MetLife, one of the US’ largest agricultural lenders, has told Agri Investor it expects agricultural loans will grow again in 2016, helping its long-term agri debt strategy to weather any recession in the US agricultural economy.
Last week, the insurer revealed it had issued $400 million less in agricultural loans in 2015 than the $3.6 billion it issued in 2014. Its loan to value ratio also dropped 1 percentage point.
MetLife said it would look to take advantage of the decreased willingness among banks to issue loans for agribusiness operations like food production, and would secure debt where possible against real estate.
“Non-real estate […] debt has been increasing [over the last few years], and has increased substantially over the past year. Now the number of opportunities for [banks] to lend money on an operating basis [have decreased] over the last five years,” said managing director and head of MetLife’s agricultural portfolio unit Barry Bogseth.
“[Banks] were starting to originate more real estate loans. As net farm income drops, the demand for total debt increases, and the traditional bank loan market is starting to revert back to its historical revolving lines of credit needs and focusing less on the real estate finance.”
“As a result we see that as our opportunity. More of the banks [and] short term life insurance companies and financial institutions [are increasingly] reverting to their long term debt issuances on real estate.”
The insurer was also well-placed to ride out any potential storm, he said. “When net farm income comes down, our portfolio is well structured to meet the downturn, if there is one in the ag economy,” said Bogseth, going on to add that they had not underwritten loans based on the fluctuating and “extreme natures of farm income [but rather on] the long term”.
Bogseth said growth in agricultural loans would also be driven by falling operational income for farms and producers in the US: “That will create opportunities for ag debt because some producers are going to need to recapitalise the balance sheet to rebuild liquidity and sustain their operations.”
Transactions issued by MetLife last year include a $26 million, 25-year term loan fixed for 10 years to privately owned farming company GP Irrigated Farms. The loan was provided for the production of dairy feeds and the debt secured by improved water rights and farmland quality on its real estate. Seanaria Farms, operated by investment managers Maha Investments, was issued a $47.55 million 20-year variable rate loan to produce almonds and pistachios, which was also secured by high quality irrigated farmland, this time in California. Acadian Timber, whose assets are managed by Brookfield Asset Management, was also issued with fixed and revolving credit.
Gladstone Land, the Nasdaq-listed real estate investment trust (REIT), funded its aquisition of three California farms spread across approximately 850 acres last year through a disbursement on the long-term note payable under Gladstone’s borrowing facility with MetLife.
MetLife’s agriculture portfolio includes loans for timberland and farm real estate, going up the supply chain to food production and sometimes agricultural infrastructure. The insurer has agricultural loan offices in Latin America and Canada, as well as across the US.
MetLife’s overall loan portfolio stood at a record $13.2 billion at the end of last September.