<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From To
Commission File Number 1-7102
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
DISTRICT OF COLUMBIA 52-0891669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Woodland Park, 2201 Cooperative Way, Herndon, VA 20171-3025
(Address of principal executive offices)
Registrant's telephone number, including the area code (703)709-6700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Page 1 of 23
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
A S S E T S
(Unaudited)
November 30, 1997 May 31, 1997
Cash $ 54,843 $ 50,011
Debt Service Investments 152,219 77,219
Loans To Members, net 9,330,266 8,678,196
Receivables 103,781 101,613
Fixed Assets, net 24,374 33,208
Debt Service Reserve Funds 103,489 103,489
Other Assets 17,166 13,758
Total Assets $ 9,786,138 $ 9,057,494
The accompanying notes are an integral part of these combined financial
statements.
2
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
L I A B I L I T I E S A N D M E M B E R S' E Q U I T Y
(Unaudited)
November 30, 1997 May 31, 1997
Notes Payable, due within one year $ 3,687,742 $ 3,507,074
Accounts Payable 25,342 23,200
Accrued Interest Payable 55,695 46,924
Long-Term Debt 4,339,498 3,864,887
Other Liabilities 8,288 6,329
Quarterly Income Capital Securities 200,000 125,000
Commitments, Guarantees and Contingencies
Members' Subordinated Certificates:
Membership subscription certificates 644,817 645,449
Loan & guarantee certificates 574,836 567,037
Total Members' Subordinated Certificates 1,219,653 1,212,486
Members' Equity 249,920 271,594
Total Members' Subordinated Certificates
& Members' Equity 1,469,573 1,484,080
Total Liabilities and Members' Equity $ 9,786,138 $ 9,057,494
The accompanying notes are an integral part of these combined financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF INCOME, EXPENSES AND NET MARGINS
(Dollar Amounts in Thousands)
For the Quarters And Six Months Ended November 30, 1997 and 1996
Quarters Ended Six Months Ended
November 30, November 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Income-Interest on loans to members $153,995 $140,233 $304,472 $274,500
Less-cost of funds allocated 130,627 118,822 258,406 229,749
Gross operating margin 23,368 21,411 46,066 44,751
Expenses:
General, administrative and loan processing 5,146 5,241 10,475 9,661
Provision for loan and guarantee losses 3,565 3,185 11,815 10,000
Total expenses 8,711 8,426 22,290 19,661
Operating margin 14,657 12,985 23,776 25,090
Nonoperating Income 435 672 1,027 1,333
Gain on Sale of Land - - 4,939 -
Net Margins $ 15,092 $ 13,657 $ 29,742 $ 26,423
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Quarters Ended November 30, 1997 and 1996
Patronage Capital
Allocated
Educa- Unal- General
Member- tional located Reserve
Total ships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended November 30, 1997
Balance at August 31, 1997 $234,826 $ 1,479 $ 661 $ 16,939 $ 381 $215,366
Retirement of patronage capital - - - - - -
Net Margins 15,092 - - 15,092 - -
Other 2 12 (10) - - -
Balance at November 30, 1997 $249,920 $ 1,491 $ 651 $ 32,031 $ 381 $215,366
Quarter Ended November 30, 1996
Balance at August 31, 1996 $233,260 $ 1,433 $ 534 $ 15,055 $ 366 $215,872
Retirement of patronage capital - - - - - -
Net Margins 13,657 - - 13,657 - -
Other 24 15 - - - 9
Balance at November 30, 1996 $246,941 $ 1,448 $ 534 $ 28,712 $ 366 $215,881
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Six Months Ended November 30, 1997 and November 30, 1996
Patronage Capital
Allocated
Educa- Unal- General
Member- tional located Reserve
Total ships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended November 30, 1997
Balance at May 31, 1997 $271,594 $ 1,470 $ 596 $ 2,289 $ 504 $266,735
Retirement of patronage capital (52,715) - - - (123) (52,592)
Net Margins 29,742 - - 29,742 - -
Other 1,299 21 55 - - 1,223
Balance at November 30, 1997 $249,920 $ 1,491 $ 651 $32,031 $ 381 $215,366
Six Months Ended November 30, 1996
Balance at May 31, 1996 $269,641 $ 1,424 $ 476 $ 2,289 $ 501 $264,951
Retirement of patronage capital (50,963) - - - (135) (50,828)
Net Margins 26,423 - - 26,423 - -
Other 1,840 24 58 - - 1,758
Balance at November 30, 1996 $246,941 $ 1,448 $ 534 $28,712 $ 366 $215,881
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands)
For the Six Months Ended November 30, 1997 and 1996
<S> <C> <C>
1997 1996
Cash Flows From Operating Activities:
Net margins $ 29,742 $ 26,423
Add (deduct):
Provision for loan and guarantee losses 11,815 10,000
Depreciation 693 564
Amortization of deferred income (799) (5,308)
Amortization of issuance costs and deferred charges 946 813
Gain on sale of land (4,939) -
Add (deduct) changes in:
Receivables (4,289) (23,721)
Accounts payable 1,731 2,222
Accrued interest payable 8,771 8,902
Other (4,998) (6,447)
Net cash flows provided by operating activities 38,673 13,448
Cash Flows From Investing Activities:
Advances made on loans (2,327,549) (2,035,600)
Principal collected on loans 1,663,664 1,155,072
Proceeds from sale of land 13,235 -
Investments in fixed assets (153) (209)
Net cash flows used in investing activities (650,803) (880,737)
Cash Flows From Financing Activities:
Notes payable, net 275,588 396,174
Certificates of Deposit, net - 5,000
Debt service Investments, net (75,000) (74,999)
Proceeds from issuance of long-term debt 561,614 876,708
Payments for retirement of long-term debt (181,707) (317,284)
Proceeds from issuance of Quarterly Income Capital Securities 75,000 -
Proceeds from issuance of Members' Subordinated Certificates 10,315 17,398
Payments for retirement of Members' Subordinated Certificates (1,077) (389)
Payments for retirement of Patronage Capital (47,771) (45,349)
Net cash flows provided by financing activities 616,962 857,259
Net Cash Flows 4,832 (10,030)
Beginning Cash and Cash Equivalents 50,011 31,368
Ending Cash and Cash Equivalents $ 54,843 $ 21,338
Supplemental Disclosure of Cash Flow Information:
Cash paid during six months for Interest Expense $ 253,253 $ 223,535
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
7
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements
1. General Information
National Rural Utilities Cooperative Finance Corporation ("CFC") is a
private, not-for-profit cooperative association which provides
supplemental financing and related financial service programs for the
benefit of its members. Membership is limited to certain cooperatives,
not-for-profit corporations, public bodies and related service organizations,
as defined in CFC's Bylaws. CFC is exempt from the payment of Federal income
taxes under Section 501(c)(4) of the Internal Revenue Code.
CFC's 1,059 members as of November 30, 1997, included 910 rural
electric utility system members ("Utility Members"), virtually all of which
are consumer-owned cooperatives, 75 service members and 74 associate
members. The Utility Members included 843 distribution systems and 67
generation and transmission systems operating in 46 states and U.S.
territories.
Rural Telephone Finance Cooperative ("RTFC") was incorporated as a
private cooperative association in the State of South Dakota in September,
1987. RTFC is a controlled affiliate of CFC and was created for the
purpose of providing, securing and arranging financing for its rural
telecommunication members and affiliates. RTFC's results of operations
and financial condition have been combined with those of CFC in the
accompanying financial statements. As of November 30, 1997, RTFC had
481 members. RTFC is a taxable entity under Subchapter T of the Internal
Revenue Code and accordingly takes tax deductions for allocations of net
margins to its patrons.
Guaranty Funding Cooperative ("GFC") was incorporated as a private
cooperative association in the state of South Dakota in December 1991. GFC
is a controlled affiliate of CFC and was created for the purpose of providing
and servicing loans to its members to fund the refinancing of loans guaranteed
by the Rural Utilities Service ("RUS"). GFC's results of operations and
statements of financial condition have been combined with those of CFC and
RTFC in the accompanying financial statements. Loans held by GFC were
transferred to GFC by CFC and are guaranteed by the RUS. GFC had four
members other than CFC at November 30, 1997. GFC is a taxable entity
under Subchapter T of the Internal Revenue Code and accordingly takes
deductions for allocations of net margins to its patrons.
In the opinion of management, the accompanying unaudited combined
financial statements contain all adjustments (which consist only of normal
recurring accruals) necessary to present fairly the combined financial
position of CFC, RTFC and GFC as of November 30, 1997 and May 31,
1997, and the combined results of operations, cash flows and changes in
members' equity for the quarters and six months ended November 30,
1997 and 1996.
The Notes to Combined Financial Statements for the years ended May 31,
1997 and 1996 should be read in conjunction with the accompanying
financial statements. (See CFC's Form 10-K for the year ended May 31,
1997, filed on August 29, 1997).
