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Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian ONeill, Credit Solutions Manager.

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Presentation on theme: "Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian ONeill, Credit Solutions Manager."— Presentation transcript:

1 Real Relationships. Real Results. Operating Credits Don Zack, Client Relationship Manager Brian ONeill, Credit Solutions Manager

2 Real Relationships. Real Results. Borrowing Solutions Operating and Revolving Lines of Credit Term Loans Scotia Leasing

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

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

5 Real Relationships. Real Results. Features of an Operating Credit: Terms Security Conditions

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

7 Real Relationships. Real Results. 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 Real Relationships. Real Results. 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 Repayment Advances are repayable on demand.

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

13 Real Relationships. Real Results. SAMPLE BORROWING BASE (test security values)

14 Real Relationships. Real Results. Inventory List (provided Monthly, Quarterly) 1000 head x 1000lbs x $.90/lb=$900, tonne barley silage x $50/tonne=$100, tonne feed corn x $200/tonne=$200,000 TOTAL= $1,200,000

15 Real Relationships. Real Results. 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 Real Relationships. Real Results. 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 Real Relationships. Real Results. Borrowing Base$1,050,000 less Operating Credit($ 750,000) Result:surplus of $ 300,000

18 Real Relationships. Real Results. Supplementary information to compliment operating credits:

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

20 Real Relationships. Real Results. Borrowing options under each currency: CAD-CDN prime rate or Bankers Acceptances. USD-USA prime rate or LIBOR (London Interbank Offered Rate).

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

22 Real Relationships. Real Results. 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 Real Relationships. Real Results. Risk Management: 1-currency; 2-interest rates; 3-commodity.

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

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

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

27 Real Relationships. Real Results. CAD risk management is found in BA options of day expiries. Additional risk management found in capital market products of BA or prime rate collars or caps (Scotia Capital).

28 Real Relationships. Real Results. Commodity Risk Management (provided by Scotia McLeod): Provide market products to manage risk on both input or production.

29 Real Relationships. Real Results. Real Relationships.Real Results.


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