<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, 1998
OR
o 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 27
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
A S S E T S
(Unaudited)
November 30, 1998 May 31, 1998
Cash and Cash Equivalents $ 95,425 $ 65,274
Debt Service Investments 22,969 22,969
Loans To Members, net 11,776,239 10,329,345
Receivables 123,279 112,317
Fixed Assets, net 27,895 25,062
Debt Service Reserve Funds 103,489 103,489
Other Assets 34,547 24,432
Total Assets $ 12,183,843 $ 10,682,888
The accompanying notes are an integral part of these combined financial
statements.
<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, 1998 May 31, 1998
Notes Payable, due within one year $ 4,363,734 $ 3,848,229
Accounts Payable 23,055 26,750
Accrued Interest Payable 88,078 68,497
Long-Term Debt 5,772,119 5,024,621
Other Liabilities 13,430 6,347
Quarterly Income Capital Securities 400,000 200,000
Members' Subordinated Certificates:
Membership subscription certificates 644,817 644,817
Loan & guarantee certificates 620,856 584,349
Total Members' Subordinated Certificates 1,265,673 1,229,166
Members' Equity 257,754 279,278
Total Members' Subordinated Certificates &
Members' Equity 1,523,427 1,508,444
Total Liabilities and Members' Equity $12,183,843 $10,682,888
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
(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, 1998 and 1997
Quarters Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
Operating Income-
Interest on loans to members $192,238 $153,995 $372,381 $304,472
Less-cost of funds 158,398 130,627 310,367 258,406
Gross operating margin 33,840 23,368 62,014 46,066
Expenses:
General and administrative 6,053 5,146 11,593 10,475
Provision for loan losses 9,894 3,565 15,780 11,815
Total expenses 15,947 8,711 27,373 22,290
Operating margin 17,893 14,657 34,641 23,776
Nonoperating Income 337 435 1,082 1,027
Gain on Sale of Land - - - 4,939
Net Margins $ 18,230 $ 15,092 $ 35,723 $ 29,742
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Quarters Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
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, 1998
Balance at August 31, 1998 $239,956 $ 1,504 $ 635 $19,782 $ 500 $217,535
Retirement of patronage
capital (237) - - - - (237)
Net Margins 18,230 - - 18,230 - -
Other (195) 12 (207) - - -
Balance at November 30, 1998 $257,754 $ 1,516 $ 428 $38,012 $ 500 $217,298
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
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE>
(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, 1998 and November 30, 1997
<TABLE>
<CAPTION>
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, 1998
Balance at May 31, 1998 $279,278 $ 1,491 $ 676 $ 2,289 $ 500 $274,322
Retirement of
patronage capital (57,601) - - - - (57,601)
Net Margins 35,723 - - 35,723 - -
Other 354 25 (248) - - 577
Balance at November 30, 1998 $257,754 $ 1,516 $ 428 $ 38,012 $ 500 $217,298
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
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands)
For the Six Months Ended November 30, 1998 and 1997
1998 1997
Cash Flows From Operating Activities:
Net margins $ 35,723 $ 29,742
Add (deduct):
Provision for loan losses 15,780 11,815
Depreciation 745 693
Amortization of deferred income (3,106) (799)
Amortization of issuance costs and
deferred charges 1,609 946
Gain on sale of land - (4,939)
Receivables (7,476) (4,289)
Accounts payable (3,695) 1,731
Accrued interest payable 19,581 8,771
Other (8,659) (4,998)
Net cash flows provided by
operating activities 50,502 38,673
Cash Flows From Investing Activities:
Advances made on loans (4,841,299) (2,327,549)
Principal collected on loans 3,378,625 1,663,664
Proceeds from sale of land - 13,235
Investments in fixed assets (3,578) (153)
Net cash flows used in
investing activities (1,466,252) (650,803)
Cash Flows From Financing Activities:
Notes payable, net (336,919) 275,588
Debt Service Investments, net - (75,000)
Proceeds from issuance of
long-term debt 1,771,900 561,614
Payments for retirement of
long-term debt (171,118) (181,707)
Proceeds from issuance of
Quarterly Income Capital Securities 200,000 75,000
Proceeds from issuance of
Members' Subordinated Certificates 39,725 10,315
Payments for retirement of
Members' Subordinated Certificates (6,702) (1,077)
Payments for retirement of
Patronage Capital (50,985) (47,771)
Net cash flows provided by
financing activities 1,445,901 616,962
Net Cash Flows 30,151 4,832
Beginning Cash and Cash Equivalents 65,274 50,011
Ending Cash and Cash Equivalents $ 95,425 $ 54,843
Supplemental Disclosure of
Cash Flow Information:
Cash paid for Interest Expense $ 292,612 $ 253,253
The accompanying notes are an integral part of these combined financial
statements.
<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 1,063 members as of November 30, 1998, included 911 rural electric
utility system members ("Utility Members"), virtually all of which are
consumer-owned cooperatives, 74 service members and 78 associate members. The
Utility Members included 843 distribution systems and 68 generation and
transmission systems operating in 47 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, 1998, RTFC had 507 members other than CFC. 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, 1998. 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, 1998 and May 31, 1998, and the combined results of operations,
cash flows and changes in members' equity for the quarters and six months
ended November 30, 1998 and 1997.
CFC has no components of other comprehensive income, as defined by the
Financial Accounting Standards Board, to report for the quarters and six
months ended November 30, 1998 and 1997. Therefore, no adjustment was
required to the combined statements of income, expenses and net margins or
to the combined statements of changes in members' equity.
The Notes to Combined Financial Statements for the years ended May 31, 1998
and 1997 should be read in conjunction with the accompanying financial
statements. (See CFC's Form 10-K for the year ended May 31, 1998, filed on
August 31, 1998).
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
<PAGE>
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 and GFC through a long-
term management agreement. CFC services the loans for GFC for which it
collects a servicing fee. As of November 30, 1998, CFC had committed to lend
RTFC up to $4.5 billion to fund loans to its members and their affiliates.
RTFC had outstanding loans and unadvanced loan commitments totaling $2,919.7
million and $2,233.0 million as of November 30, 1998 and May 31, 1998,
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) 1998 1998
Outstanding loans to members and their affiliates $2,143,822 $1,574,900
Total assets 2,297,451 1,695,231
Notes payable to CFC 2,123,472 1,563,094
Total liabilities 2,151,021 1,581,268
Members' Equity and Subordinated Certificates 146,430 113,963
(Unaudited)
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1998 1997
Operating income $64,142 $40,244
Net margin 1,982 1,512
Summary financial information relating to GFC is presented below:
(Unaudited)
At November 30, At May 31,
(Dollar Amounts In Thousands) 1998 1998
Outstanding loans to members $130,940 $133,195
Total assets 132,921 135,761
Notes payable to CFC 130,940 133,195
Total liabilities 132,471 135,430
Members' Equity 450 331
(Unaudited)
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1998 1997
Operating income $4,058 $4,264
Net margin 378 411
Unless stated otherwise, references to CFC relate to CFC, RTFC and GFC on a
combined basis.