CFC has implemented Financial Accounting Standards Board (the
"FASB") Statement No. 114, "Accounting by Creditors for Impairment of
a Loan" and Statement No. 118, "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures". These statements require
CFC to calculate impairment on loans receivable by comparing the present
value of the future cash flows associated with the loan against CFC's
investment in the loan. The statements also require that CFC provide loss
reserves for loans based on the calculated impairment. The
implementation of these statements did not have a material impact on
CFC's financial statements.
8
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
CFC has implemented FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The CFC investments
covered by this statement, at November 30, 1997, include the certificates
of deposit and the debt service investments. These items have been
recorded at amortized cost, due to the Company's intent and ability to hold
all investments to maturity. The implementation of this statement did not
have a material impact on CFC's financial statements.
CFC has implemented FASB Statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments".
This statement requires disclosure about the amounts, nature and terms of
derivative financial instruments. CFC is neither a dealer nor a trader in
derivative financial instruments. CFC uses interest rate exchange
agreements to help manage its interest rate risk. The implementation of
this statement did not have a material impact on CFC's financial
statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the assets, liabilities, revenues and expenses
reported in the financial statements, as well as amounts included in the
notes thereto, including discussion and disclosure of contingent liabilities.
While the Company uses its best estimates and judgments based on the
known facts at the date of the financial statements, actual results could
differ from these estimates as future events occur.
CFC does not believe it is vulnerable to the risk of a near term severe
impact as a result of any concentrations of its activities.
Principles of Combination
The accompanying financial statements include the combined accounts of
CFC, RTFC and GFC, after elimination of all material intercompany
accounts and transactions. CFC has a $1,000 membership interest in
RTFC and GFC. CFC exercises control over RTFC and GFC through
majority representation on their Boards of Directors. CFC manages the
affairs of RTFC through a long-term management agreement. CFC
services the loans for GFC for which it collects a servicing fee. As of
November 30, 1997, CFC had committed to lend RTFC up to $3.4 billion
to fund loans to its members and their affiliates.
RTFC had outstanding loans and unadvanced loan commitments totaling
$1,893.1 million and $1,825.0 million as of November 30, 1997 and May
31, 1997, respectively. RTFC's net margins are allocated to RTFC's
borrowers. Summary financial information relating to RTFC is presented
below:
(Unaudited)
At November 30, At May 31,
(Dollar Amounts In Thousands) 1997 1997
Outstanding loans to members and their affiliates $1,210,710 $1,099,163
Total assets 1,317,672 1,197,753
Notes payable to CFC 1,193,988 1,089,336
Total liabilities 1,211,020 1,100,497
Members' Equity and Subordinated Certificates 106,652 97,256
(Unaudited)
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1997 1996
Operating income $40,244 $35,198
Net margins 1,512 1,381
9
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
Summary financial information relating to GFC is presented below:
(Unaudited)
At November 30, At May 31,
(Dollar Amounts In Thousands) 1997 1997
Outstanding loans to members $133,195 $135,220
Total assets 135,369 141,353
Notes payable to CFC 133,195 136,960
Total liabilities 134,858 139,934
Members' Equity 511 1,419
(Unaudited)
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1997 1996
Operating income $4,264 $13,029
Net margins 411 983
Unless stated otherwise, references to CFC relate to CFC, RTFC and GFC
on a combined basis.
2. Debt Service Account
A provision of the 1972 Indenture between CFC and Chase Manhattan Bank as
trustee ("1972 Indenture") requires monthly deposits into a debt service
account held by the trustee, generally in amounts equal to one-twelfth of the
total annual interest payments, annual sinking fund payments and the principal
amount of bonds maturing within one year. These deposits may be invested in
permitted investments, as defined in the indenture (generally bank
certificates of deposit and prime rated commercial paper).
On February 15, 1994, CFC completed a new Collateral Trust Bond
Indenture ("1994 Indenture") with First Bank National Association as
trustee. This indenture does not require the maintenance of a debt service
account. All future Collateral Trust Bonds will be issued under the 1994
Indenture.
3. Loans Pledged as Collateral to Secure Collateral Trust Bonds
As of November 30, 1997 and May 31, 1997, mortgage notes representing
approximately $1,382.6 million and $1,294.5 million, respectively, related
to outstanding long-term loans to members, were pledged as collateral to
secure Collateral Trust Bonds. Both the 1972 Indenture and the 1994
Indenture require that CFC pledge eligible mortgage notes (or other
permitted assets) as collateral that at least equal the outstanding balance
of Collateral Trust Bonds. Under CFC's revolving credit agreement (See
Note 6), CFC cannot pledge mortgage notes in excess of 150% of
Collateral Trust Bonds outstanding.
Collateral Trust Bonds outstanding at November 30, 1997 and May 31,
1997 were $1,349.0 million and $1,149.2 million, respectively.
4. Allowance for Loan and Guarantee Losses
CFC maintains an allowance for loan and guarantee losses at a level
considered to be adequate in relation to the quality and size of its loan
and guarantee portfolio. CFC makes regular additions to the allowance for
loan and guarantee losses. These additions are required to maintain the
allowance at an adequate level based on the current year to date increase to
loans outstanding and the estimated loan growth for the next twelve months.
On a quarterly basis, CFC reviews the adequacy of the loan and guarantee loss
allowance and estimates the amount of future provisions that will be required
to maintain the allowance at an adequate level based on estimated loan growth.
The allowance is based on estimates, and accordingly, actual loan and
guarantee losses may differ from the allowance amount.
10
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
Activity in the allowance account is summarized as follows for the six
months ended November 30, 1997 and the year ended May 31, 1997.
November 30, May 31,
(Dollar Amounts in Thousands) 1997 1997
Beginning Balance $233,208 $218,047
Provision for loan and guarantee losses 11,815 15,161
Charge-offs (2,104) -
Ending Balance $242,919 $233,208
Total Loan and Guarantee Loss Allowance
As a Percentage of:
Total Loans 2.54% 2.62%
Total Loans and Guarantees 2.08% 2.12%
Total Nonperforming and Restructured Loans 71.33% 62.79%
5. Members' Subordinated Certificates
Members' Subordinated Certificates are subordinated obligations purchased by
members as a condition of membership and in connection with CFC's extension
of long-term loans and guarantees to them. Those issued as a condition of
membership (Subscription Capital Term Certificates) generally mature 100
years from issuance date and bear interest at 5% per annum. Those issued as
a condition of receiving a loan or guarantee generally either mature 46 to 50
years from issuance or amortize proportionately based on the principal
balance of the credit extended, and either are non-interest-bearing or bear
interest at varying rates.
The proceeds from certain non-interest-bearing Subordinated Certificates
issued in connection with CFC's guarantees of tax-exempt bonds are
pledged by CFC to the debt service reserve fund established in connection
with the bond issue, and any earnings from the investment of the fund
inure solely to the benefit of the member.
6. Credit Arrangements
As of November 30, 1997, CFC had three revolving credit agreements
totaling $5,197.5 million which are used principally to provide liquidity
support for CFC's outstanding commercial paper, CFC's guaranteed
commercial paper issued by the National Cooperative Services
Corporation ("NCSC") and the adjustable or floating/fixed rate bonds
which CFC has guaranteed and is standby purchaser for the benefit of its
members.
Two of these agreements are with 51 banks, with J.P. Morgan Securities,
Inc. and The Bank of Nova Scotia as Co-Syndication Agents, and Morgan
Guaranty Trust Company of New York as Administrative Agent. Under
the five-year agreement, executed in November 1996, CFC can borrow up
to $2,345.0 million until November 24, 2001. Under the 364-day
agreement, renewed on November 25, 1997, CFC can borrow up to
$2,302.5 million until November 24, 1998. Any amounts outstanding
under these facilities will be due on the respective maturity dates.
A third revolving credit agreement for $550.0 million was executed on
November 26, 1997 with 11 banks, including the Bank of Nova Scotia as
Administrative and Syndication Agent (the "BNS facility"). This
agreement has a 364-day revolving credit period which terminates
November 25, 1998 during which CFC can borrow and such borrowings
may be converted to a 1-year term loan at the end of the revolving credit
period.
11
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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
In connection with the five-year facility, CFC pays a per annum facility
fee of .090 of 1%. The per annum facility fee for both agreements with a
364-day maturity is .065 of 1%. There is no commitment fee for any of
the revolving credit facilities. If CFC's long-term ratings decline, the
facility fees may be increased by no more than .035 of 1%. Generally,
pricing options are the same under all three agreements and will be at one
or more rates as defined in the agreements, as selected by CFC.
The revolving credit agreements require CFC, among other things to
maintain Members' Equity and Members' Subordinated Certificates of at
least $1,349.9 million (increased each fiscal year by 90% of net margins
not distributed to members), an average fixed charge coverage ratio over
the six most recent fiscal quarters of at least 1.025 and prohibits the
retirement of patronage capital unless CFC has achieved a fixed charge
coverage ratio of at least 1.05 for the preceding fiscal year. The credit
agreements prohibit CFC from incurring senior debt (including guarantees
but excluding indebtedness incurred to fund RUS guaranteed loans) in an
amount in excess of ten times the sum of Members' Equity, Members'
Subordinated Certificates and Quarterly Income Capital Securities and
restricts, with certain exceptions, the creation by CFC of liens on its assets
and certain other conditions to borrowing. The agreements also prohibit
CFC from pledging collateral in excess of 150% of the principal amount
of Collateral Trust Bonds outstanding. Provided that CFC is in
compliance with these financial covenants (including that CFC has no
material contingent or other liability or material litigation that was not
disclosed by or reserved against in its most recent annual financial
statements) and is not in default, CFC may borrow under the agreements
until the termination dates. As of November 30, 1997 and May 31, 1997,
CFC was in compliance with all covenants and conditions under its
revolving credit agreements and there were no borrowings outstanding
under such agreements.
