 acres of bare-ground located in Fresno County from third party, Curran Lion Holdings, Inc. In early 2011, Terra Farms planted the irrigated ground (243 acres) to almonds. In 2015, the opportunity arose to purchase the property from the prior landlord for approximately $4.86mln. The company financed this with RAF (Rabo Agrifinance) via a 20-year amortized term loan at 65% loan-to-value guaranteed by Clark & Melanie. Borrower has communicated to the Bank that through 8/31/2019, the operation remains profitable and is expected to exceed projections due to favorable weather conditions. Management Team: Day to day operations are overseen by Clark, who has managed the operating entity since inception. Prior to origination of Terra Farms, Clark managed his family's 500 acre almond operation for 25+ years. Industry Analysis: In early 2018, California experienced freezing temperatures and rains (including several hail storms) later in the year than what is considered normal. This caused frost and hail damage to the almond crop, which impacted yields and the overall crop quality. Although the official 2018 United States Department of Agriculture (USDA) California almond crop estimate was set at 2.45 billion pounds, actual crop came in closer to 2.30 billion pounds, on an estimated 1.07 million bearing acres. 2019 Almond Update: The marketable crop in the 2018/19 season is estimated to be up about 4% YoY, while carry-in was 10% lower. Total available US almond supplies were up 2% YoY this marketing year. Through December 2018, 39% of total US supply was sold (vs 41% and 38% in the previous two seasons). Global almond demand continues to be driven by a powerful combination of taste, convenience and healthfulness coupled with continued rising incomes in developing countries, which drive changes in eating habits. Terra Farms, LLC Balance Sheets As of December 31st 2015 2016 2017 2018 ASSETS Current Assets Cash Accounts receivable-trade Less bad debt reserve Cash invested in growing crops Prepaids 695,089 950,000 -55,000 13,251 2,500 1,605,840 1,070,742 815,733 -55,000 13,516 2,550 1,847,541 1,223,067 680,372 -55,000 13,922 2,650 1,865,011 1,414,523 608,642 -55,000 14,618 2,750 1,985,533 Property, Plant, & Equipment Land Machinery & equipment Other fixed assets Less: accumulated depreciation 4,860,000 356,850 23,500 -231,953 5,008,398 4,860,000 356,850 23,500 -282,931 4,957,419 4,860,000 405,590 23,500 -340,873 4,948,218 4,860,000 405,590 23,500 -398,814 4,890,276 Other Assets 1,456 1,473 1,497 1,521 Total Assets 6,615,694 6,806,433 6,814,725 6,877,330 MEMERS' EQUITY Current Liabilities Operating line of credit Accounts payable - trade Accrued expenses Current maturies of long-term debt 155,000 51,796 56,590 157,950 421,336 170,000 52,040 59,685 157,950 439,674 165,000 53,461 63,747 157,950 440,158 280,000 54,935 60,987 157,950 553,872 Long-term Debt Notes payable 2,961,563 2,803,613 2,645,663 2,487,713 3,728,904 Members' Equity Retained earnings Distributions Net Income 2,789,500 -450,000 893,294 3,232,794 3,232,794 - 200,000 530,351 3,563,145 3,563,145 -95,000 260,759 3,728,904 106,841 3,835,745 Total Liabilities & Members' Equity 6,615,694 6,806,433 6,814,725 6,877,330 Terra Farms, LLC Statements of Income For the Years Ended December 31st Total Crop Acres Yields/Acre 2015 243 1,900 2016 243 1,950 2017 243 2,130 2018 243 1,800 Sales 1,846,800 1,483,151 1,237,040 1,106,622 Cost of Sales Growing costs Harvest costs 527,126 103,061 630,187 532,456 100,695 633,151 545,549 104,891 650,440 562,422 105,950 668,372 Gross Profit 1,216,613 849,999 586,600 438,250 Operating Expenses Depreciation General and administrative Interest Other 50,979 122,580 149,463 525 323,546 50,979 121,366 146,240 1,862 320,447 57,941 125,768 139,797 3,098 326,605 57,941 127,167 144,689 2,501 332,299 Operating Profit 893,066 529,553 259,996 105,951 Other Income (Loss) Miscellaneous -1,028 1,028 -1,598 1,598 -1,563 1,563 -1,690 1,690 Profit Before Income Taxes 894,094 531,151 261,559 107,641 Income Tax Expense 800 800 800 800 Net Income 893,294 530,351 260,759 106,841 2020 Budget Crop Acreage Yield Price Share Total Income Almonds 243 2,200 2.95 100% 1,577,070 Jan Feb March Apr May June July Aug Dec Total $1,577,070 Sep Oct Nov $40,000 $400,000 $450,000 Beyond $687,070 Current Year Receipts Expenses Pre-Harvest Cost/Acre $6,000 $2,000 $19,000 $25,000 $19,000 $2,500 $2,500 $2,000 $6,500 $2,000 $6,500 $2,000 $900 $6,000 $6,000 $10,000 $15,000 $15,000 $15,000 $2,000 $2,000 $3,700 $3,700 $3,700 $2,500 $15,000 $18,000 $15,000 $45,000 $32,000 $13,000 $30,000 $15,000 $10,000 $15,000 $900 $900 $1,200 $1,200 $2,200 $3,000 $1,800 $750 $750 $900 $750 $2,000 $500 $1,200 Labor Payroll Custom Fertilizer Chemical Gas/Fuel/Oil Repairs Supplies Insurance Utilities Management Miscellaneous Pollination Total Pre-Harvest $900 $613.17 $149,000 $125.93 $30,600 $197.53 $48,000 $316.87 $77,000 $37.73 $83,000 $120.99 $29,400 $19.75 $4,800 $36.63 $8,900 $41.15 $10,000 $385.19 $93,600 $113.58 $27,600 $1,502.06 $365,000 $609.05 $148,000 $1,074,900 $4,500 $1,000 $500 $4,500 $1,000 $500 $750 $500 $500 $8,000 $1,000 $500 $10,000 $3,200 $2,300 $800 $2,300 $3,000 $2,300 $3,200 $2,300 $8,000 $12,000 $2,300 $2,300 $18,500 $18,500 $12,000 $2,300 $2,300 $2,300 $200,000 $15,000 $150,000 $8,000 $2,300 $3,200 $2,300 $3,200 $2,300 Harvest Expenses $405.35 $98,500 $98,500 Total Harvest $98,500 Clark & Melanie Terra Personal Financial Statement 3/30/2019 Assets Cash in Bank 1,429,173 Retirement Account 947,033 Investments Terra Farms LLC 4,411,107 Real Estate Personal residence Home Ranch, 1,500 acres 575,000 11,250,000 Total Assets 18,612,313 Liabilities Credit cards Mortgage Home Ranch loan 199,421 4,473,134 Total Liabilities 4,672,555 Net Worth 13,939,758 Rabo AgriFinance Case Study Terra Farms, LLC Instructions: Using the information provided, complete the Credit Application for Terra Farms. Draw conclusions about the Company's financial position, the collateral, and the risks of the deal; decide if you will give the customer the loans it has requested, and whether the loans will be in the amounts requested, more, or less; determine key structural elements (term, amortization, payment details, guarantors, subject to conditions, reporting requirements, covenants, etc., as deemed necessary); and finally provide a recommendation. Your recommendation should provide narrative on the deal, point out key risks, including why the risks are acceptable to the Bank, and address the rationale behind the loan amounts and structural elements recommended. Your recommendation will be presented to a Credit Committee made up of banking professionals. Request: The borrower requests one-year renewal of their $1,000,000 operating line currently held by RAF (current maturity of 12/31/2019) as well as additional financing of $200,000 to support the purchase of a new Tree Shaker Tractor to replace outdated equipment. To support its request, Terra Farms has provided the information listed below. Background and Management Overview, including analysis of the industry Four years of Company Prepared financial statements 2020 Budget Personal Financial Statements for Clark and Melanie Terra Business Background: Terra Farms, LLC was created in 2010 between husband and wife team, Clark and Melanie Terra. At origination, the company leased approximately 250 acres of bare-ground located in Fresno County from third party, Curran Lion Holdings, Inc. In early 2011, Terra Farms planted the irrigated ground (243 acres) to almonds. In 2015, the opportunity arose to purchase the property from the prior landlord for approximately $4.86mln. The company financed this with RAF (Rabo Agrifinance) via a 20-year amortized term loan at 65% loan-to-value guaranteed by Clark & Melanie. Borrower has communicated to the Bank that through 8/31/2019, the operation remains profitable and is expected to exceed projections due to favorable weather conditions. Management Team: Day to day operations are overseen by Clark, who has managed the operating entity since inception. Prior to origination of Terra Farms, Clark managed his family's 500 acre almond operation for 25+ years. Industry Analysis: In early 2018, California experienced freezing temperatures and rains (including several hail storms) later in the year than what is considered normal. This caused frost and hail damage to the almond crop, which impacted yields and the overall crop quality. Although the official 2018 United States Department of Agriculture (USDA) California almond crop estimate was set at 2.45 billion pounds, actual crop came in closer to 2.30 billion pounds, on an estimated 1.07 million bearing acres. 