BIO 2006: CoBank Biofuels Lending

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BIO 2006 CoBank Biofuels Lending

• Robert E. Egerton, Jr.
• Senior Vice President Division Manager
  Agribusiness Banking Group - CoBank
• April 10, 2006

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Overview

• CoBank is a 32B financial institution
  headquartered in Colorado
• Founded 72 years ago and includes
• 13 Banks for Cooperatives
• Farm Credit Banks of Springfield
• A part of the 135B Farm Credit System organized
  by Congress to provide dependable financing to US
  agriculture.
• 11 Regional banking centers throughout the US as
  well as offices in Washington, Mexico
  City and Singapore

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CoBank Office Locations
FARGO


MINNEAPOLIS

SPOKANE
SPRINGFIELD

OMAHA

DENVER

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SACRAMENTO
LOUISVILLE
ST. LOUIS
WICHITA


ATLANTA
LUBBOCK
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CoBank Banking Groups

• 3 major lending Divisions
• Global Financial Services Group with loan
  commitments totaling 6.1B
• Communication/Energy Banking Group with loan
  commitments totaling 9.9B
• Agribusiness Banking Group with total commitments
  of 10.8B

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CoBank Biofuels Portfolio

• Our first ethanol loan was in 1992
• Gross commitments to ethanol and biodiesel exceed
  1.1B, with over 650MM held by CoBank
• Totals include
• 24 operating ethanol plants and another 14 under
  construction, with a combined total capacity
  over 1.9B gallons
• 5 biodiesel companies with operating and pending
  capacity over 120MM gallons
• In discussion with numerous additional plants,
  both ethanol and biodiesel

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CoBank Biofuels Portfolio (continued)

• CoBank generally leads the credit and acts as
  servicing agent, but will also participate in
  financings.
• Loan origination and administration centralized
  through our Omaha office
• Portfolio is classified 100 acceptable

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Ethanol Plants by Location
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General Project Requirements - Economics

• Access to feedstock at reasonable basis
• Outlet for co-products
• Rail access
• Energy / Utilities (natural gas or coal,
  electricity, water and waste water disposal)

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General Requirements - Financing

• Minimum equity and maximum debt per gallon
  criteria
• gt 40 equity and total financing lt 0.90/gallon
  for ethanol
• gt 50 equity and total financing lt 0.60/gallon
  for biodiesel
• Minimum working capital / liquidity requirements
  at start-up
• Term debt structured with revolving component to
  accommodate cash flow

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General Requirements - Financing (continued)

• Equity invested before loan proceeds
• Level principal payments maximum 10-year term
• Additional cash flow-based sweeps after allowed
  distribution to owners
• Loan covenants to include leverage, working
  capital, DSC

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General Requirements - Construction

• Prefer experienced / reputable design firm and
  contractor
• Performance bonding and contract payment
  retainages considered on a case-by-case basis
• Prefer Fixed-Price Contracts
• Warranty / Guarantee Provisions

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Industry Risks

• Significant risks in lending to these industries
• No direct correlation between finished product
  values and feedstock, or natural gas cost
• Existing futures markets too thinly traded to
  represent an effective hedge, yet
• Improved refining process to comply with federal
  clean air standard without MTBE or ethanol

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Industry Risks (continued)

• Future supply will likely exceed mandated and
  economic demand
• Possible reduced government support which
  currently favors renewable fuels
• Timetable to commercialize emerging technologies
  that make current production obsolete or too
  expensive

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Contact Information
Address CoBank, ACB 11422 Miracle Hills Drive,
Suite 300 Omaha, NE 68154-4404 (800)
346-5717 Tom Houser ext. 22013 thouser_at_cobank.
com Doug Jones ext. 22008 djones_at_cobank.com

Bob Egerton CoBank, ACB 5500 S. Quebec
St. Greenwood Village, CO 80111 [phone]
x45919 regerton_at_cobank.com www.cobank.com
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