Based on the ability to borrow under the five year facility, at November
30, 1997 and May 31, 1997, CFC classified $2,345.0 million and $2,250.0
million, respectively, of its notes payable outstanding as long-term debt.
CFC expects to maintain more than $2,345.0 million of notes payable
outstanding during the next twelve months. If necessary, CFC can
refinance such notes payable on a long-term basis by borrowing under the
five-year facility, subject to the conditions herein.
7. Unadvanced Loan Commitments
As of November 30, 1997 and May 31, 1997, CFC had unadvanced loan
commitments, summarized by type of loan, as follows:
(Dollar Amounts In Thousands) November 30, 1997 May 31, 1997
Long-term $2,363,982 $2,121,557
Intermediate-term 387,920 363,970
Short-term 3,569,320 3,443,502
Telecommunications 682,279 725,364
Associate Member 44,752 32,974
Total unadvanced loan commitments $7,048,253 $6,687,367
Unadvanced commitments include loans approved by CFC for which loan
contracts have not yet been executed and for which loan contracts have
been executed but funds have not been advanced. CFC may require
additional information to assure itself that all conditions for advance of
funds have been fully met and that there has been no material change in
the member's condition as represented in the documents supplied to CFC.
Since commitments may expire without being fully drawn upon, the total
amounts reported as commitments do not necessarily represent future cash
requirements. Collateral and security requirements for loan commitments
are identical to those for advanced loans.
12
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
8. Retirement of Patronage Capital
CFC patronage capital in the amount of $54.6 million was retired in
August 1997, representing 70% of the allocation for fiscal year 1997 and
one-sixth of the total allocations for fiscal years 1988, 1989 and 1990.
The $54.6 million includes $5.2 million retired to RTFC and $2.7 million
retired to GFC. GFC retired patronage capital in August 1997 in the
amount of $1.7 million representing 100% of the allocation for fiscal year
1997. RTFC will retire 70% of their fiscal year 1997 allocation later this
fiscal year. Future retirements of patronage capital allocated to patrons
may be made annually as determined by CFC's Board of Directors with
due regard for CFC's financial condition.
9. Guarantees
As of November 30, 1997 and May 31, 1997, CFC had guaranteed the
following contractual obligations of its members:
(Dollar Amounts In Thousands) November 30, 1997 May 31, 1997
Long-term tax-exempt bonds (A) $1,169,450 $1,190,925
Debt portions of leveraged lease transactions (B) 448,525 418,916
Indemnifications of tax benefit transfers (C) 326,191 338,264
Other guarantees (D) 134,820 132,566
Total guarantees $2,078,986 $2,080,671
(A) CFC has unconditionally guaranteed to the holders or to trustees for
the benefit of holders of these bonds the full principal, premium (if
any) and interest payments on each bond when due. In the event of
default, the bonds cannot be accelerated as long as CFC makes the
scheduled debt service payments. In addition, CFC has agreed to
make up, at certain times, deficiencies in the debt service reserve
funds for some of these issues of bonds. Of the amounts shown,
$1,030.7 million and $1,043.2 million as of November 30, 1997 and
May 31, 1997, respectively, are adjustable or floating/fixed rate
bonds. The interest rate on such bonds may be converted to a fixed
rate as specified in the indenture for each bond offering. During the
variable rate period (including at the time of conversion to a fixed
rate), CFC has unconditionally agreed to purchase bonds tendered or
called for redemption if such bonds are not sold to other purchasers
by the remarketing agents.
(B) CFC has unconditionally guaranteed the repayment of debt raised by
NCSC for leveraged lease transactions.
(C) CFC has unconditionally guaranteed to lessors certain indemnity
payments which may be required to be made by the lessees in
connection with tax benefit transfers. The amounts of such
guarantees reach a maximum and then decrease over the life of the
lease.
(D) At November 30, 1997 and May 31, 1997, CFC had unconditionally
guaranteed commercial paper, along with the related interest rate
exchange agreement, issued by NCSC of $33.1 million and $33.7
million, respectively.
10. Derivative Financial Instruments
At November 30, 1997 and May 31, 1997, CFC was a party to interest
rate exchange agreements with notional amounts totaling $436.3 million
and $438.8 million, respectively. CFC uses interest rate exchange
agreements as part of its overall interest rate matching strategy. Interest
rate exchange agreements are used when they provide CFC a lower cost
of funding option or minimize interest rate risk. CFC will only enter
interest rate exchange agreements with highly rated financial institutions.
At November 30, 1997 and May 31, 1997, CFC was using interest rate
exchange agreements to fix the interest rate on $236.3 million and $238.8
million, respectively, of its variable rate commercial paper. CFC was
also using interest rate
13
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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
exchange agreements at both dates to minimize the
variance between the three month LIBOR rate at which $200.0 million of
Collateral Trust Bonds and Medium-Term Notes were issued and CFC's
variable commercial paper rate. All of CFC's derivative financial
instruments were held for purposes other than trading. CFC has not
invested in derivative financial instruments for trading purposes in the
past and does not anticipate doing so in the future.
The following table lists the notional principal amounts of CFC's interest
rate exchange agreements at November 30, 1997 and May 31, 1997:
(Dollar Amounts in Thousands)
Notional Principal Amount
Maturity Date November 30, 1997 May 31, 1997
February 1998 (2) $ 50,000 $ 50,000
November 1999 (2) 50,000 50,000
November 1999 (2) 50,000 50,000
November 1999 (2) 50,000 50,000
January 2000 (1) 52,851 52,851
January 2001 (1) 42,749 42,749
October 2004 (1) 40,700 43,200
April 2006 (1) 25,000 25,000
April 2006 (1) 25,000 25,000
April 2006 (1) 25,000 25,000
April 2006 (1) 25,000 25,000
Total $436,300 $438,800
(1) Under these agreements, CFC pays a fixed rate of interest and receives
interest based on a variable rate.
(2) Under these agreements, CFC pays a variable rate of interest and
receives a variable rate of interest.
CFC does not value the interest rate exchange agreements on its balance
sheet, but rather values the underlying hedged debt instruments at
historical cost. All amounts that CFC pays and receives related to the
interest rate exchange agreements and the underlying hedged debt
instruments are included in CFC's cost of funding for the period. On the
$236.3 million of interest rate exchange agreements in which CFC pays a
fixed rate and receives a variable rate, the fixed rate on the contract is
CFC's cost of funds. On the $200.0 million of interest rate exchange
agreements in which CFC pays a commercial paper rate and receives a
three month LIBOR rate, CFC's cost of funds is the commercial paper
rate. In both cases, CFC receives the amount required to service the debt
outstanding to its investors from the counter party to the agreement. The
estimated fair value of CFC's interest rate exchange agreements is
presented in the footnotes to the financial statements of CFC's Form 10-K
for the year ended May 31, 1997.
CFC closely matches the terms of its interest rate exchange agreements
with the terms of the underlying debt instruments. Therefore, it is
unlikely that CFC would prepay debt that is hedged or have hedged debt
mature prior to the maturity of the interest rate exchange agreement.
However, circumstances may arise that cause either CFC or the counter
party to the agreement to exit such agreement. In the event of such
actions, CFC would record any gain or loss from the termination of the
interest rate exchange agreement as an extraordinary item on its income
statement for that period.
11. Contingencies
(A) At November 30, 1997 and May 31, 1997, nonperforming loans in the
amount of $5.0 million and $9.4 million, respectively, were on a nonaccrual
basis with respect to interest income. At November 30, 1997 and May 31,
1997, the total amount of restructured loans was $335.6 million and $362.0
million, respectively. CFC elected to apply all payments received against
principal outstanding on all restructured loans at both dates.
14
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
(B) Out of the $340.6 million and $371.4 million of loans described in
footnote 11(A) at November 30, 1997 and May 31, 1997, respectively, CFC has
classified $340.6 million and $371.4 million as impaired with respect to the
provisions of FASB Statements No. 114 and 118. At those dates CFC had
allocated $126.0 million of the loan and guarantee loss allowance for such
impaired loans. The amount of loan and guarantee loss allowance allocated
for such loans was based on a comparison of the present value of the
expected future cashflow associated with the loan and/or the estimated fair
value of the collateral securing the loan to the recorded investment in the
loan. CFC recognized no interest income on loans classified as impaired
during the six months ended November 30, 1997. All payments received
were applied as a reduction of principal. The average recorded investment
in impaired loans for the six months ended November 30, 1997 was $352.0
million compared to $332.7 for the year ended May 31, 1997.
