Title: NOTICE OF APPROVAL OF THE DRAFT AMENDMENT TO THE AMENDED AND RESTATED MARKET ACCESS AGREEMENT--Market Access Agreement
Issue Date: 12/09/2010
Federal Register Cite: 75 FR 76729
FARM CREDIT ADMINISTRATION
Market Access Agreement
AGENCY: Farm Credit Administration.
ACTION: Notice of approval of the draft amendment to the amended and restated market access agreement.
SUMMARY: The Farm Credit Administration (FCA or we) announces its approval of the draft amendment to the Amended and Restated Market Access Agreement (MAA) proposed to be entered into by all of the banks of the Farm Credit System (System) and the Federal Farm Credit Banks Funding Corporation (Funding Corporation). The MAA sets forth the rights and responsibilities of each of the parties when the condition of a bank falls below pre-established financial performance thresholds. The draft amendment (MAA Amendment) is intended to conform the MAA to the Joint and Several Liability Reallocation Agreement (Reallocation Agreement).
FOR FURTHER INFORMATION CONTACT:
Chris Wilson, Financial Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4204, TTY (703) 883-4434,
Rebecca S. Orlich, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION: On August 18, 2010, the FCA published for comment a proposed Reallocation Agreement to be entered into by all of the banks of the System and the Funding Corporation (75 FR 51061). The Reallocation Agreement is designed to establish a procedure for non-defaulting banks to pay maturing System-wide debt on behalf of defaulting banks prior to a statutory joint and several call by the FCA. We received no comments on the proposal and approved it without modifications. The FCA’s approval was published in the Federal Register on October 20, 2010 (75 FR 64727).
In the supplementary information we provided when we published the proposal for public comment, the FCA stated that the System banks and the Funding Corporation intended also to make conforming changes to the MAA to ensure that the MAA provisions did not impede operation of the Reallocation Agreement. The FCA stated further that, should the Agency approve the Reallocation Agreement, it expected also to approve the conforming MAA Amendment and would publish it in the Federal Register.
The FCA published the current MAA in its entirety in the Federal Register on January 15, 2003 (68 FR 2037). The current MAA establishes certain financial thresholds at which conditions are placed on the activities of a bank or a bank's access to participation in System-wide and consolidated obligations is restricted. The MAA establishes three categories, which are based on each bank's net collateral ratio, permanent capital ratio, and scores under the Contractual Inter-bank Performance Agreement, which is an agreement among the System banks and the Funding Corporation that establishes certain financial performance criteria.
Under the MAA, as a bank's financial condition declines, the bank moves into Category I, then Category II, and finally Category III. When a bank reaches Category I, it is required to provide certain additional information, including information as to how it will improve its financial condition, to the Monitoring and Advisory Committee, a committee of bank and Funding Corporation representatives established under the MAA. When a bank reaches Category II, in addition to being required to provide additional information, the bank is limited to joining in the issuance of System-wide and consolidated obligations only in those amounts necessary for the bank to be able to roll over its maturing debt. When the bank reaches Category III, the bank is precluded from joining in the issuance of System-wide and consolidated obligations.
The MAA includes provisions that enable a bank in Category II or III to request the opportunity to continue its access to the market. The MAA also provides that the FCA may override a decision to impose Category III prohibitions on access to the market for a period of 60 days, which may be renewed for an additional 60-day period.
The MAA Amendment adds new sections 4.05, 5.05, and 7.23 to the MAA. The MAA Amendment provides that, in a circumstance where the joint and several payment provisions of the Reallocation Agreement have been triggered, all non-defaulting System banks will be able to issue System-wide obligations to fund payments under the Reallocation Agreement. This means that even banks in Category II and III could participate in such issuances. The MAA Amendment also provides that the MAA and the Reallocation Agreement are separate agreements, and invalidation of one does not affect the other.
The FCA now approves the MAA Amendment as set forth below. The FCA's approval is conditioned on the board of directors of each bank and the Funding Corporation approving the MAA Amendment. Neither the MAA Amendment, when it becomes effective, nor FCA approval of it shall in any way restrict or qualify the authority of the FCA or the Farm Credit System Insurance Corporation (FCSIC) to exercise any of the powers, rights, or duties granted by law to the FCA or the FCSIC. Finally, the FCA retains the right to modify or revoke its approval of the MAA, including the MAA Amendment, at any time.
