More Debt for the Next Farm Bankruptcy Debacle – A Valuation of Farm Credit Canada

Crown Corporations, Ian Madsen, Valuation

In addition to the various banks, non-bank financial institutions, alternative lending firms, and credit unions that Canadian farmers, food processors and agri-business firms may choose from, there is also a federal government Crown corporation they can borrow from: Farm Credit Canada, ‘FCC’. While there are no obvious debt torpedoes, farm lending has been dicey in the recent past, most horrifically in the 1980s, when billions of dollars of loans were written off and many farmers lost their properties. With little sign of that now, any valuation of FCC as a going concern in the current relatively benign environment may be too high, with not enough information to discount any estimate to a conservative level. All that said, the following estimates need to be taken with a country-size grain of salt.

Using an intrinsic value method, and discounting to the present, FCC’s projected future free cash flows, as the company is today, but taxed at statutory rates, the range of estimates is $12.13B to $84.91B, with a tighter range of a median of $21.23 to a mean (simple average) of $27.32B. Making allowances of bad debt of as much as 5 percent of outstanding loans, that is, by $1.55B, does not lower the estimated value of the company appreciably. Discounting for a bad-but-not-Great Depression-level of bad debt experience of 5 percent of the total loan portfolio, the range becomes a median of $20.20B to a mean of $25.99B. This version used adjustments to the free cash flow calculation which may not be fully reliable.

View the entire valuation here: VS10_FCCvaluation_NV1418_F1