(C) On December 31, 1996 the Wabash Valley Power Association ("WVPA")
plan of reorganization became effective. Under the plan, CFC received a
$4.9 million cash payment and offset $9.9 million of WVPA's
investments in CFC commercial paper and Subordinated Certificates, for
a total of $14.8 million. CFC also received a combination of secured and
unsecured promissory notes bearing interest at market rates totaling $13.4
million, bringing the total received by CFC to $28.2 million. CFC
applied the cash and offsets against the $17.7 million nonperforming loan
to Wabash, reducing the balance to $2.9 million at November 30, 1997.
The notes receivable have been classified as performing and are accruing
interest at CFC's intermediate-term interest rate. WVPA is current with
respect to amounts due on the notes. The $2.9 million has been
classified as nonperforming and is on a nonaccrual status with respect to
the recognition of interest income.
CFC and RUS are negotiating a settlement on the amount of true up
payments under a separate agreement entered into in May 1988. This
agreement provides for CFC and RUS to allocate between them all post-
petition, pre-confirmation payments made by WVPA to CFC on debt
secured by a mortgage under which CFC and RUS were co-mortgagees in
proportion to the respective amounts of debt secured. CFC anticipates
making a payment to RUS under this agreement. At November 30, 1997,
CFC has a deferred gain of $10.5 million (total received $28.2 million
less outstanding loans of $17.7 million). This gain will be used to offset
a portion of any true-up payment that is made to RUS.
(D) Deseret Generation & Transmission Co-operative ("Deseret") failed to
make the payments required under a prior workout agreement, the
Agreement Restructuring Obligations (the "ARO"), during 1995. The
creditors were unable to agree on the terms of a negotiated settlement and
the ARO was terminated as of February 29, 1996. CFC filed a foreclosure
action against the owner of the Bonanza Power Plant in State Court in Utah
on March 21, 1996. In this action, CFC has not terminated the lease or
sought removal of Deseret as the plant operator. One of the defendants in
the foreclosure action has filed amended counterclaims against CFC. These
amended counterclaims allege breaches of contract and fiduciary duties,
fraudulent concealment, tortious interference with contract and conspiracy.
These amended counterclaims also seek rescission or equitable
subordination of CFC's interest in the Bonanza Plant. A trial has been
scheduled for June 1998.
On October 16, 1996 Deseret and CFC entered into an Obligations
Restructuring Agreement (the "ORA") for the purpose of restructuring
Deseret's debt with CFC. Pursuant to the terms of the ORA, CFC agreed
to (i) forbear from exercising any remedy to collect the CFC Debt (as
defined in the ORA) and (ii) pay and perform all of the CFC Guarantees
(as defined in the ORA) in consideration for Deseret agreeing to make
quarterly minimum payments to CFC through December 31, 2025. In
addition to the quarterly minimum payments, Deseret is required to pay
to CFC certain percentages of its excess cash flow and proceeds from the
disposition of assets, as detailed in the ORA. If Deseret performs all of
its obligations under the ORA, CFC has agreed to forgive any remaining
CFC Debt on December 31, 2025. To date, Deseret has made all required
payments under the ORA.
In connection with the ORA, on October, 16, 1996, CFC acquired all of
Deseret's indebtedness in the outstanding principal amount of $740
million from RUS for the sum of $238.5 million (the "RUS Debt"). As a
result of the purchase, CFC holds a majority of Deseret's outstanding
secured debt. Pursuant to a participation agreement dated October 16,
1996, the member systems of Deseret purchased from CFC, for
15
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements - (Continued)
$55 million, a participation interest in the RUS Debt. CFC provided long
term financing to the members of Deseret as follows: (i) $32.5 million in
the aggregate to finance the buyout by the members of their respective
RUS debt (the "Note Buyout Loans"), and (ii) $55.0 million in the
aggregate to finance the members' purchase of participation interests in
the RUS Debt acquired by CFC (the "Participation Loans"). The Note
Buyout Loans and the Participation Loans are secured by the assets and
revenues of the member systems. Under the participation agreement the
Deseret members will receive a share of the minimum quarterly payments
that Deseret makes to CFC which the members will use to service their
Participation Loans. Each member of Deseret has the option to put its
Participation Loan back to CFC at any time after twelve years, provided
that no event of default exists under the ORA and under such member's
Participation Loan.
At November 30, 1997 and May 31, 1997, CFC had the following exposure
to Deseret:
(Dollar Amounts In Millions) November 30, 1997 May 31, 1997
Loans outstanding (1)(2) $335.6 $362.0
Guarantees outstanding:
Tax-exempt bonds 5.0 5.0
Mine equipment leases 56.1 23.1
Bonanza plant lease 261.9 263.7
Total Guarantees 323.0 291.8
Total Exposure $658.6 $653.8
1) From January 1, 1989 through November 30, 1997, CFC has funded a
total of $170.7 million in cashflow shortfalls related to Deseret's debt
service and rental obligations guaranteed by CFC. All cashflow
shortfalls funded by CFC represent an increase to loans outstanding
and also represent a decrease to the principal amount of the obligations
guaranteed by CFC.
2) In addition to the loans listed in the table, CFC holds $2.8 million of
RUS guaranteed Grantor Trust Certificates. CFC is also the servicer for
an additional $172.1 million of RUS guaranteed Grantor Trust
Certificates held by the public. RUS has formally notified CFC that it
intends to repay the Grantor Trust Certificates it has guaranteed for
Deseret on January 30, 1998.
Based on its analysis, CFC believes that it has adequately reserved for any
potential loss on its loans and guarantees to Deseret.
12. Loans Guaranteed by RUS
At November 30, 1997 and May 31, 1997, CFC held $136.0 million and $138.0
million, respectively, in Trust Certificates related to the refinancing of
Federal Financing Bank loans. These Trust Certificates are supported by
payments from certain CFC power supply members whose payments are guaranteed
by RUS. RUS has informed CFC that it will redeem the grantor trust
certificates it guaranteed for Deseret on January 30, 1998. CFC holds $2.8
million of the certificates scheduled to be redeemed on January 30, 1998.
13. Gain on Sale of Land
During the quarter ended August 31, 1997, CFC sold land with a cost basis of
$8.3 million for $13.2 million, resulting in a gain of $4.9 million.
16
<PAGE>
Part I. Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(all dollar amounts in millions)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the assets, liabilities, revenues and expenses reported in the
financial statements, as well as amounts included in the notes thereto,
including discussion and disclosure of contingent liabilities. While the
Company uses its best estimates and judgments based on the known facts at the
date of the financial statements, actual results could differ from these
estimates as future events occur.
CFC does not believe it is vulnerable to the risk of a near term severe impact
as a result of any concentrations of its activities.
Changes in Financial Condition
During the six months ended November 30, 1997, CFC's total assets increased by
$728.6 or 8.0% to $9,786.1 from $9,057.5 at May 31, 1997, primarily due to an
increase of $652.1 in net loans outstanding and an increase of $75.0 in the
debt service account. Changes to the loan portfolio included increases of
$495.3 in long-term loans and $238.8 in short-term loans, partially offset by
a decrease of $30.8 in nonperforming and restructured loans and $39.5 in
intermediate-term loans. The debt service account increase was due to the
mandatory sinking fund requirements for bonds that are scheduled to mature
during the fiscal year. The $150.0, 8.5% Series U bonds will mature
February 15, 1998.
Net loans to members represented 95% and 96% of total assets at November 30,
1997 and May 31, 1997, respectively. Long-term loans represented 87% of gross
loans at November 30, 1997 and 88% at May 31, 1997. Fixed rate loans
represented 39% of gross loans at November 30, 1997 and 37% at May 31, 1997,
while the remaining loans carry a variable rate that may be adjusted monthly
or semi-monthly. At November 30, 1997, $1,048.5 or 11.0% of gross loans were
unsecured, compared to $767.8 or 8.6% at May 31, 1997. The $1,048.5 of
unsecured loans at November 30, 1997 included $66.1 of temporarily unsecured
loans for RUS note buyouts. Once CFC has advanced the full amount required to
buyout RUS, the loan will be secured by all assets and future revenues of the
borrower. At November 30, 1997, the unsecured loans, excluding the
temporarily unsecured loans, were 10.3% of gross loans. All other loans were
secured pro-rata with other lenders (primarily RUS), by all assets and future
revenues of the borrower.
During the six months ended November 30, 1997, CFC advanced $111.9 for the
prepayment of RUS loans. To date, CFC has financed approximately 88% of the
total RUS prepayments. Other lenders have lent 8% of the total and the
remaining 4% was prepaid out of the members' internally generated funds. In
addition, there were $43.8 in loan prepayment applications pending at RUS.
At November 30, 1997, CFC had provided $2,079.0 in guarantees, a decrease of
$1.7 from the $2,080.7 at May 31, 1997. The decrease to guarantees was due to
regularly scheduled principal payments and the retirement of a guarantee,
offset by the addition of a guarantee to a subsidiary of Deseret for $34.3.
These guarantees relate primarily to tax-exempt financed pollution control
equipment and to leveraged lease transactions for plant and equipment. All
guarantees are secured on a pro-rata basis with other creditors on all assets
and future revenues of the borrower or by the underlying financed assets.
