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Lender offers rare UK exposure – exclusive

Newly launched Agri Partners is offering debt exposure to UK farmland through private funding syndicates. It has completed its first two deals.

Agri Partners, the recently-launched UK agriculture sector lender, has established an investment platform to bridge the lending gap between commercial banks and farmers that has existed since the global credit crunch.

Through private funding syndicates, the firm is offering investors the opportunity to gain exposure to the UK’s farmland market; equity investing is very difficult because the land is so closely held.

The firm was established by Robert Bourn, a structured finance and capital markets professional; Phil Sheridan, an FCA-regulated underwriter; and Matthew Banks, a rural sector risk management expert. It completed its first two deals earlier this month of what it believes to be a £50 million-a-year business.

Bourn and his colleagues are also keen to help the UK farming community take more control over their assets in the wake of the credit crisis and the new lending parameters that were introduced in Europe and were for many damagingly high.

“Moreover, from an investment perspective, we believe that it is in the best interest of the wider community that the operating farmer should own the farm that it works — or at least participate in the long-term value — to both incentivise and reward them for good stewardship of the land,” said Bourn.

The platform is supported by a range of private capital investors including high net worth individuals, private banks and family offices. The firm is also in talks with two UK wealth management firms that are interested in the platform, according to Bourn, senior partner at Agri Partners.

“Regardless of their category or size, our investors have profound similarities,” he said. “For example, they tend to share contrarian views of the markets and prefer more control over their investments.”

For these reasons Agri Partners has structured its offering as syndicates rather than an investment fund or capital market structure, he added.

Syndicate options

A syndicate, or limited liability partnership, of up-to 12 investors will be able to invest into two products; loans linked to the Knight Frank Farmland Index and purchase leaseback arrangements. Both products are likely to be between £500,000 and £1.5 million in size, although Agri Partners has the ability underwrite up-to £5 million per farmer, according to its credit policy.

The first two deals are “exceptionally small” at around £150,000 each, according to Bourn, but represent good examples of the platform’s offering.

The medium-term loan linked to the Knight Frank Farmland Index is the most typical case for Agri Partners. In this instance the firm underwrote the loan for a farmer to refinance an existing open-bridge-loan for lower monthly payments of 0.55 percent over the five-year term, compared to the 1.65 percent she was paying under the old loan.

In order to bring the loan payments down to 6.5 percent a year in this case — Agri Partners will underwrite loans ranging between 5 percent and 6.5 percent — the farmer is charged a repayment bonus at maturity calculated on a 50 percent share in the increase of the Knight Frank English or Scottish Farmland Index.

This link to the index provides some protection to the investor if the farmer’s land underperforms the index, but also incentivises the farmer to outperform the index. Most farmers will use this loan as a means to improve their loan to value ratio in order to reach a level that commercial lenders require, said Bourn.

The second, less typical case, was a purchase-leaseback arrangement with a farmer that did not have enough capital to put down a deposit on a farm he wanted to buy; he had 20 percent and the high street bank wanted closer to 40 percent.

In this instance the investor buys the land for him, leases it to him over a seven year period under a Farmers Business Tenancy for about 3 percent a year, and embeds a buy back option into the tenancy enabling the farmer to buy the land off the investor at the end of the term.

The investor receives the rental income plus an 80 percent share in the upside of the farm’s valuation over the tenancy.

Another version of this could involve the investor buying the land off a farmer whose loan-to-value ratio is above 75 percent and he is unable to renew his current financing, or mortgage. Again a buy back option is embedded in the deal.

The investor buys the land at a discount to create a default premium which gives some security to the investor if the land drops in value significantly.

“It also is a way to ensure the farmer adheres to certain criteria and obligations​​ in managing the land in the interim​​ if he wants to execute his option to ​buy it bac​k​ at that same discount,” said Bourn. “If he does not comply with the provisions agreed to, ​which governs how the land is managed and cared for, he​​ ​can​ be evicted from the farm and the investors can effectively crystallise the default premium.”

Agri Partners platform, or private funding syndicates, enables investors to play on the UK farmland market when it is notably difficult to buy any equity in the nation’s farmland, said Bourn.

Read more about Agri Partners’ motivation to launch this unique platform in next week’s guest commentary from Robert Bourn.