<PAGE>
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
Collateral Trust Bonds issued since that date and 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, 1998 and May 31, 1998, mortgage notes representing
approximately $2,712.4 million and $1,930.9 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, 1998 and May 31, 1998
were $2,596.7 million and $1,897.7 million, respectively.
4. Allowance for Loan Losses
CFC maintains an allowance for loan 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 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 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 losses may differ from the
allowance amount.
Activity in the allowance account is summarized as follows for the six months
ended November 30, 1998 and the year ended May 31, 1998.
November 30, May 31,
(Dollar Amounts in Thousands) 1998 1998
Beginning Balance $250,131 $233,208
Provision for loan losses 15,780 19,027
Charge-offs, net of recoveries (1,884) (2,104)
Ending Balance $264,027 $250,131
Total Loan Loss Allowance
As a Percentage of:
Total Loans 2.19% 2.36%
Total Loans and Guarantees 1.88% 1.98%
Total Nonperforming and Restructured Loans 79.46% 74.98%
<PAGE>
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. 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, 1998, CFC had three revolving credit agreements totaling
$4,792.5 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 guaranteed by
CFC 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 53 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 $2,402.5 million
until November 26, 2001. On November 24, 1998, the 364-day agreement was
renewed with J.P. Morgan Securities Inc. and The Bank of Nova Scotia as
Co-Lead Arrangers and Co-Syndication Agents, Morgan Guaranty Trust Company of
New York as Administrative Agent, and Nationsbank, N.A. and the First
National Bank of Chicago as Co-Documentation Agents. Under this 364-day
agreement, CFC can borrow up to $1,940.0 million until November 23, 1999.
Any amounts outstanding under these facilities will be due on the respective
maturity dates.
A third revolving credit agreement for $450.0 million was executed on November
25, 1998 with nine banks, including the Bank of Nova Scotia as Lead Arranger
and Administrative Agent (the "BNS facility") and the Chase Manhattan Bank,
N.A. as Documentation Agent. This agreement has a 364-day revolving credit
period which terminates November 24, 1999 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.
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 .085 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 $1,356.7
million at May 31, 1998 (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
<PAGE>
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, 1998 and May 31, 1998,
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,
1998 and May 31, 1998, CFC classified $2,402.5 million and $2,345.0 million,
respectively, of its notes payable outstanding as long-term debt. CFC expects
to maintain more than $2,402.5 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, 1998 and May 31, 1998, CFC had unadvanced loan
commitments, summarized by type of loan, as follows:
(Dollar Amounts In Thousands) November 30, 1998 May 31, 1998
Long-term $ 5,462,949 $3,747,542
Intermediate-term 528,260 412,035
Short-term 4,210,412 4,022,649
Telecommunications 775,890 663,018
Total unadvanced loan commitments $ 10,977,511 $8,845,244
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.
8. Retirement of Patronage Capital
CFC patronage capital in the amount of $57.4 million was retired in August
1998, representing 70% of the allocation for fiscal year 1998 and one-sixth of
the total allocations for fiscal years 1988, 1989 and 1990. The $57.4 million
includes $6.4 million retired to RTFC. GFC retired patronage capital in
September 1998 in the amount of $0.2 million representing 100% of the
allocation for fiscal year 1998. RTFC will retire 70% of their fiscal year
1998 allocation later this fiscal year. Future retirements of patronage
capital allocated to patrons may be made annually as determined by CFC's,
RTFC's and GFC's Board of Directors with due regard for CFC's, RTFC's and
GFC's financial condition.
9. Guarantees
As of November 30, 1998 and May 31, 1998, CFC had guaranteed the following
contractual obligations of its members:
(Dollar Amounts In Thousands) November 30, 1998 May 31, 1998
Long-term tax-exempt bonds (A) $1,132,655 $1,148,500
Debt portions of leveraged lease transactions (B) 431,893 437,175
Indemnifications of tax benefit transfers (C) 298,623 312,771
Other guarantees (D) 149,503 136,048
Total guarantees $2,012,674 $2,034,494
<PAGE>
(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, $1,004.3 million and $1,017.8 million as of November 30, 1998 and
May 31, 1998, 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, 1998 and May 31, 1998, CFC had unconditionally guaranteed
commercial paper, along with the related interest rate exchange agreement,
issued by NCSC of $49.2 million and $39.0 million, respectively.
10. Derivative Financial Instruments
At November 30, 1998 and May 31, 1998, CFC was a party to interest rate
exchange agreements with notional amounts totaling $2,212.5 million and $753.7
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, 1998
and May 31, 1998, CFC was using interest rate exchange agreements to fix the
interest rate on $1,287.5 million and $603.7 million, respectively, of its
variable rate commercial paper. At November 30, 1998 and May 31, 1998, CFC
was also using interest rate exchange agreements at both dates to minimize
the variance between the three month LIBOR rate at which $750.0 million and
$150.0 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.
<PAGE>
The following table lists the notional principal amounts of CFC's interest
rate exchange agreements at November 30, 1998 and May 31, 1998:
<TABLE>
<CAPTION>
Notional Notional
Principal Amount Principal Amount
Maturity Date November 30, 1998 May 31, 1998 Maturity Date November 30, 1998 May 31, 1998
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
June 1999 (1) $ 50,000 $ - September 2003 (3) 16,600 -
September 1999 (2) 75,000 - September 2003 (3) 17,845 -
September 1999 (2) 75,000 - September 2003 (3) 28,000 -
September 1999 (2) 75,000 - September 2003 (3) 28,785 -
September 1999 (2) 75,000 - October 2003 (3) 32,533 -
November 1999 (2) 50,000 50,000 October 2003 (3) 32,533 -
November 1999 (2) 50,000 50,000 October 2003 (3) 25,480 -
November 1999 (2) 50,000 50,000 September 2004 (3) 17,650 -
November 1999 (2) 75,000 - October 2004 (3) 38,000 40,700
November 1999 (2) 75,000 - November 2004 (3) 61,000 -
November 1999 (2) 75,000 - November 2004 (3) 61,000 -
November 1999 (2) 75,000 - January 2005 (3) 8,000 8,000
January 2000 (3) 52,851 52,851 April 2006 (3) 25,000 25,000
September 2000 (3) 7,450 - April 2006 (3) 25,000 25,000
September 2000 (3) 13,355 - April 2006 (3) 25,000 25,000
October 2000 (3) 20,000 - April 2006 (3) 25,000 25,000
January 2001 (3) 42,749 42,749 January 2008 (3) 14,000 14,000
February 2001 (3) 75,000 75,000 July 2008 (3) 40,400 -
February 2001 (3) 75,000 75,000 September 2008 (3) 10,425 -
February 2001 (3) 75,000 75,000 September 2008 (3) 26,235 -
February 2001 (3) 75,000 75,000 September 2008 (3) 10,300 -
September 2001 (3) 34,810 - September 2008 (3) 20,600 -
January 2003 (3) 10,000 10,000 October 2008 (3) 33,512 -
January 2003 (3) 12,375 12,375 January 2012 (3) 13,000 13,000
June 2003 (3) 48,000 - February 2012 (3) 10,000 10,000
August 2003 (3) 25,000 - June 2018 (1) 5,000 -
August 2003 (3) 25,000 - September 2028 (1) 60,000 -
August 2003 (3) 50,000 - September 2028 (1) 60,000 -
Total $2,212,488 $753,675
</TABLE>
(1) Under these agreements, CFC pays a variable rate of interest and receives
fixed rate of interest.
