Financing American Crystal
By Sam Wai, Treasurer
As in the case with most companies including your farming operations, there are two aspects of financing an enterprise: for seasonal purposes and for long-term capital.
It is safe to say that shareholders of American Crystal would prefer not to wait until all the sugar is produced and sold to receive payments for their sugarbeets of any given crop. Because the first two beet payments occur in November and March while the sale of sugar is spread throughout the year, the Company has the need to finance the gap in the timing of its cash flow. The Company obtains virtually all its seasonal funding by selling short-term commercial paper through Wells Fargo as the dealer/agent. Commercial paper is essentially a program by which short-term IOU’s (under 270 days) is sold to companies and institutions with cash to invest. The investing institutions earn interest while the Company enjoys the use of their cash. For investment grade companies like American Crystal, this way of obtaining financing offers the lowest cost in the seasonal debt market today. Investors who buy (or invest in) the Company’s commercial paper rely on American Crystal’s investment grade credit ratings issued by the two major credit rating agencies in New York: Moody’s and Standard & Poor’s. A commercial paper program is required to be backed up by a line of credit for liquidity purposes (in case the paper does not sell in the open market). The Company’s $410-million back-up line-of-credit is provided by a syndication of lenders led by CoBank in Denver, Colorado. The syndication of lenders includes 14 Farm Credit banks and commercial banks located throughout the country. In the last three years, the peak level of seasonal funding (generally occurring in April) has ranged from $244 million to $390 million, depending on the size and value of the sugarbeet crop.
Long-term debt is needed to fund the Company’s capital expenditures and other working capital needs. To supply the Company’s long-term debt, there are currently $72 million of outstanding bonds, $20 million of bank long-term debt (CoBank) and $60 million of private placement debt held by life insurance companies. Additionally, $60 million of the Company’s line of credit is available for long-term purposes.