§ 5001.140 Cooperative stock/cooperative equity. Loan guarantees described in paragraphs (a) through (d) of this section are only available under B&I guaranteed loans. ( a ) *Cooperative stock purchase program.* The Agency may guarantee loans for the purchase of cooperative stock by individual farmers or ranchers in a farmer or rancher cooperative established for the purpose of processing an agricultural commodity. The cooperative may contract for services to process agricultural commodities or otherwise process value-added agricultural products during the five-year period beginning on the operation startup date of the cooperative in order to provide adequate time for the planning and construction of the processing facility of the cooperative. ( 1 ) The proceeds from the stock sale may be used to recapitalize, to develop a new processing facility or product line, or to expand an existing production facility. Guaranteed loan funds must remain in the cooperative from which stock was purchased, and the cooperative must not reinvest those funds into another entity.
( 2 ) The maximum guaranteed loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable.
( 3 ) The maximum term of the guaranteed loan is seven years when the proceeds from the stock sale are used by the cooperative to recapitalize or are used for working capital. The maximum term allowable for final guaranteed loan maturity is limited to the justified useful life of the assets the cooperative purchases with the proceeds of the stock sale not to exceed 40 years or applicable State statutory limitations, whichever is less.
( 4 ) The lender will, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or any other right or ability necessary to liquidate and dispose of the collateral in the event of a default by the borrower.
( 5 ) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative prior to making its first stock purchase loan.
( 6 ) The borrower may provide financial information in the manner that is generally required by commercial agricultural lenders.
( 7 ) A feasibility study of the cooperative is required for startup cooperatives and may be required by the Agency for existing cooperatives when the cooperative's operations will be significantly affected by the proceeds that were generated from the stock sale.
( 8 ) The Agency will conduct an appropriate environmental review on the processing facility and will not process individual applications for the purchase of stock until the environmental review on the cooperative processing facility is completed.
( b ) *Purchase of transferable stock shares.* The Agency may also guarantee loans for the purchase of transferable stock shares of any type of existing cooperative, which would primarily involve new or incoming members. Such stock may provide delivery or some form of participation rights and may only be traded among cooperative members. ( 1 ) The maximum loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable.
( 2 ) The maximum term of the loan is seven years.
( 3 ) The lender will, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or any other right or ability necessary to liquidate and dispose of the collateral in the event of a default by the borrower.
( 4 ) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative prior to making its first stock purchase loan.
( c ) *Cooperative equity security guarantees.* The Agency may guarantee loans for the purchase of preferred stock or similar equity issued by a cooperative or may guarantee loans to a fund that invests primarily in cooperatives. In either case, the project must significantly benefit one or more entities eligible for assistance under B&I guaranteed loans. ( 1 ) “Similar equity” is any special class of equity stock that is available for purchase by non-members and/or members and lacks voting and other governance rights.
( 2 ) A fund that invests “primarily” in cooperatives is determined by its percentage share of investments in and loans to cooperatives. A fund portfolio must have at least 50 percent of its loans and investments in cooperatives to be considered eligible for loan guarantees for the purchase of preferred stock or similar equity.
( 3 ) The principal amount of the guaranteed loan cannot exceed $10 million.
( 4 ) The maximum term of the guaranteed loan is seven years when the proceeds are used by the cooperative for working capital and; ( i ) In all other cases the maximum term of the guaranteed loan is equal to the lesser of the following but not exceeding 40 years:
( ii ) The justified useful life of the funded project assets,
( iii ) The maximum term under any applicable State statute; or
( iv ) The specified holding period for redemption as stated by the stock offering.
( 5 ) All borrowers purchasing preferred stock or similar equity must provide documentation of the terms of the offering that includes compliance with State and Federal securities laws and financial information about the issuer of the preferred stock to both the lender and the Agency.
( 6 ) Issuer(s) of preferred stock must be a cooperative organization and must be able to issue preferred stock to the public that, if required, complies with State and Federal securities laws.
( 7 ) The lender will, at a minimum, obtain a valid lien on the preferred stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or otherwise liquidate and dispose of the collateral in the event of a default by a borrower. For the purpose of recovering losses from guaranteed loan defaults, lenders may take ownership of all equities purchased with such loans, including additional shares derived from reinvestment of dividends.
( 8 ) Shares of preferred stock that are purchased with guaranteed loan funds cannot be converted to common or voting stock.
( 9 ) In the absence of adequate provisions for investors' rights to early redemption of preferred stock or similar equity, a borrower must request from a cooperative or fund issuing such equities a contingent waiver of the holding or redemption period in advance of share purchases. This contingent waiver provides that in the event a default by a borrower on a B&I guaranteed loan, the borrower waives any ownership rights in the stock, and the lender and Agency will then have the right to redeem the stock.
( 10 ) Guaranteed loans for the purchase of preferred stock must be prepaid in the event a cooperative that issued the stock exercises an early redemption. If the cooperative enters into bankruptcy, to the extent the cooperative can redeem the preferred stock, the Borrower is required to repay the guaranteed loan from the redemption of the stock.
( d ) *Employee ownership succession.* The Agency may guarantee loans for conversions of businesses to either cooperatives or ESOP within five years from the date of initial transfer of stock. ( 1 ) The maximum loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable.
( 2 ) The maximum term is 10 years.
( 3 ) The lender must, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or otherwise liquidate and dispose of the collateral in the event of a default by a borrower.
( 4 ) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative or ESOP prior to making its first stock purchase loan.
( 5 ) If a cooperative is organized, each selling owner becomes a member with special control rights to protect their stake in the business while a succession plan is implemented. At the completion of the stock transfer, selling owners may retain their membership in the cooperative provided that their control rights are the same as all other members. Any special covenants that selling owners may have held must be extinguished upon completion of the transfer.
( 6 ) If an ESOP is organized for transferring ownership to employees, selling owner(s) may not retain ownership in the business after five years from the date of the initial transfer of stock.