Also at November 30, 1997, CFC had unadvanced loan commitments of $7,048.3,
an increase of $360.9 from the $6,687.4 committed at May 31, 1997. Most
unadvanced loan commitments contain a material adverse change clause that
would relieve CFC from its obligation to lend if the borrower's financial
condition had changed materially from the time the loan was approved. Many
of these commitments are provided for operational back-up liquidity. CFC does
not anticipate funding the majority of the commitments outstanding during the
next twelve to eighteen months.
17
<PAGE>
During the six months ended November 30, 1997, CFC's total liabilities and
Members' Equity increased by $728.6 or 8.0% to $9,786.1 from $9,057.5 at May
31, 1997. The increase was primarily due to increases of $474.6 in long-term
debt, $180.7 in notes payable, $75.0 in Quarterly Income Capital Securities,
and $8.8 in interest payable, offset by a decrease of $14.5 in Members' Equity
and Certificates.
The long-term debt increase was due to an increase of $199.7 in Collateral
Trust Bonds, an increase of $179.9 in Medium-Term Notes and the increase of
$95.0 in the Commercial Paper supported by revolving credit agreement. The
notes payable increase was due to increases of $392.8 in Dealer Commercial
Paper, $12.2 in direct sales of Commercial Paper and $60.0 in Bid Notes,
offset by a decrease of $189.4 in Euro Commercial Paper and a $95.0 increase
in the revolving credit agreement. During the quarter, CFC issued $75.0 in
Quarterly Income Capital Securities. The decrease in Members' Equity and
Members' Certificates was due to the retirement of patronage capital partially
offset by the year to date net margin and by the issuance of Subordinated
Certificates on new loans. The increase to notes payable was required to
fund the increase in loans outstanding. The increase in interest payable
was due to the increase in funds outstanding.
At November 30, 1997, CFC had loans outstanding in the amount of $5.0
classified as nonperforming and $335.6 classified as restructured. All
nonperforming loans and restructured loans were on a non-accrual basis with
respect to interest income. As of November 30, 1997, CFC has classified
$340.6 of loans outstanding as impaired with respect to the provisions of
FASB Statement No. 114. At November 30, 1997, CFC has allocated $126.0 of
the loan and guarantee loss allowance for such impaired loans. During the
six months ended November 30, 1997, the amount of loans classified as impaired
decreased by $30.8. This decrease was due to payments received on loans
classified as impaired. Although the balance of loans classified as impaired
decreased, the amount of the loan and guarantee loss reserve allocated for
these loans remained at $126.0 at May 31, 1997 and November 30, 1997, as the
payments received were included in the expected future cashflows used to
calculate the impairment. CFC has applied all payments received on impaired
loans as a reduction to principal outstanding.
As of November 30, 1997, CFC's total exposure to nonperforming and
restructured borrowers was $663.6, $340.6 in loans and $323.0 in guarantees,
an increase of $0.4 from the total of $663.2 at May 31, 1997. The total
exposure increased due to CFC's agreement to guarantee an additional
obligation for Deseret, offset by reductions to the amount of nonperforming
and restructured loans outstanding. During the quarter ended August 31, 1997,
CFC charged off $2.1 related to the settlement of loans to two nonperforming
borrowers that had a total of $6.5 in loans outstanding at May 31, 1997. At
November 30, 1997, CFC had no amounts outstanding to these two borrowers. CFC
agreed to guarantee the lease payments related to a sale and leaseback of mine
equipment by Blue Mountain Energy, a subsidiary of Deseret. The guarantee
totals $34.3 and amortizes monthly through 2007. As of November 30, 1997,
Deseret has made all payments to CFC as required by the ORA.
The allowance for loan and guarantee losses increased by $9.7 to $242.9 at
November 30, 1997 from $233.2 at May 31, 1997. The increase was due to an
additional provision of $11.8, offset by a charge-off of $2.1. The $2.1
charge-off was a result of the Vermont EC and Vermont G & T settlements. At
November 30, 1997, the loan and guarantee loss allowance represented 2.54% of
gross loans, 2.08% of gross loans and guarantees, and 71.33% of nonperforming
and restructured loans, compared to 2.62%, 2.12%, and 62.79% at May 31, 1997,
respectively. CFC makes regular additions to the allowance for loan and
guarantee losses. These additions are required to maintain the allowance at
an adequate level based on the current year to date increase to loans
outstanding and the estimated loan growth for the next twelve months. On a
quarterly basis, CFC reviews the adequacy of the loan and guarantee loss
allowance and estimates the amount of future provision that will
be required to maintain the allowance at an adequate level based on estimated
loan growth. In performing this assessment, management considers various
factors including an analysis of the financial strength of CFC's borrowers,
delinquencies, loan charge-off history, underlying collateral and economic
and industry conditions. As of November 30, 1997, management believes that
the allowance for loan and guarantee losses is adequate to cover any portfolio
losses which have occurred or may occur.
Changes in the Results of Operations
CFC's net margins are subject to change as interest rates change. Therefore,
CFC uses an interest coverage ratio, instead of the dollar amount of gross or
net margins, as a primary performance indicator. During the six months ended
18
<PAGE>
November 30, 1997, CFC achieved a Times Interest Earned Ratio (TIER) of 1.12.
This is the same as the 1.12 TIER for the six months ended November 30, 1996.
Management has established a 1.10 TIER as its operating target.
Operating income for the six months ended November 30, 1997, was $304.5, an
increase of $30.0 from the prior year period. The increase in operating income
was due to a positive volume variance of $29.2 and a positive rate variance of
$0.8. Average loans outstanding increased by $886.9 and the average yield
increased by 2 basis points from the prior year period. For the six months
ended November 30, 1997, average loans outstanding were $9,235.3 and the
average yield was 6.58%, compared to average loans outstanding of $8,348.4
and an average yield of 6.56% for the six months ended November 30, 1996.
CFC sets the interest rates on its loans to cover the cost of funds, general
and administrative expenses, a provision for loan and guarantee losses and a
reasonable TIER. As a result, the yield earned on the loan portfolio will
move in conjunction with the rates in the capital markets.
CFC's cost of funds for the six months ended November 30, 1997, totaled
$258.4, an increase of $28.7 from the prior year. The increase was due to a
positive volume variance of $24.4 and a positive rate variance of $4.3. The
average interest rate on funds used by CFC at November 30, 1997, was 5.58%,
an increase of 9 basis points compared to the average rate of 5.49% at
November 30, 1996. Included in the cost of funds is interest expense on
CFC's Subordinated Certificates and other instruments offset by income from
the overnight investments of excess cash and the interest earnings on debt
service investments.
For the six months ended November 30, 1997 and 1996, general and administrative
expenses totaled $10.5 and $9.7, respectively. General and administrative
expenses for the six months ended November 30, 1997 and 1996 represented 23
basis points of average loan volume.
The provision for loan and guarantee losses for the six months ended November
30, 1997, totaled $11.8 or 26 basis points, compared to the prior year total
of $10.0 or 24 basis points. CFC has maintained the provision for loan and
guarantee losses in line with management's assessment of the size and quality
of the loan portfolio.
On August 12, 1997, CFC sold 23.5 acres of land adjacent to its headquarters
building realizing a gain of $4.9 on the sale.
Overall, CFC's net margins for the six months ended November 30, 1997, totaled
$29.7, an increase of $3.3 from the prior year period total of $26.4.
Liquidity and Capital Resources
CFC is subject to liquidity risk to the extent cash repayments on its assets
or other sources of funds are insufficient to cover the cash requirements on
maturing liabilities. For the most part, CFC funds its long-term loans with
much shorter term maturity debt instruments, however, CFC's long-term loans
typically are repriced monthly or on a multiple number of years basis, and as
such, CFC will match the loan repricing periods with similarly repriced
sources of funding, thus minimizing interest rate risk.
With regard to liquidity risk, CFC manages its liquidity risk by ensuring that
other sources of funding are available to make debt maturity payments. CFC
accomplishes this in four ways. First, CFC maintains revolving credit
agreements which (subject to certain conditions) allow CFC to borrow funds
on terms of up to five years. Second, CFC has maintained investment grade
ratings, facilitating access to the capital markets. Third, CFC maintains
SEC shelf registrations for its Collateral Trust Bonds, Medium-Term Notes,
Quarterly Income Capital Securities and Board authorization for securities
not requiring SEC registration, which (absent market disruptions and assuming
CFC maintains investment grade ratings) could be issued at fixed or variable
rates in sufficient amounts to fund the next 18 to 24 months funding
requirements. Fourth, CFC obtains much of its funding directly from its
members and believes this funding is more stable than funding obtained from
outside sources.
At November 30, 1997, CFC had $5,197.5 in available bank credit, $2,345.0 of
which is available through November 24, 2001, $2,302.5 is available through
November 24, 1998 and $550.0 is available through November 25, 1998. As of
19
<PAGE>
November 30, 1997, CFC was in compliance with all covenants and conditions to
borrowing and there were no amounts outstanding under such agreements.