2019 Almond Update: The marketable crop in the 2018/19 season is estimated to be up about 4% YoY, while carry-in was 10% lower. Total available US almond supplies were up 2% YoY this marketing year. Through December 2018, 39% of total US supply was sold (vs 41% and 38% in the previous two seasons). Global almond demand continues to be driven by a powerful combination of taste, convenience and healthfulness coupled with continued rising incomes in developing countries, which drive changes in eating habits. Terra Farms, LLC Balance Sheets As of December 31st 2015 2016 2017 2018 ASSETS Current Assets Cash Accounts receivable-trade Less bad debt reserve Cash invested in growing crops Prepaids 695,089 950,000 -55,000 13,251 2,500 1,605,840 1,070,742 815,733 -55,000 13,516 2,550 1,847,541 1,223,067 680,372 -55,000 13,922 2,650 1,865,011 1,414,523 608,642 -55,000 14,618 2,750 1,985,533 Property, Plant, & Equipment Land Machinery & equipment Other fixed assets Less: accumulated depreciation 4,860,000 356,850 23,500 -231,953 5,008,398 4,860,000 356,850 23,500 -282,931 4,957,419 4,860,000 405,590 23,500 -340,873 4,948,218 4,860,000 405,590 23,500 -398,814 4,890,276 Other Assets 1,456 1,473 1,497 1,521 Total Assets 6,615,694 6,806,433 6,814,725 6,877,330 MEMERS' EQUITY Current Liabilities Operating line of credit Accounts payable - trade Accrued expenses Current maturies of long-term debt 155,000 51,796 56,590 157,950 421,336 170,000 52,040 59,685 157,950 439,674 165,000 53,461 63,747 157,950 440,158 280,000 54,935 60,987 157,950 553,872 Long-term Debt Notes payable 2,961,563 2,803,613 2,645,663 2,487,713 3,728,904 Members' Equity Retained earnings Distributions Net Income 2,789,500 -450,000 893,294 3,232,794 3,232,794 - 200,000 530,351 3,563,145 3,563,145 -95,000 260,759 3,728,904 106,841 3,835,745 Total Liabilities & Members' Equity 6,615,694 6,806,433 6,814,725 6,877,330 Terra Farms, LLC Statements of Income For the Years Ended December 31st Total Crop Acres Yields/Acre 2015 243 1,900 2016 243 1,950 2017 243 2,130 2018 243 1,800 Sales 1,846,800 1,483,151 1,237,040 1,106,622 Cost of Sales Growing costs Harvest costs 527,126 103,061 630,187 532,456 100,695 633,151 545,549 104,891 650,440 562,422 105,950 668,372 Gross Profit 1,216,613 849,999 586,600 438,250 Operating Expenses Depreciation General and administrative Interest Other 50,979 122,580 149,463 525 323,546 50,979 121,366 146,240 1,862 320,447 57,941 125,768 139,797 3,098 326,605 57,941 127,167 144,689 2,501 332,299 Operating Profit 893,066 529,553 259,996 105,951 Other Income (Loss) Miscellaneous -1,028 1,028 -1,598 1,598 -1,563 1,563 -1,690 1,690 Profit Before Income Taxes 894,094 531,151 261,559 107,641 Income Tax Expense 800 800 800 800 Net Income 893,294 530,351 260,759 106,841 2020 Budget Crop Acreage Yield Price Share Total Income Almonds 243 2,200 2.95 100% 1,577,070 Jan Feb March Apr May June July Aug Dec Total $1,577,070 Sep Oct Nov $40,000 $400,000 $450,000 Beyond $687,070 Current Year Receipts Expenses Pre-Harvest Cost/Acre $6,000 $2,000 $19,000 $25,000 $19,000 $2,500 $2,500 $2,000 $6,500 $2,000 $6,500 $2,000 $900 $6,000 $6,000 $10,000 $15,000 $15,000 $15,000 $2,000 $2,000 $3,700 $3,700 $3,700 $2,500 $15,000 $18,000 $15,000 $45,000 $32,000 $13,000 $30,000 $15,000 $10,000 $15,000 $900 $900 $1,200 $1,200 $2,200 $3,000 $1,800 $750 $750 $900 $750 $2,000 $500 $1,200 Labor Payroll Custom Fertilizer Chemical Gas/Fuel/Oil Repairs Supplies Insurance Utilities Management Miscellaneous Pollination Total Pre-Harvest $900 $613.17 $149,000 $125.93 $30,600 $197.53 $48,000 $316.87 $77,000 $37.73 $83,000 $120.99 $29,400 $19.75 $4,800 $36.63 $8,900 $41.15 $10,000 $385.19 $93,600 $113.58 $27,600 $1,502.06 $365,000 $609.05 $148,000 $1,074,900 $4,500 $1,000 $500 $4,500 $1,000 $500 $750 $500 $500 $8,000 $1,000 $500 $10,000 $3,200 $2,300 $800 $2,300 $3,000 $2,300 $3,200 $2,300 $8,000 $12,000 $2,300 $2,300 $18,500 $18,500 $12,000 $2,300 $2,300 $2,300 $200,000 $15,000 $150,000 $8,000 $2,300 $3,200 $2,300 $3,200 $2,300 Harvest Expenses $405.35 $98,500 $98,500 Total Harvest $98,500 Clark & Melanie Terra Personal Financial Statement 3/30/2019 Assets Cash in Bank 1,429,173 Retirement Account 947,033 Investments Terra Farms LLC 4,411,107 Real Estate Personal residence Home Ranch, 1,500 acres 575,000 11,250,000 Total Assets 18,612,313 Liabilities Credit cards Mortgage Home Ranch loan 199,421 4,473,134 Total Liabilities 4,672,555 Net Worth 13,939,758