(2) Under these agreements, CFC pays a variable rate of interest and receives
a variable rate of interest.
(3) Under these agreements, CFC pays a fixed rate of interest and receives
interest based on a variable rate.
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. In all interest rate exchange agreements, 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, 1998.
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.
<PAGE>
During the six months ended November 30, 1998, CFC has issued Commercial
Paper to European investors in foreign currencies. The following chart
provides details of the foreign currency swaps that CFC has outstanding at
November 30, 1998:
Type of
Debt (1) Date US Dollars Foreign Currency (2) Rate
CP Issue Sep 28, 1998 33,372,370.77 55,431,507,851 ITL 1,661.00
Maturity Dec 14, 1998 33,755,681.24 56,000,000,000 ITL 1,658.98
CP Issue Nov 5, 1998 3,725,793.82 5,975,611.58 AUD 0.6235
Maturity Dec 7, 1998 3,742,800.00 6,000,000.00 AUD 0.6238
(1) CP - CFC Commercial Paper
(2) ITL - Italian Lira, AUD - Australian Dollars
CFC enters into a swap to sell the amount of foreign currency received from
the investor on the issuance date. At the same time, CFC enters into a swap
to buy the amount required to repay the investor principal and interest due on
the maturity date. CFC locks in the total cost related to the Commercial
Paper note by entering into a swap for the amount of foreign currency due at
maturity on the issuance date. By locking in the exchange rates, CFC has
eliminated the possibility of any gain or loss by holding the foreign
currency until maturity or entering into a swap at the maturity date. CFC
includes the difference between the amount of US Dollars received at
issuance and the amount of US Dollars required to purchase the foreign
currency at maturity as interest expense.
Principal and interest is paid at maturity, which will range from 1 day to 270
days on CFC Commercial Paper investments. CFC will only issue in a foreign
currency if the cost of issuance and related foreign currency swaps is less
than the cost of issuing similar debt in the US.
11. Contingencies
(A) At November 30, 1998 and May 31, 1998, nonperforming loans in the
amount of $1.8 million and $4.1 million, respectively, and restructured loans
in the amount of $330.5 million and $329.5 million, respectively, were on a
nonaccrual basis with respect to interest income. CFC elected to apply all
payments received against principal outstanding on all nonperforming and
restructured loans at both dates.
(B) CFC classified $332.3 million and $333.6 million of the amount
described in footnote 11(A) as impaired with respect to the provisions of FASB
Statements No. 114 and 118 at November 30, 1998 and May 31, 1998,
respectively. CFC had allocated $135.0 million of the loan loss allowance
for such impaired loans. The amount of loan 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, 1998. All payments received were applied as a
reduction of principal. The average recorded investment in impaired loans
for the six months ended November 30, 1998 was $332.3 million compared to
$345.3 million for the year ended May 31, 1998.
(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
<PAGE>
the balance to $2.9 million at February 28, 1998. WVPA is current
with respect to amounts due on the notes. In April 1998, CFC received a
payment of $0.7 million from Wabash as its share of the proceeds from the
sale of assets. In September 1998, CFC wrote off the remaining $2.2
million of the loan outstanding to Wabash against the loan loss reserve.
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, 1998,
CFC has a deferred gain of $8.2 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") is a power
supply member of CFC located in Utah. Deseret operates the Bonanza
generating plant ("Bonanza") and owns a 25% interest in the Hunter
generating plant along with a system of transmission lines. Deseret also
owns and operates a coal mine, through its Blue Mountain Energy subsidiary.
In the 1980's, NCSC issued debt, guaranteed by CFC, related to the Bonanza
plant and the coal mine operation. Due to large anticipated demands for
electricity, the Bonanza site was designed for two plants and Deseret built
the infrastructure to support two plants (only one plant has been built to
date). When the large increases in demand never materialized, Deseret was
unable to make the debt payment obligations on the Bonanza plant and debt
service payments to RUS. NCSC transferred to CFC all of its rights as a
creditor on the obligations guaranteed by CFC.
In 1991, Deseret and its creditors entered into an agreement to restructure
Deseret's debt obligations, the Agreement Restructuring Obligations
("ARO"). In 1995, Deseret failed to make the payments required under the
ARO. The interested 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 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, 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.
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 $740.0
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 $55.0 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
<PAGE>
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.
On March 20, 1998, the City of Riverside, CA ("Riverside") commenced an
action against Deseret in the United States District Court for the Central
District of California. Riverside is seeking (i) a declaratory judgment from
the court that the Power Sales Agreement dated October 6, 1992 (the "Power
Sales Agreement") between Deseret and Riverside terminated on March 31,
1998 and (ii) unspecified damages against Deseret. On March 31, 1998,
Deseret sought injunctive relief from a Utah State Court. The Utah State
Court has granted a temporary restraining order that enjoins Riverside from
terminating the Power Sales Agreement. The Utah proceeding has been
removed to the United States District Court for the District of Utah. Deseret
and Riverside have entered into a situation extending the temporary
restraining order pending resolution of venue motions filed in both the Utah
and California proceedings.
Riverside has also filed a complaint with the Federal Energy Regulatory
Commission ("FERC"). A FERC mandated period for settlement
discussions ended on January 4, 1999, with no agreement between the
parties. All parties will now enter into a discovery period with a hearing
before an administrative law judge scheduled for May 25, 1999. The
administrative law judge is expected to render a decision by October 1,
1999, with a decision by the FERC anticipated by October 2000.
Pursuant to Section 206(b) of the Federal Power Act, the refund effective
date is November 2, 1997.
The Power Sales Agreement requires Deseret to supply up to 52 MW to
Riverside through December 31, 2009. This contract represents
approximately 10% of Deseret's revenues. The impact of this action on
Deseret's ability to make the payments required under the ORA has not yet
been determined. A factor mitigating any impact is Deseret's contract with
PacifiCorp, under which PacifiCorp has agreed to purchase all excess
capacity.