As of November 30, 1997, CFC had shelf registrations for Collateral Trust Bonds
and Medium-Term Notes of $500.0 and $295.9 respectively. As of November 30,
1997, CFC also had shelf registrations for Grantor Trust Certificates of
$121.8 and $50.0 for Quarterly Income Capital Securities. Subsequent to
quarter end, on January 8, 1998, CFC issued $200.0 of 6%, Collateral Trust
Bonds, due 2004.
Member invested funds, including the loan and guarantee loss allowance, at
November 30, 1997 and May 31, 1997, were $3,177.4 and $3,197.4 or 32.0% and
34.7% of CFC's total capitalization, respectively (long- and short-term debt
outstanding, Members' Certificates and Equity and the loan and guarantee loss
allowance).
CFC's leverage ratio was 6.03 and 5.84 at November 30, 1997 and May 31, 1997,
respectively. CFC calculates leverage as the ratio of total assets, less
Members' Equity, less Members' Subordinated Certificates, less Quarterly
Income Capital Securities, less funding for loans guaranteed by RUS, plus
guarantees divided by the sum of Members' Equity, Members' Subordinated
Certificates and Quarterly Income Capital Securities. CFC's current leverage
ratio is well below the limit authorized by its Board of Directors and
revolving credit agreements.
The debt to equity ratio was 4.17 and 3.97 at November 30, 1997 and May 31,
1997, respectively. CFC calculates the debt to equity ratio as the ratio of
total assets, less Members' Equity, less Members' Subordinated Certificates,
less Quarterly Income Capital Securities, less funding for loans guaranteed by
RUS, divided by the sum of Members' Equity, Members' Subordinated
Certificates, Quarterly Income Capital Securities and the loan loss reserve.
The following chart schedules the maturities of CFC's fixed rate loans and
fixed rate funding, including variable rate funding in which the rate has
been fixed through interest rate exchange agreements. The chart is a useful
tool to identify gaps in the matching of fixed rate loans with fixed rate
funds.
<TABLE>
<CAPTION>
Interest-Rate Gap Analysis
(Fixed Assets/Liabilities)
As of November 30, 1997
FY 98 FY 99-00 FY 01-02 FY 03-07 FY 08-17 FY 18+ Total
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loan Amortization
and repricing $ 273.7 $ 769.6 $ 699.9 $ 899.8 $ 841.7 $ 312.4 $3,797.1
Total Assets $ 273.7 $ 769.6 $ 699.9 $ 899.8 $ 841.7 $ 312.4 $3,797.1
Liabilities and Equity:
Long-Term Debt $ 192.0 $ 356.8 $ 422.3 $ 729.8 $ 52.2 $ 450.0 $2,203.1
Subordinated Certificates 3.0 7.1 156.8 202.7 525.2 76.7 971.5
Equity - 81.4 88.1 - 50.0 - 219.5
Total Liabilities and Equity $ 195.0 $ 445.3 $ 667.2 $ 932.5 $ 627.4 $ 526.7 $3,394.1
Gap * $ 78.7 $ 324.3 $ 32.7 $ (32.7) $ 214.3 $(214.3) $ 403.0
Cumulative Gap $ 78.7 $ 403.0 $ 435.7 $ 403.0 $ 617.3 $ 403.0
Cumulative Gap as a %
of Total Assets .80% 4.12% 4.45% 4.12% 6.31% 4.12%
* Loan amortization/repricing over/(under) debt maturities
</TABLE>
20
<PAGE>
CFC is subject to interest rate risk to the extent CFC's loans are subject to
interest rate adjustment at different times than the liabilities which fund
those assets. Therefore, CFC's interest rate risk management policy involves
the close matching of asset and liability repricing terms within a range of 5%
of total assets. CFC measures the matching of funds to assets by comparing
the amount of fixed rate assets repricing or amortizing to the total fixed
rate debt maturing over the periods listed in the above table. At November
30, 1997, CFC had $273.7 in fixed rate assets amortizing or repricing and
$195.0 in fixed rate liabilities maturing during the remainder of fiscal year
1998. The difference, $78.7, represents the amount of CFC's assets that are
not considered match-funded as to interest rate. CFC's difference of $78.7
at November 30, 1997 represents 0.80% of total assets.
Variable rate loans are repriced monthly and are funded with variable rate
liabilities that are also priced monthly and as such are considered to be
match-funded with respect to interest rate.
At November 30, 1997 and May 31, 1997, CFC was a party to interest rate
exchange agreements totaling $436.3 million. CFC uses interest rate exchange
agreements as part of its overall interest rate matching strategy. Interest
rate exchange agreements are used when they provide CFC a lower cost of
funding option or minimize interest rate risk. CFC will only enter interest
rate exchange agreements with highly rated financial institutions. At both
of the above dates, CFC was using interest rate exchange agreements to fix
the interest rate on $236.3 million as of November 30, 1997 and $238.8 as of
May 31, 1997 of its variable rate commercial paper. CFC was also using
interest rate exchange agreements at both dates to minimize the variance
between the three month LIBOR rate at which $200.0 million of Collateral
Trust Bonds and Medium-Term Notes were issued and CFC's variable commercial
paper rate. All of CFC's derivative financial instruments were held for
purposes other than trading. CFC has not invested in derivative financial
instruments for trading purposes in the past and does not anticipate doing so
in the future.
21
<PAGE>
Part II
Item 1, Legal Proceedings.
None.
Item 2, Changes in Securities.
None.
Item 3, Defaults upon Senior Securities.
None.
Item 4, Submission of Matters to a Vote of Security Holders.
None.
Item 5, Other Information.
None.
Item 6,
A. Exhibits
4.6 - Amendment to the revolving credit agreement dated as of
November 25, 1997 amending and restating the agreement
dated as of February 28, 1995 and amended and restated
as of November 26, 1996.
27 - Financial Data Schedules.
B. Reports on Form 8-K.
Item 7 on September 17, 1997-Filing of Indenture for 7.65%
Quarterly Income Capital Securities, due 2046.
Item 7 on October 7, 1997-Filing of Underwriting Agreement for
6.375% Collateral Trust Bonds, due 2004.
22
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
/s/ Steven L. Lilly
Chief Financial Officer
January 14, 1998
/s/ Angelo M. Salera
Controller (Principal Accounting Officer)
January 14, 1998
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
30, 1997, Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 54,843
<SECURITIES> 0
<RECEIVABLES> 103,781
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,641,109
<PP&E> 34,116
<DEPRECIATION> 9,742
<TOTAL-ASSETS> 9,786,138
<CURRENT-LIABILITIES> 3,777,067
<BONDS> 4,339,498
0
0
<COMMON> 0
<OTHER-SE> 1,469,573
<TOTAL-LIABILITY-AND-EQUITY> 9,786,138
<SALES> 304,472
<TOTAL-REVENUES> 310,438
<CGS> 258,406
<TOTAL-COSTS> 258,406
<OTHER-EXPENSES> 10,475
<LOSS-PROVISION> 11,815
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,742
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,742
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
CONFORMED COPY
AMENDED AND RESTATED CREDIT AGREEMENT
(364-Day Agreement)
AMENDED AND RESTATED CREDIT AGREEMENT dated as of
November 25, 1997 amending and restating the 364-Day Credit Agreement dated
as of February 28, 1995 and amended and restated as of November 26, 1996 (the
"Agreement") among NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION (the "Borrower"), the several BANKS from time to
time party thereto (the "Banks"), J.P. MORGAN SECURITIES INC. and THE
BANK OF NOVA SCOTIA, as Co-Syndication Agents (the "Co-Syndication
Agents"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto wish to amend the Agreement to (i) extend
the availability of the Commitments and (ii) increase or decrease the amount of
the Commitment of certain Banks under the Agreement; and
WHEREAS, the parties hereto wish to amend the Agreement as set forth
herein and to restate the Agreement in its entirety to read as set forth in the
Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other
similar reference contained in the Agreement shall from and after the date
hereof refer to the Agreement as amended and restated hereby.
SECTION 2. Amendment of Termination Date. The definition of
"Termination Date" in Section 1.01 of the Agreement is amended by replacing the
date "November 25, 1997" with the date "November 24, 1998".
SECTION 3. Amendments to Commitments. With effect from and including
the date this Amendment and Restatement becomes effective in accordance with
Section 6, the Commitment of each Bank shall be the amount set forth opposite
the name of such Bank on Schedule I hereto. Any Bank whose Commitment is
changed to zero shall upon such effectiveness cease to be a Bank party to the
<PAGE>
Agreement, and all accrued fees and other amounts payable under the Agreement
for the account of such Bank shall be due and payable on such date; provided
that the provisions of Sections 2.13, 8.03 and 9.03 of the Agreement shall
continue to inure to the benefit of each such Bank.
SECTION 4. Representations and Warranties. The Borrower represents
and warrants that as of the date hereof and after giving effect hereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of the Borrower set forth in
the Agreement after giving effect to this Amendment and Restatement is
true and correct as though made on and as of such date.