The MAA Amendment, together with the recitals to the amendment, is as follows:
AMENDMENT TO THE AMENDED AND RESTATED MARKET ACCESS AGREEMENT
This AMENDMENT TO THE AMENDED AND RESTATED MARKET ACCESS AGREEMENT (the “Amendment”) is made as of the [__] day of [_______] (the “Effective Date”), by and among AgFirst Farm Credit Bank; AgriBank, FCB; CoBank, ACB; the Farm Credit Bank of Texas; and the U.S. AgBank, FCB (as successor to the Farm Credit Bank of Wichita and the Western Farm Credit Bank under Section 7.12 of the Market Access Agreement) (each, a “Bank,” and collectively, the “Banks”), and the Federal Farm Credit Banks Funding Corporation (the “Funding Corporation”).
WHEREAS, the Banks and the Funding Corporation desire to adopt a contractual reallocation of each Bank’s joint and several liability obligations as an alternative to Section 4.4(a)(2) of the Farm Credit Act of 1971, as amended (the “Joint and Several Liability Reallocation Agreement”);
WHEREAS, the Banks and the Funding Corporation desire to amend the Amended and Restated Market Access Agreement dated July 1, 2003 (the “Market Access Agreement”) in order to effectuate the intended purpose of the Joint and Several Liability Reallocation Agreement;
WHEREAS, the boards of directors of the Banks and the Funding Corporation gave approval to the Amendment subject to certain conditions;
WHEREAS, the Amendment was submitted to the Farm Credit Administration (the “FCA”) for approval and to the Farm Credit System Insurance Corporation (the “Insurance Corporation”) for an expression of no objection;
WHEREAS, the FCA published a description of this Amendment in connection with the publication of the Joint and Several Liability Reallocation Agreement in the Federal Register on August 18, 2010 and sought comments thereon;
WHEREAS, after receiving comments on the Joint and Several Liability Reallocation Agreement,[ 1 ] the FCA, pursuant to the letter dated _____, approved this Amendment subject to modifications, if any, that are acceptable to the Banks and the Funding Corporation and a notice of such approval was published in the Federal Register on [__________];
WHEREAS, the Insurance Corporation, pursuant to the letter dated [_____], from the Insurance Corporation to the Banks and the Funding Corporation, expressed no objection to this Amendment;
NOW THEREFORE, in consideration of the foregoing, the Banks and the Funding Corporation, intending to be legally bound hereby, agree to further amend the Market Access Agreement as follows:
Section 1.01 After current Section 4.04 of the Market Access Agreement, add new Section 4.05, which reads as follows:
Section 1.02 After current Section 5.04 of the Market Access Agreement, add new Section 5.05, which reads as follows:
“Section 4.05. Relationship to the Joint and Several Liability Reallocation Agreement. A Category II Bank shall not be subject to the Final Restrictions and Category II Interim Restrictions, to the extent that the Final Restrictions and Category II Interim Restrictions would prohibit such Category II Bank from issuing debt required to fund such Category II Bank’s liabilities and obligations under the Joint and Several Liability Reallocation Agreement.”
Section 1.03 After current Section 7.22 of the Market Access Agreement, add new Section 7.23, which reads as follows:
“Section 5.05. Relationship to the Joint and Several Liability Reallocation Agreement. A Category III Bank shall not be subject to the Final Prohibition or Category III Interim Restrictions, to the extent that the Final Prohibition or Category III Interim Restrictions would prohibit such Category III Bank from issuing debt required to fund such Category III Bank’s liabilities and obligations under the Joint and Several Liability Reallocation Agreement.”
Section 1.04 Continuation of Market Access Agreement. Except as expressly provided in this Amendment, the Market Access Agreement shall remain in full force and effect in accordance with its terms.
“Section 7.23. Relationship to the Joint and Several Liability Reallocation Agreement. This Restated MAA and the Joint and Several Liability Reallocation Agreement are separate agreements, and invalidation of one does not affect the other.”
Section 1.05 Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute a single document.
1We note that, although this paragraph states that the FCA received comments on the Reallocation Agreement, we did not receive comments on it.
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be executed by its duly authorized officers or representatives, all as of the date written below.
AGFIRST FARM CREDIT BANK
FARM CREDIT BANK OF TEXAS
U.S. AGBANK, FCB
FEDERAL FARM CREDIT BANKS FUNDING CORPORATION
[end of signature page to the Draft Amendments]
Date: December 3, 2010
Roland E. Smith,
Farm Credit Administration Board.