On March 24, 1998, the City of Anaheim, CA ("Anaheim") commenced an
action against Deseret that has been consolidated with the Riverside
proceeding in the United States District Court for the Central District of
California. The Anaheim action seeks declaratory relief from the court to
determine that the 40 MW Power Sales Agreement ("Agreement") dated June
9, 1993, between Deseret and Anaheim has terminated or will terminate and to
set an effective date of that termination. Anaheim has agreed to continue to
purchase power and energy under the terms of that Agreement pending
resolution of the California proceeding. On April 29, 1998, Deseret added
Anaheim to the Utah action filed against Riverside, seeking, among other
things, injunctive relief. Various venue motions are currently pending in both
actions concerning the Anaheim dispute.
Anaheim has also filed a complaint with the FERC. During the settlement
discussion period that ended January 4, 1999, Deseret and Anaheim have
agreed on the terms of a settlement of the FERC and civil actions. As part
of the settlement, the rate paid and capacity taken by Anaheim will be
adjusted slightly from the original contract terms and Anaheim has agreed to
purchase an additional 20 MW from Deseret at current market rates. The
settlement will not significantly impact the revenue received by Deseret over
the life of the contract. The existing Power Sale Agreement requires Deseret
to supply up to 40MW to Anaheim through December 31, 2004.
<PAGE>
At November 30, 1998 and May 31, 1998, CFC had the following exposure to
Deseret:
(Dollar Amounts In Millions) November 30, 1998 May 31, 1998
Loans outstanding (1) $330.5 $329.5
Guarantees outstanding:
Tax-exempt bonds 4.1 4.1
Mine equipment leases 51.9 54.1
Bonanza plant lease 255.1 258.0
Total Guarantees 311.1 316.2
Total Exposure $641.6 $645.7
(1) From January 1, 1989 through November 30, 1998, CFC has funded a total of
$187.5 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.
Subsequent to the end of the quarter, on December 4, 1998, CFC, Deseret, the
Deseret member systems, and all other parties involved in the ongoing
litigation entered into a settlement arrangement. The arrangement includes the
following terms and conditions:
* a payment of $94 million was made to the owner of the Bonanza
generating plant ($80.0 million from the guarantor of the equity portion of
the lease payments, $10.4 million from CFC and $3.6 million from
Deseret)
* the transfer of ownership of the plant to Deseret,
* dismissal of the foreclosure action as well as all cross and counter claims,
* the previous plant owner dropped all claims related to the tax
indemnification agreement,
* the ORA between CFC and Deseret remains substantially intact,
* a portion of the ORA payments from 2020 to 2025 will be shared with the
party that had guaranteed the equity portion of the lease payments,
* Deseret will be required to make additional payments based on excess
cashflow to the same party for the years 2026 to 2031, up to a maximum of
$439 million,
* as a result of the transfer of plant ownership, the 9.375% Bonanza Secured
Lease Obligation Bonds were redeemed on December 14, 1998.
On December 4, 1998, CFC deposited $265.9 million with the bond trustee as
a requirement for redeeming the bonds on December 14, 1998. The amount
deposited represents the outstanding principal balance of $255.1 million and
$10.8 million of interest for the period July 3, 1998 through December 14,
1998.
On December 14, 1998, CFC effected the redemption of the Bonanza Secured
Lease Obligation Bonds. The amount advanced to redeem the bonds, $265.9
million becomes part of the outstanding loan balance to Deseret and is secured
by CFC's mortgage claim on all of Deseret's assets and future revenues. This
amount will be repaid through the annual ORA minimum and excess cashflow
payments Deseret is required to make to CFC through December 31, 2025.
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, 1998 and May 31, 1998, CFC held $130.9 million and $133.2
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.
<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, 1998, CFC's total assets increased by
$1,500.9 or 14.1% to $12,183.8 from $10,682.9 at May 31, 1998, primarily due
to an increase in net loans outstanding. At November 30, 1998, loans
outstanding were $12,040.3 an increase of $1,460.8 or 13.8% over the prior
year end. The loan loss reserve balance was $264.0, an increase of $13.9 or
5.6% over the prior year end. These two items result in the net loan
increase on the balance sheet of $1,446.9 for the six months ended November
30, 1998. Loans outstanding to electric member systems totaled $9,828.6, an
increase of $888.9 or 9.9% over the prior year end. Loans outstanding to
telecommunications systems totaled $2,143.8, an increase of $568.9 or 36.1%
over the prior year end. Loans outstanding to associate member systems
totaled $67.9, an increase of $3.0 over the prior year end.
The increase in loans outstanding to electric member systems was primarily due
to CFC's 100% distribution system borrowers advancing the long-term financing
required to complete their construction work plans. The number of 100%
borrowers is continuing to grow as more borrowers repay their RUS debt and
finance all of their debt requirements with CFC. In addition, CFC advanced
approximately $251 to distribution systems for the purpose of repaying RUS
debt. CFC also advanced about $170 to two systems for the acquisition of
electric and propane gas assets. During the six months ended November 30,
1998, the above items contributed to an increase of $1,047.6 in long-term
loans outstanding to electric system members.
The increase in loans outstanding to telecommunications borrowers during the
six months ended November 30, 1998 was due to a number of factors. CFC
continues to finance the upgrade and expansion of traditional
telecommunications plant. The Telecommunications Act of 1996 has provided
opportunities for rural telephone systems to compete with incumbent carriers
serving adjacent communities, giving rise to "competitive local exchange
carrier" (CLEC) ventures. CFC telecommunications borrowers have used CFC
loans to refinance debt with other lenders, acquire facilities from other
carriers and to offer diversified services to their customers. The major
area of diversification has been "personal communications services" (PCS),
which is a digital wireless communications technology with a wide range of
applications. Also contributing to the increase is a 30% increase to CFC
lending and legal staffing in the telecommunications program over the last
twelve months.
Net loans to members represented 97% of total assets at November 30, 1998 and
May 31, 1998. Long-term loans represented 90.3% of gross loans at November
30, 1998 and 87% at May 31, 1998. Fixed rate loans represented 60% of gross
loans at November 30, 1998 and 46% at May 31, 1998, while the remaining
loans carry a variable rate that may be adjusted monthly or semi-monthly.
During the six months ended November 30, 1998, CFC's members converted
$1,221.1 of long-term variable loans to long-term fixed rate loans. During
the same period, $0.9 of long-term fixed rate loans were converted to
long-term variable rate loans, resulting in a net conversion of $1,220.2
from a variable interest rate to a fixed interest rate. CFC expects its
members to continue to take advantage of the current low interest rate
environment through advancing loans at fixed rates, selecting new fixed
rates at repricing dates and converting from variable rates to fixed rates.