SECTION 5. Governing Law. This Amendment and Restatement shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 6. Counterparts; Effectiveness. This Amendment and
Restatement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Amendment and Restatement shall become effective
on the date that the Agent shall have received duly executed counterparts hereof
signed by each of the parties hereto (or, in the case of any party as to which
an executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
provided that this Amendment and Restatement shall not become effective or
binding on any party hereto unless all of the foregoing conditions are satisfied
not later than November 25, 1997. The Agent shall promptly notify the Borrower
and the Banks of the effectiveness of this Amendment and Restatement, and such
notice shall be conclusive and binding on all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Restatement to be duly executed by their respective authorized officers as
of the day and year first above written.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
By: /s/ Steven L. Lilly
Title: Sr. Vice President & Chief
Financial Officer
<PAGE>
MORGAN GUARANTY TRUST
COMPANY
OF NEW YORK
By: /s/ Sanjeanetta Harris
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ J.R. Trimble
Title: Senior Relationship Manager
ABN-AMRO BANK N.V.
By: /s/ Diane R. Maurice
Title: Vice President
By: /s/ John M. Kinney
Title: Assistant Vice President
BANCA CASSA DI RISPARMIO DI
TORINO S.p.A.
By: /s/ Slade Carter, Jr.
Title: Vice President
By: /s/ Robert P. De Santes
Title: First Vice President
Head of Corporate Banking
<PAGE>
BANCA MONTE DEI PASCHI SIENA,
S.p.A.
By: /s/ Giulio Natalicchi
Title: Senior Vice President &
General Manager
By: /s/ Brian R. Landy
Title: Vice President
BANK AUSTRIA AG
By: /s/ J. Anthony Seay
Title: Vice President
By: /s/ W. Scott Harwood
Title: Assistant Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Richard J. Salmon
Title: Vice President
BANK OF MONTREAL
By: /s/ John L. Smith
Title: Director
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Catherine Moeser
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ Marcus M. Tarkington
Title: Vice President
BANQUE NATIONALE DE PARIS
By: /s/ Veronique Marcus
Title: Assistant Vice President
By: /s/ Phil Truesdale
Title: Vice President
BAYERISCHE LANDESBANK
GIROZENTRALE
By: /s/ Wilfred Freudenberger
Title: Executive Vice President
By: /s/ Scott Allison
Title: First Vice President
<PAGE>
COMMERZBANK AG, NEW YORK
BRANCH
By: /s/ Robert J. Donohue
Title: Vice President
By: /s/ Peter T. Doyle
Title: Assistant Treasurer
CREDIT LYONNAIS NEW YORK
BRANCH
By: /s/ Scott R. Chappelka
Title: Vice President
CRESTAR BANK
By: /s/ William F. Lindlaw
Title: Vice President
DRESDNER BANK AG
By: /s/ Michael E. Terry
Title: Assistant Vice President
By: /s/ Ulrich Kahlow
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By: /s/ Thomas L. Rose
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Michael W. Lewis
Title: Senior Vice President
KREDIETBANK N.V.
By: /s/ Robert Snauffer
Title: Vice President
By: /s/ Raymond F. Murray
Title: Vice President
MELLON BANK N.A.
By: /s/ Brad Miller
Title: Assistant Vice President
NATIONAL WESTMINSTER BANK PLC
New York Branch
By: /s/ Angela Bozorgmir
Title: Vice President
<PAGE>
NATIONAL WESTMINSTER BANK PLC
Nassau Branch
By: /s/ Angela Bozorgmir
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Paula Z. Kramp
Title: Vice President
NORDDEUTSCHE LANDESBANK
GIROZENTRALE New York Branch
and/or Cayman Island Branch
By: /s/ Stephen K. Hunter
Title: Senior Vice President
By: /s/ Stephanie Finnen
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Thomas A. Majeski
Title: Vice President
<PAGE>
RABOBANK NEDERLAND
By: /s/ Mark L. Laponte
Title: Vice President
By: /s/ Ian Reece
Title: Senior Credit Officer
SIGNET BANK
By: /s/ Linwood White
Title: Senior Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
NA
By: /s/ Janet P. Sammons
Title: Vice President
THE ASAHI BANK, LTD.
By: /s/ Douglas E. Price
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By: /s/ Stephanie R. Rogers
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Richard Waldman
Title: Authorized Agent
THE FUJI BANK, LIMITED
By: /s/ Raymond Ventura
Title: Vice President & Manager
THE INDUSTRIAL BANK OF JAPAN
By: /s/ John V. Veltri
Title: Joint General Manager
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., NEW YORK BRANCH
By: /s/ Masanori Shoji
Title: Deputy General Manager
THE NORINCHUKIN BANK
By: /s/ Takeshi Akimoto
Title: General Manager
<PAGE>
THE SAKURA BANK, LTD.
By: /s/ Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK, LIMITED
By: /s/ William M. Plough
Title: Vice President
By: /s/ Andrew N. Hammond
Title: Vice President-Senior Manager
Credit
THE TOKAI BANK, LTD.
By: /s/ Kaoru Oda
Title: Assistant General Manager
THE TORONTO-DOMINION BANK
By: /s/ Jorge A. Garcia
Title: Manager Credit Admin.
THE TOYO TRUST AND BANKING
COMPANY, LIMITED, NEW YORK
BRANCH
By: /s/ Takashi Mikumo
Title: Vice President
<PAGE>
THE YASUDA TRUST & BANKING
COMPANY LTD.
By: /s/ Rohn Laudenschlager
Title: Senior Vice President
U.S. BANK NATIONAL ASSOCIATION
d/b/a and f/k/a FIRST BANK NATIONAL
ASSOCIATION and successor by merger
to UNITED STATES NATIONAL BANK
OF OREGON
By: /s/ Thomas W. Cherry
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Donald H. Rubin
Title: Vice President
<PAGE>
BANCO DI NAPOLI, S.p.A.
By: /s/ Vito Spada
Title: Executive Vice President
By: /s/ Claude P. Mapes
Title: First Vice President
COMERICA
By: /s/ Tamara J. Gurne
Title: Account Officer
CREDIT AGRICOLE INDOSUEZ
By: /s/ Jean-Francois Grandchant des Raux
Title: First Vice President
By: /s/ Cheryl A. Solometo
Title: Vice President
FIRST HAWAIIAN BANK
By: /s/ Scott R. Nahme
Title: Assistant Vice President
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Thomas L. Casey
Title: Vice President
BANCO BILBAO VIZCAYA, S.A.
By: /s/ John Carreras
Title: Vice President
By: /s/ Alex Lorca
Title: Vice President
CIBC INC.
By: /s/ Neil Sobol
Title: Executive Director
CIBC Oppenheimer Corp., as Agent
ROYAL BANK OF CANADA
By: /s/ Tom J. Oberaigner
Title: Manager
<PAGE>
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By: /s/ Paul R. Morrison
Title: Director
By: /s/ Andrew N. Taylor
Title: Assistant Vice President
<PAGE>
J.P.MORGAN SECURITIES INC., as
Arranger and Co-Syndication Agent
By: /s/ Ann E. Darby
Title: Vice President
THE BANK OF NOVA SCOTIA, as
Co-Syndication Agent
By: /s/ J.R. Trimble
Title: Senior Relationship Manager
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By: /s/ Sanjeanetta Harris
Title: Vice President
Address:
60 Wall Street
New York, New York 10260
Attention: Loan Department
Telex number: 420230
<PAGE>
Schedule I
Bank
Commitment
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
$ 150,000,000
THE BANK OF NOVA SCOTIA
$ 145,000,000
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
$ 135,000,000
THE CHASE MANHATTAN BANK
$ 135,000,000
THE FIRST NATIONAL BANK OF CHICAGO
$ 135,000,000
NATIONSBANK, N.A.
$ 135,000,000
ABN-AMRO BANK N.V.
$ 90,000,000
CREDIT LYONNAIS NEW YORK BRANCH
$ 90,000,000
THE TORONTO-DOMINION BANK
$ 90,000,000
RABOBANK NEDERLAND
$ 85,000,000
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
$ 77,500,000
THE NORINCHUKIN BANK
$ 62,500,000
COMERICA BANK
$ 50,000,000
FLEET NATIONAL BANK
$ 50,000,000
PNC BANK, NATIONAL ASSOCIATION
$ 50,000,000
THE YASUDA TRUST & BANKING COMPANY LTD.
$ 50,000,000
U.S. BANK NATIONAL ASSOCIATION d/b/a and f/k/a
FIRST BANK NATIONAL ASSOCIATION and
successor by merger to UNITED STATES NATIONAL
BANK OF OREGON
$ 50,000,000
THE INDUSTRIAL BANK OF JAPAN
$ 42,500,000
BANCA MONTE DEI PASCHI DI SIENA, S.p.A
$ 40,000,000
DRESDNER BANK AG
$ 37,500,000
<PAGE>
NORDDEUTSCHE LANDESBANK GIROZENTRALE
New York Branch and/or Cayman Island Branch
$ 37,500,000
CREDIT AGRICOLE INDOSUEZ
$ 30,000,000
KREDIETBANK N.V.
$ 30,000,000
THE FUJI BANK, LIMITED
$ 30,000,000
BANCO DI NAPOLI, S.p.A
$ 25,000,000
BANK AUSTRIA AG
$ 25,000,000
BANQUE NATIONALE DE PARIS
$ 25,000,000
BAYERISCHE LANDESBANK GIROZENTRALE
$ 25,000,000
BANKERS TRUST COMPANY
$ 25,000,000
CRESTAR BANK
$ 25,000,000
HARRIS TRUST AND SAVINGS BANK
$ 25,000,000
MELLON BANK N.A.
