Aug 26, 2022

Farmer Mac cultivates securitisation programme
International Financing Review

By: Richard Leong

Farmer Mac is ramping up its first agricultural mortgage securitisation programme which launched last year in its effort to expand financing in a largely untapped market.

The government-sponsored enterprise, whose official name is Federal Agricultural Mortgage Corp, sees its securitisation programme blossoming because of the vast financing needs for farm real estate. There are only US$302bn in farm mortgages outstanding, a fraction of the US$2.72trn in agricultural land value, according to the most recent USDA data.

Similar to the role that its older and larger counterparts Fannie Mae and Freddie Mac play in the US housing market, Farmer Mac buys loans from lenders so they are freed up to make more loans to farmers and those living in rural communities. The smaller Washington-based agency was created in 1987 in response to a farm crisis in the 1980s.

Farmer Mac has issued two bonds from its securitisation program: a US$301m FARM 2022-1 Mortgage Trust which priced last month and a US$302.74m FARM 2021-1 Mortgage Trust that was sold last September. This is the first securitisation programme for Farmer Mac, though the GSE has issued structured notes tailored to customer requests.

The agency has not decided on the exact timing of its next securitised deal. It might issue another deal by the end of year with the eventual goal of bringing an offering every quarter, Farmer Mac’s chief financial officer and treasurer Aparna Ramesh told IFR.

“We expect to make it programmatic. It would be a source of low-cost credit. It’s good for the agricultural industry overall,” Ramesh said.

Farmer Mac’s securitisations are also a way for the agency to transfer some credit risk from its farm mortgages to the capital market. Its deals have a two-part structure: a larger senior note guaranteed by the agency and a smaller unrated subordinate class.

Credit Suisse served as the structurer and bookrunner for the two Farmer Mac deals.

Farmer Mac is not the only issuer raising capital for the agricultural sector via securitisation. Specialty finance company AG Resource Management has issued ABS backed by revolving crop loans.

Asset rotation
Investors have been drawn to the Farmer Mac deals as a diversification from residential mortgages.

“It is an interesting diversifier from home mortgages,” a senior portfolio manager said. “But liquidity is a problem” because the programme is still in its infancy, he said.

Ramesh hopes to address liquidity concerns through more frequent issuance.

Still the Farmer Mac paper offers hefty yields and a price discount to attract investors. The US$278.52m guarantee FARM 2022-1 note cleared at Treasuries plus 145bp.

In the meantime, an increase in the number of investors who participated in the agency’s most recent deal signalled there is appetite for its securities, which will support the programme’s growth, Ramesh said.

“We think the investor demand is out there,” she said.

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