<PAGE>
At November 30, 1998, $951.5 or 7.9% of gross loans were unsecured, compared
to $1,201.1 or 11.4% at May 31, 1998. The $951.5 of unsecured loans at
November 30, 1998 included $127.2 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, 1998, the unsecured loans, excluding the temporarily unsecured
loans, were 6.9% of gross loans. All other loans were secured pro-rata with
other lenders (primarily RUS), by all assets and future revenues of the
borrower.
At November 30, 1998, CFC had provided $2,012.7 in guarantees, a decrease of
$21.8 from the $2,034.5 at May 31, 1998. The decrease to guarantees was due to
regularly scheduled principal payments. 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.
In fiscal year 1998, CFC extended pre-approved financing to many of its
distribution system members through the Power Vision program. Under this
program, CFC evaluated many of its distribution system members to determine
the total amount of financing that the system could support, based on CFC's
underwriting criteria. The existing amount of financing the distribution
system had outstanding to CFC and other lenders was subtracted from the total
to determine the additional amount the system was eligible to borrow from CFC.
CFC prepared all of the loan documents and board resolutions and forwarded
them to the coop with a notice that the system had been pre-approved for
indicated amount of financing from CFC. This program has been very popular
with CFC's distribution members and has been the primary reason behind the
large increase to unadvanced loan commitments. At November 30, 1998, CFC had
unadvanced loan commitments of $10,977.5, an increase of $2,132.3 from the
$8,845.2 committed at May 31, 1998. 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 t
he time the loan commitment was approved. About one-half of these
commitments are provided for operational back-up liquidity. CFC does not
anticipate funding the majority of the commitments outstanding for this
purpose.
During the six months ended November 30, 1998, CFC's total liabilities and
Members' Equity increased by $1,500.9 or 14.1% to $12,183.8 from $10,682.9 at
May 31, 1998. The increase was primarily due to increases of $515.5 to Notes
Payable, $747.5 to Long-term Debt, $200.0 to Quarterly Income Capital
Securities and $36.5 to Members' Subordinated Certificates offset by a
decrease of $21.5 to Members' Equity.
The increase to Notes Payable was due to an increase of $909.9 of Long-term
Debt due within one year offset by decreases of $216.9 of commercial paper
outstanding, $120.0 of bid notes outstanding and an increase of $57.5 in the
amount of commercial paper supported by the revolving credit agreement that is
reclassified as Long-term Debt. During the six months ended November 30,
1998, CFC issued $700.0 million of Medium-Term Notes at a variable rate, which
resulted in a reduction to the amount of commercial paper and bid notes
required. The increase to Long-term Debt was due to the issuance of $699.0 of
Collateral Trust Bonds and increases of $900.9 to the outstanding balance of
Medium-Term Notes and $57.5 to the amount or commercial paper reclassified as
Long-term Debt, offset by the reclassification of $150.0 of Collateral Trust
Bonds due in November 1999 and an increase of $759.9 to Medium-Term Notes
classified as Notes Payable due within one year. The increase to Members'
Subordinated Certificates was due to members' making the required equity
certificate purchase as a condition to receiving a loan advance. The decrease
to Members' Equity was due to the retirement of patronage capital in August
1998, offset by the year to date net margins.
At November 30, 1998, CFC had a total of $1.8 of loans classified as
nonperforming, a decrease of $2.3 from May 31, 1998. The decrease was due to
the write-off of $2.2 of loans outstanding to Wabash in September 1998. At
November 30, 1998 and May 31, 1998, all nonperforming loans were on a
nonaccrual status with respect to the recognition of interest income.
At November 30, 1998, CFC had a total of $330.5 of loans classified as
restructured, an increase of $1.0 from May 31, 1998. The restructured loans
at both November 30, 1998 and May 31, 1998, were outstanding to Deseret and on
a nonaccrual status with respect to the recognition of interest income. The
increase to restructured loans
<PAGE>
outstanding was due to the payments made by CFC on the obligations guaranteed
for Deseret exceeding the ORA quarterly payments received in June 1998 and
September 1998 by $1.0. In addition to the loans outstanding to Deseret, CFC
had $311.1 and $316.2 of guarantees at November 30, 1998 and May 31, 1998,
respectively. The decrease to the guarantees is due to the reduction of
principal outstanding as a result of the debt service payments made by CFC in
July 1998.
At November 30, 1998 CFC classified $332.3 of loans outstanding as impaired
with respect to the provisions of FASB Statement No. 114, a decrease of $1.3
from May 31, 1998. CFC did not adjust the amount of the loss reserve
allocated to impaired loans during the six months ended November 30, 1998.
Subsequent to the end of the quarter on December 4, 1998, CFC advanced $10.4
to the Bonanza Plant owner trustee as part of the settlement agreement signed
on that day. CFC also deposited $265.9 with the Bonanza Secured Lease
Obligation Bond trustee. On December 14, 1998, the Bonanza Secured Lease
Obligation Bonds were called at par, $255.1 principal amount and $10.8
interest for the period July 3, 1998 to December 14, 1998. The total
amount advanced by CFC, $276.3 becomes part of the Deseret loan balance and
is secured under CFC's first lien on all of Deseret's assets and future
revenues and will be repaid out of the ORA cashflow payments. As of
December 14, 1998, the loans outstanding to Deseret increased to $606.8 and
the guarantees decreased to $56.0, resulting in a total exposure of $662.8,
an increase of $21.2 compared to the total of $641.6 at November 30, 1998.
In addition, the tentative agreement with Anaheim with regard to the FERC
and civil actions is not expected to impact Deseret's ability to make the
payments required by the ORA.
The allowance for loan losses increased by $13.9 to $264.0 at November 30,
1998 from $250.1 at May 31, 1998. The increase was due to an additional
provision of $15.8, and the recovery of $0.3 of amounts previously written
off, offset by the write-off of the $2.2 loan to Wabash. The $0.3 recovery
was related to the Vermont EC and Vermont G & T settlement. At November 30,
1998, the loan loss allowance represented 2.19% of gross loans, 1.88% of
gross loans and guarantees, and 79.88% of restructured loans, compared to
2.36%, 1.98%, and 74.98% at May 31, 1998, respectively. CFC makes regular
additions to the allowance for loan 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 loss allowance and estimates the amount of future provision that will
be required to maintain the allowance at an adequate level. 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, 1998, management believes that the allowance for loan 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
November 30, 1998 and 1997, CFC achieved a Times Interest Earned Ratio (TIER)
of 1.12. Management has established a 1.10 TIER as its operating target.