$ 25,000,000
THE SAKURA BANK, LTD.
$ 25,000,000
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
NEW YORK BRANCH
$ 25,000,000
THE TOKAI BANK, LTD.
$ 25,000,000
COMMERZBANK AG, NEW YORK BRANCH
$ 22,500,000
NATIONAL WESTMINSTER BANK PLC New York
Branch and Nassau Branch
$ 22,500,000
THE ASAHI BANK, LTD.
$ 20,000,000
THE DAI-ICHI KANGYO BANK, LTD.
$ 20,000,000
SUNTRUST BANK, CENTRAL FLORIDA, NA
$ 17,500,000
THE TOYO TRUST AND BANKING COMPANY, LIMITED, NEW YORK BRANCH
$ 15,000,000
BANK OF MONTREAL
$ 12,500,000
FIRST HAWAIIAN BANK
$ 12,500,000
SIGNET BANK
$ 12,500,000
<PAGE>
THE SANWA BANK, LIMITED
$ 12,500,000
UNION BANK OF CALIFORNIA, N.A.
$ 12,500,000
BANCA CASSA DI RISPARMIO DI TORINO S.p.A.
0
BANCO BILBAO VIZCAYA, S.A.
0
CIBC INC.
0
ROYAL BANK OF CANADA
0
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
0
Total Commitments
$2,282,500,000
<PAGE>
CONFORMED COPY
COUNTERPART AND AMENDMENT
COUNTERPART AND AMENDMENT dated as of
November 25, 1997 (this "Counterpart") to the Credit Agreement
referred to below is made by each of the undersigned (each an
"Increasing Bank"). Unless otherwise defined herein, capitalized
terms used herein and defined in the Credit Agreement referred to
below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION (the "Borrower"), the several banks from time
to time party thereto as Banks (the "Banks"), J.P. Morgan Securities Inc. and
The Bank of Nova Scotia, as Co-Syndication Agents, and Morgan Guaranty Trust
Company of New York, as Administrative Agent, have entered into
a Credit Agreement dated as of February 28, 1995 and amended
and restated as of November 26, 1996 (as in effect on the date
hereof, the "Five-Year Credit Agreement"); and
WHEREAS, pursuant to Section 2.16(x) of the Credit
Agreement, the Company has the right, upon at least 45 days' prior
notice to the Agent and subject to the terms and conditions set
forth therein, to increase the aggregate amount of the Commitments
by increasing the Commitment of one or more Banks under the
Credit Agreement;
WHEREAS, the Company notified the Agent (which notice
was transmitted by the Agent to each of the Banks on October 22,
1997) of its intention to increase the Commitment of one of more
Banks by up to the amount specified in such notice;
WHEREAS, each of the Banks waived the requirement
under Section 2.16 of the Credit Agreement that the Borrower give
45 days' prior notice of such increase in the amount of the
Commitments to the Agent;
WHEREAS, as a condition to the increase of any Bank's
Commitment under the Credit Agreement, the signature pages of
the Credit Agreement are required to be amended to reflect the
increased Commitment of such Bank;
<PAGE>
NOW, THEREFORE,
1. Increasing Banks. By executing and delivering to the Borrower and
the Agent this Counterpart, each Increasing Bank's Commitment is increased to
the amount set forth opposite such Increasing Bank's signature set forth on the
signature pages hereto, effective as of November 25, 1997 (the "Effective
Date").
2. Amendment. Upon the execution by each Increasing Bank of this
Counterpart, the signature pages to the Credit Agreement shall automatically be
amended, effective as of the Effective Date, to amend such Increasing Bank's
Commitment as set forth on the signature pages hereto.
3. Counterparts. This Counterpart may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
4. GOVERNING LAW. THIS COUNTERPART SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Counterpart
to be duly executed by their respective authorized officers as of the day and
year first above written.
Increasing Banks Commitments
BANK OF TOKYO-MITSUBISHI $77,500,000
TRUST COMPANY
By: /s/ Catherine Moeser
Title: Vice President
THE NORINCHUKIN BANK $62,500,000
By: /s/ Takeshi Akimoto
Title: General Manager
COMERICA BANK $50,000,000
By: /s/ Tamara J. Gurne
Title: Account Officer
PNC BANK, NATIONAL $50,000,000
ASSOCIATION
By: /s/ Thomas A. Majeski
Title: Vice President
BANCA MONTE DEI PASCHI DI $40,000,000
SIENA, S.p.A.
By: /s/ G. Natalicchi
Title: Senior Vice President &
General Manager
By: /s/ Brian R. Landy
Title: Vice President
<PAGE>
NORDDEUTSCHE LANDESBANK $37,500,000
GIROZENTRALE New York Branch
and/or Cayman Island Branch
By: /s/ Stephanie Finnen
Title: Vice President
By: /s/ Stephen K. Hunter
Title: Senior Vice President
CREDIT AGRICOLE INDOSUEZ $30,000,000
By: /s/ Jean-Francois Grandchant des Raux
Title: First Vice President
By: /s/ Cheryl A. Solometo
Title: Vice President
BANCO DI NAPOLI, S.p.A $25,000,000
By: /s/ Vito Spada
Title: Executive Vice President
By: /s/ Claude P. Mapes
Title: First Vice President
BANK AUSTRIA AG $25,000,000
By: /s/ J. Anthony Seay
Title: Vice President
By: /s/ W. Scott Harwood
Title: Assistant Vice President
<PAGE>
Acknowledged and Agreed:
NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION
By: /s/ Steven L. Lilly
Title: Senior Vice President &
Chief Financial Officer
<PAGE>
COUNTERPART AND AMENDMENT
COUNTERPART AND AMENDMENT dated as of December 5, 1997
(this "Counterpart") to the Credit Agreement referred to below is made by
Banca Cassa di Risparmio di Torino S.p.A. (the "New Bank"). Unless otherwise
defined herein, capitalized terms used herein and defined in the Credit
Agreement referred to below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION (the "Borrower"), the several banks from time to
time party thereto as Banks (the "Banks"), J.P. Morgan Securities Inc. and The
Bank of Nova Scotia, as Co-Syndication Agents, and Morgan Guaranty Trust
Company of New York, as Administrative Agent, have entered into a 364-Day
Credit Agreement dated as of February 28, 1995, as amended and restated as of
November 26, 1996 and as further amended and restated as of November 25, 1997
(as in effect on the date hereof, the "Credit Agreement"); and
WHEREAS, pursuant to Section 2.16(y) of the Credit Agreement, the
Company has the right, upon at least 45 days' prior notice to the Agent and
subject to the terms and conditions set forth therein, to increase the aggregate
amount of the Commitments by the creation of a new Commitment of an institution
not a Bank under the Credit Agreement;
WHEREAS, the Company notified the Agent (which notice was
transmitted by the Agent to each of the Banks on October 22, 1997) of its
intention to increase the aggregate amount of the Commitments under the Credit
Agreement by up to the amount specified in such notice; and
WHEREAS, each of the Banks waived the requirement under Section 2.16
of the Credit Agreement that the Borrower give 45 days' prior notice of such
increase in the amount of the Commitments to the Agent;
WHEREAS, the New Bank wishes to assume a Commitment in connection
with such increase;
WHEREAS, as a condition to the creation of its Commitment under the
Credit Agreement, the New Bank is required to become a party to the Credit
Agreement as a Bank by execution and delivery to the Borrower and the Agent of
counterparts of the Credit Agreement, and the signature pages and Schedule I of
the Credit Agreement are required to be amended to reflect the Commitment of the
New Bank;
<PAGE>
NOW, THEREFORE,
1. New Bank. By executing and delivering to the Borrower and the
Agent this Counterpart, the New Bank hereby becomes a party to the Credit
Agreement as a "Bank" thereunder with a Commitment in the amount set forth
opposite such New Bank's signature set forth on the signature page hereto,
effective as of December 5, 1997 (the "Effective Date"). Upon the Effective Date
the signature page hereto shall be automatically deemed to be a counterpart to
the Credit Agreement.
2. Amendment. Upon the execution by the New Bank of this
Counterpart, the signature pages and Schedule I to the Credit Agreement shall
automatically be amended, effective as of the Effective Date, to add such New
Bank and its Commitment as set forth on the signature page hereto.
3. Counterparts. This Counterpart may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
4. GOVERNING LAW. THIS COUNTERPART SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the New Bank has caused this Counterpart to
be duly executed by its authorized officer as of the day and year first above
written.
New Bank Commitment
BANCA CASSA DI RISPARMIO $20,000,000
DI TORINO S.p.A.
By:/s/ Robert P. DeSantes
Title: First Vice President
Head of Corporate Banking
By: /s/ Giorgio Cuccolo
Title: Manager & EVP
Acknowledged and Agreed:
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
By: /s/ Steven L. Lilly
Title: Sr. Vice President &
Chief Financial Officer
