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Legal Opinion Summary
Topic:Eligibility: Is a restaurant chain that plans to produce, process, and market all the meat and potatoes it sells in its restaurants eligible to borrow from a Farm Credit System lender?
ID Number:00-01
Issue Date:02/14/2000


An association inquired whether a restaurant chain whose shares are publicly traded was eligible for financing. The restaurant chain plans to produce, process, and market all the meat and potatoes that it sells in restaurants. The restaurant chain also plans to repurchase all publicly held stock with the remaining loan proceeds so it can become a closely held corporation. OGC concluded that the applicant is eligible to borrow from the Farm Credit System (FCS) and that the association has authority to finance the borrower's plan to restructure its corporation and expand into agriculture.

The FCS may finance new farmers and ranchers who are buying agricultural land and starting agricultural production. This applicant qualifies as a bona fide farmer under 12 C.F.R.
613.3000(a)(1) because it will buy land to raise livestock and cultivate potatoes. Another provision of this regulation, 613.3000(a)(2), authorizes FCS associations to make loans to corporations and other legal entities that engage in agricultural production.

Eligible farmers and ranchers may borrow from the FCS under 613.3000(b) for any agricultural purpose. The loan proceeds will enable this borrower to raise livestock and grow potatoes. Corporate restructuring and debt refinancing are also agricultural purposes that the FCS can finance under 613.3000(b) if this helps the borrower become or remain a viable agricultural producer. In this case, corporate restructuring will strengthen the applicant's ties to agriculture. Once the applicant repurchases all publicly held stock, it will become a closely held corporation that produces, processes, and markets agricultural products for its restaurants.

This borrower also qualifies for a processing and marketing loan because it plans to vertically integrate its restaurants into its agricultural operations. The new agricultural operations will produce and then process all of the meat and potatoes that the borrower's restaurants will sell to consumers. As a result, the borrower satisfies the requirements of 613.3010 because it is bona fide farmer that regularly produces some portion of the throughput that it processes and markets.

(February 14, 2000)