Operating income for the six months ended November 30, 1998, was $372.4, an
increase of $67.9 from the prior year period. The increase in operating
income was due to a positive volume variance of $74.5 and a negative rate
variance of $6.6. Average loans outstanding increased by $1,937.1 and the
average yield decreased by 7 basis points from the prior year period. For
the six months ended November 30, 1998, average loans outstanding were
$11,172.4 and the average yield was 6.65%, compared to average loans
outstanding of $9,235.3 and an average yield of 6.58% for the six months
ended November 30, 1997. 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, 1998, totaled
$310.4, an increase of $52.0 from the prior year. The increase was due to a
positive volume variance of $57.6 and a negative rate variance of $5.6. The
<PAGE>
average interest rate on funds used by CFC at November 30, 1998, was 5.54%, a
reduction of 4 basis points from 5.58% for the prior year period. 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, 1998 and 1997, general and
administrative expenses totaled $11.6 and $10.5, respectively. General and
administrative expenses for the six months ended November 30, 1998
represented 21 basis points of average loan volume, which is a decrease of
2 basis points from 23 basis points for the prior year period.
The provision for loan losses for the six months ended November 30, 1998,
totaled $15.8 or 28 basis points, compared to the prior year total of $11.8
or 26 basis points. CFC has maintained the provision for loan losses in line
with management's assessment of the size and quality of the loan portfolio.
Overall, CFC's net margins for the six months ended November 30, 1998, totaled
$35.7, an increase of $6.0 from the prior year period total of $29.7.
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.
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, 1998, CFC had $4,792.5 in available bank credit, $2,402.5 of
which is available through November 26, 2001, $1,940.0 is available through
November 24, 1999 and $450.0 is available through November 23, 1999. As of
November 30, 1998, CFC was in compliance with all covenants and conditions to
borrowing and there were no amounts outstanding under such agreements.
As of November 30, 1998, CFC had shelf registrations for Medium-Term Notes of
$584.5 and $50.0 for Quarterly Income Capital Securities. At November 30,
1998, CFC had used all of its remaining authority related to its Collateral
Trust Bond shelf registrations. In addition, CFC had shelf registrations for
Euro Medium-Term Notes of $655.0 remaining as of November 30, 1998.
Subsequent to the end of the quarter, on December 9, 1998, CFC filed a
$1,000.0 shelf registration for Collateral Trust Bonds with the SEC. On
December 17, 1998, CFC's $1,000.0 Collateral Trust Bond shelf registration
was declared effective by the SEC.
Member invested funds, including the loan loss allowance, at November 30, 1998
and May 31, 1998, were $3,352.5 and $3,194.5 or 27.2% and 29.5% of CFC's total
capitalization, respectively (long- and short-term debt outstanding, Members'
Certificates and Equity and the loan loss allowance).
CFC's leverage ratio was 6.31 and 6.37 at November 30, 1998 and May 31, 1998,
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
<PAGE>
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 4.63 and 4.51 at November 30, 1998 and May 31,
1998, respectively. CFC calculates the equity ratio as 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, 1998
<S> <C> <C> <C> <C> <C> <C> <C>
FY 99 FY 00-01 FY 02-03 FY 04-08 FY 09-18 FY 19+ Total
Assets:
Loan Amortization
and repricing $ 454.1 $ 1,089.8 $ 1,317.4 $ 1,981.3 $ 1,632.9 $ 628.7 $7,104.2
Total Assets $ 454.1 $ 1,089.8 $ 1,317.4 $ 1,981.3 $ 1,632.9 $ 628.7 $7,104.2
Liabilities and Equity:
Long-Term Debt $ 115.8 $ 953.9 $ 1,251.4 $ 1,624.2 $ 450.5 $ 850.7 $5,246.5
Subordinated
Certificates 49.2 12.3 14.5 103.9 950.9 9.6 1,140.4
Equity - - - - - - -
Total Liabilities
and Equity $ 165.0 $ 966.2 $ 1,265.9 $ 1,728.1 $ 1,401.4 $ 860.3 $6,386.9
Gap * $ 289.1 $ 123.6 $ 51.5 $ 253.2 $ 231.5 $(231.6)$ 717.3
Cumulative Gap $ 289.1 $ 412.7$ 464.2$ 717.4 $ 948.9 $ 717.3
Cumulative Gap as a %
of Total Assets 2.37% 3.39% 3.81% 5.89% 7.79% 5.89%
* Loan amortization/repricing over/(under) debt maturities
</TABLE>
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, 1998, CFC had $454.1 in fixed rate assets amortizing or repricing and
$165.0 in fixed rate liabilities maturing during the remainder of fiscal
year 1999. The difference, $289.1, represents the amount of CFC's assets
that are not considered match-funded as to interest rate. CFC's difference
of $289.1 at November 30, 1998 represents 2.37% 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 repricings.
At November 30, 1998 and May 31, 1998, CFC was a party to interest rate
exchange agreements totaling $2,212.5 and 753.7, 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 both of the above dates, CFC was using interest
rate exchange agreements to fix the interest rate on $1,287.5 as of November
30, 1998 and $603.7 as of May 31, 1998 of its variable rate
<PAGE>
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 $750.0 and $150.0 of Collateral Trust Bonds and Medium-Term Notes,
respectively, 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.
At November 30, 1998, CFC was a party to $37.5 in foreign currency exchange
agreements. These agreements were related to CFC's sale of Commercial Paper
denominated in foreign currencies. At November 30, 1998 CFC had two foreign
denominated Commercial Paper notes outstanding, one note for $33.8 denominated
in Italian Lira maturing on December 14, 1998 and one note for $3.7
denominated in Australian Dollars maturing on December 7, 1998. When CFC
sells a Commercial Paper note denominated in a foreign currency, it will
immediately enter into a foreign currency exchange agreement to sell the
foreign currency received from the investor and will also enter into a
foreign currency exchange agreement to buy the amount of principal and
interest due to the investor on maturity. Thus the cost of the note is
locked in on the day that the note is sold, eliminating any gain or loss
from changes in the foreign currency exchange rates. If at the time of
issuance, the all-in cost of issuing the note in a foreign currency is not
comparable to the cost of issuing in U.S. dollars, CFC will not sell the
foreign denominated note. CFC will also not sell the Commercial Paper in a
foreign currency if it is unable to enter into the foreign currency exchange
agreements at the time of issuance.
Year 2000 Compliance
CFC has appointed a year 2000 coordinator and assembled a team of individuals
from all areas of the Company to assist in the development of a year 2000
compliance plan and the testing of all business essential applications. CFC's
year 2000 plan includes the following:
1. identification of at risk applications and equipment,
2. obtain certification from vendors,
3. review the results of step 2,
4. develop plan to address items that will not be compliant,
5. implement solutions,
6. testing of all applications and equipment,
7. final corrections
CFC has completed steps 1 through 4 for its business critical systems. CFC
has upgraded its HP servers with new and more powerful HP servers. The
primary reason for the upgrade was that business requirements had exceeded the
capacity of the old servers. The new servers, which are year 2000 compliant,
came loaded with the newest version of the UNIX operating system, which is
also year 2000 compliant. CFC has also received a free upgrade of its data
base software, the new version of which is year 2000 compliant. Due to the
above actions, CFC's operating system equipment and software is year 2000
compliant. All business applications are currently being tested for
functionality on the new server and software. CFC's local area network and
NT operating systems are all year 2000 compliant.
CFC has three core business critical applications, a loan accounting system,
a treasury system and a customer information system. We have received a
compliant version of the loan accounting system from the vendor. The new
loan accounting software is in functionality testing and CFC will conduct
its own year 2000 testing once the functionality testing has been completed.
We have received one compliant module of the treasury system and are waiting
for the second module, which is expected by the end of January 1999. Once
the second module has been received, the new version of the treasury system
will be installed and tested first for functionality and then for year 2000
compliance. The customer information system was developed in house and is
believed to be compliant. Compliance testing on the customer information
system will be conducted once the functionality testing has been completed.
Each business application owner has developed a test plan and contingency
plan. A majority of the other business systems used by CFC have been tested
and deemed compliant by CFC. Any systems that have not been tested
<PAGE>
will be tested soon after the completion of the functionality testing on the
new server has been completed. All test plans and results have been
documented. The contingency plans will be maintained as part of the over
remediation effort documentation.
CFC has performed all work related to the year 2000 compliance plan
internally. CFC plans to perform all testing and implementation of the
required solutions internally. The overall cost of remediating CFC's year
2000 problem is expected to be insignificant and not anticipated to
adversely impact operations. Due to business reasons, CFC moved from a
mainframe platform to a client server platform and implemented new operating
systems and core applications beginning in 1995. As a result, many of CFC's
year 2000 issues were mitigated.
CFC does not anticipate that problems related to the year 2000 will
significantly impact internal operations. However, CFC depends on the
federal wire system to advance loan funds and to collect debt service
payments on loans. CFC also depends on the capital markets for the bulk of
its loan funding. Serious disruptions in these areas could also impact CFC.
In addition, the borrowers' ability to make debt service payments to CFC are
dependent on their ability to generate and deliver electric power and to
deliver telecommunications services to their customers. Disruptions to these
services could impact the borrowers' ability to make debt service payments to
CFC. Factors mitigating the potential impact of service disruptions include:
(i) borrowers have cash balances and the ability to draw down on lines of
credit to temporarily cover debt service payments, (ii) electric power was
generated and transmitted to customers prior to the present level of computer
automation, thus manual operation of plants and distribution systems is
possible and (iii) CFC maintains a revolving credit facility and bank lines of
credit, which could be drawn upon to meet debt obligations in the event that
borrowers experience temporary difficulty in making their debt service
payments.
At this time, CFC can not estimate the potential impact of year 2000 related
problems on its electric and telecommunications borrowers. CFC will require
its borrowers to provide details of their compliance effort in the officers'
certificate for the year ended December 31, 1998. The majority of these
letters have been mailed at this time. Once the member responses have been
collected, CFC will be able to make a better assessment of its borrowers'
remediation efforts and potential impacts to operations.
CFC is currently working on contingency plans, automated and manual, for each
of its internal systems.
<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
4.1 - Amendment to the Revolving Credit Agreement dated as of
November 24, 1998 amending and restating the agreement
dated as of February 28, 1995, as amended and restated
as of November 26, 1996 and Novmber 25, 1997.
4.2 - Amendment to the Revolving Credit Agreement dated as of
November 25, 1998 amending and restating the agreement
dated as of April 30, 1996, as amended and restated
as of November 27, 1996.
27 - Financial Data Schedules.
Revolving Credit Agreements
B. Reports on Form 8-K.
Item 7 on September 25, 1998-Filing Underwriting Agreement
for 5.30% Collateral Trust Bonds, due 2003.
Item 7 on October 7, 1998-Filing of Underwriting Agreement
for 5.00% Collateral Trust Bonds, due 2002.
Item 7 on November 5, 1998-Filing of Underwriting Agreement
for 6.55% Collateral Trust Bonds, due 2018 and 5.75%
Collateral Trust Bonds, due 2008.
<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/ Angelo M. Salera
Acting Chief Financial Officer
January 14, 1999
/s/ Steven L. Slepian
Controller (Principal Accounting Officer)
January 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
February 28, 1998, 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-30-1998
<CASH> 95,425
<SECURITIES> 0
<RECEIVABLES> 123,279
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,017,912
<PP&E> 36,085
<DEPRECIATION> 8,190
<TOTAL-ASSETS> 12,183,843
<CURRENT-LIABILITIES> 4,488,297
<BONDS> 6,172,119
0
0
<COMMON> 0
<OTHER-SE> 1,523,427
<TOTAL-LIABILITY-AND-EQUITY> 12,183,843
<SALES> 372,381
<TOTAL-REVENUES> 373,463
<CGS> 310,367
<TOTAL-COSTS> 310,367
<OTHER-EXPENSES> 11,593
<LOSS-PROVISION> 15,780
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,723
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,723
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
____________________
AMENDED AND RESTATED CREDIT AGREEMENT
(364-Day Agreement)
dated as of November 24, 1998
____________________
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent,
J.P. MORGAN SECURITIES INC. and
THE BANK OF NOVA SCOTIA,
as Co-Syndication Agents
____________________
J.P. MORGAN SECURITIES INC. and
THE BANK OF NOVA SCOTIA,
Co-Lead Arrangers
____________________
NATIONSBANK, N.A. and
THE FIRST NATIONAL BANK OF CHICAGO,
Co-Documentation Agents
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
(364-Day Agreement)
AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 24, 1998 amending
and restating the 364-Day Credit Agreement dated as of February 28, 1995, as
amended and restated as of November 26, 1996 and as amended and restated as
of November 25, 1997 (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;
WHEREAS, no Loans are outstanding under the Agreement at the date hereof; 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 24, 1998" with the date "November 23, 1999".
<PAGE>
SECTION 3. Increase of Commitments. The third proviso in Section 2.16 is
amended to read in its entirety as follows:
"provided, further that any such increase or creation may apply, at the
option of the Borrower, as set forth in clause (x) or (y) above but without
the consent of the Required Banks so long as the amount of such increase or
the amount of such new Commitment so created, as the case may be, when added
to the aggregate amount of all existing Commitments, does not exceed
$2,700,000,000. It is understood that any increase in the amount of the
Commitments pursuant to this Section 2.16 shall not constitute an amendment
to this Agreement or the Notes."
SECTION 4. Financial Statements. (a) Each reference to "May 31, 1996" in
Section 4.02(a) of the Agreement is changed to "May 31, 1998".
(b) Each reference to "August 31, 1996" in Section 4.02(b) of
the Agreement is changed to "August 31, 1998".
SECTION 5. Pricing Schedule. The Pricing Schedule is amended to read in its
entirety as set forth in Exhibit A hereto.
SECTION 6. Amendments to Commitments. With effect from and including the
date this Amendment and Restatement becomes effective in accordance with
Section 10: (i) each Person listed on the signature pages hereof which is
not a party to the Agreement shall become a Bank party to the Agreement and
(ii) 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
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 7. Increase of Commitments under Five-Year Amended and Restated
Revolving Credit Agreement. By entering into this Agreement, each Bank which
is as of the date hereof a party to the Five-Year Amended and Restated
Revolving Credit Agreement dated as of November 26, 1996 among the Borrower,
the several Banks from time to time party thereto, the Co-Syndication Agents
and the Agent (the "Five-Year Agreement"), hereby waives the 45-day advance
notice requirement of Section 2.16 of the Five-Year Agreement to the extent
necessary to permit any party to this Agreement to increase its Commitment
(as defined in the Five-Year Agreement) under the Five-Year Agreement or
become a party thereto, as the case may be, by execution and delivery of a
counterpart thereto.
<PAGE>
SECTION 8. 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 9. Governing Law. This Amendment and Restatement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 10. 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 24, 1998. 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: Senior Vice President and Chief Financial Officer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Carl J. Mehldau, Jr.
Title: Associate
THE BANK OF NOVA SCOTIA
By: /s/ James 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
<PAGE>
BANCA CRT S.p.A.
By: /s/ J. Slade Carter, Jr.
Title: Vice President
By: /s/ Eric S. Salat
Title: Vice President Corporate Banking
BANCA MONTE DEI PASCHI DI SIENA,
S.p.A.
By: /s/ G. Natalicchi
Title: Senior Vice president and General Manager
By:/s/ Brian R. Landy
Title: Vice President
BANK OF MONTREAL
By: /s/ Ian M. Plester
Title: Director
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ John R. Jeffers
Title: Senior Vice President and Manager
<PAGE>
BANKERS TRUST COMPANY
By: /s/Marcus M. Tarkington
Title: Principal
BANQUE NATIONALE DE PARIS
By: /s/ Veronique Marcus
Title: Assistant Vice President
By: /s/ Phil Truesdale
Title: Vice President
BARCLAYS BANK PLC
By: /s/ Karen M. Wagner
Title: Associate Director
BAYERISCHE LANDESBANK
GIROZENTRALE
By: /s/ Alexander Kohnert
Title: Vice President
By: /s/ Scott Allison
Title: First Vice President
<PAGE>
COMMERZBANK AG, NEW YORK
BRANCH
By: /s/ Robert Donohue
Title: Vice President
By: /s/ Peter Doyle
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Vladimir Labun
Title: First Vice President - Manager
CRESTAR BANK
By: /s/ Diane E. Bauman
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Stan C. Rosendahl
Title: Vice President
KBC BANK N.V.
By: /s/ Robert Snauffer
Title: First Vice President
By: /s/ Marcel Claes
Title: Deputy General Manager
<PAGE>
MELLON BANK, N.A.
By: /s/ Mark W. Rogers
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/ Irene A. Burczynski
Title: Vice President
By: /s/ Stephen K. Hunter
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Thomas A. Majeski
Title: Vice President
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ Mark L. Laponte
Title: Vice President
By: /s/ W. Pieter C. Kodde
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
N.A.
By:/s/ Ronald K. Rueve
Title: Vice president
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Madeleine N. Pember
Title: Assistant Vice President
THE FUJI BANK, LIMITED
By: /s/ Raymond Ventura
Title: Vice President and Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ John Dippo
Title: Senior Vice President
<PAGE>
THE NORINCHUKIN BANK, NEW YORK
BRANCH
By: /s/ Yoshiro Niiro
Title: General Manager
THE TOKAI BANK, LTD.
By: /s/ Shinichi Allen Nakatani
Title: Assistant General Manager
THE TORONTO-DOMINION BANK
By: /s/ Sonja R. Jordan
Title: Manager Credit Administration
BANCO DI NAPOLI, S.p.A. - NEW YORK
BRANCH
By: /s/ Vito Spada
Title: Executive Vice President
By: /s/ Francesco Di Mario
Title: Vice President
COMERICA BANK
By: /s/ Dan M. Roman
Title: Vice President
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By: /s/ Cheryl A. Solometo
Title: Vice President
By: /s/ Craig Welch
Title: Financial Vice President
FIRST HAWAIIAN BANK
By: /s/ Scott R. Nahme
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Thomas L. Casey
Title: Vice President
J.P. MORGAN SECURITIES INC., as Arranger and Co-Syndication Agent
By: /s/ Timothy S. Broadbent
Title: Vice President
THE BANK OF NOVA SCOTIA, as
Co-Syndication Agent
By: /s/ James R. Trimble
Title: Senior Relationship Manager
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
By: /s/ Carl J. Mehldau, Jr.
Title: Associate
<PAGE>
THE ASAHI BANK, LTD.
By: /s/ Douglas E. Price
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., NEW YORK BRANCH
By: /s/ Greg Hong
Title: Deputy General Manager
BANK AUSTRIA AG
By: /s/ Robert TenHave
Title: Senior Vice President
By: /s/ Amy Rick
Title: Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By: /s/ Azlan S. Ahmad
Title: Account Officer
<PAGE>
DRESDNER BANK AG
By: /s/ Andrew Schroeder
Title: Vice President
By /s/ Lucas Missong
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By: /s/ Anne Marie Torre
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By: /s/ Anne Marie Torre
Title: Vice President
THE SAKURA BANK, LTD.
By: /s/ Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK, LIMITED
By: /s/ Stephen C. Small
Title: Vice President and Area Manager
THE TOYO TRUST AND BANKING
COMPANY, LIMITED, NEW YORK BRANCH
By: /s/ Takashi Mikumo
Title: Vice President
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Donald H. Rubin
Title: Vice President
THE YASUDA TRUST & BANKING
COMPANY LTD.
By: /s/ Junichiro Kawamura
Title: Vice President
US BANK NATIONAL ASSOCIATION
By: /s/ Thomas W. Cherry
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Thomas L. Rose
Title: Vice President
BANCA DI ROMA
By: /s/ William J. Fontana
Title: Vice President
By: /s/ Steven Paley
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Joe K. Dancy
Title: Associate
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Ann C. Pifer
Title: Vice President
<PAGE>
EXHIBIT A
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day
are the respective percentages set forth below in the applicable row under
the column corresponding to the Status and Utilization that exist on such
day:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III
<S> <C> <C> <C>
>
Euro-Dollar 0.165% 0.20% 0.23%
Margin
If Utilization is equal
to or less than 50%
If Utilization exceeds
50% 0.165% 0.325% 0.355%
CD Margin 0.295% 0.325% 0.355%
If Utilization is equal
to or less than 50%
If Utilization exceeds 50% 0.295% 0.45% 0.48%
Facility Fee Rate 0.085% 0.10% 0.12%
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Borrower has
outstanding senior unsecured long-term debt and such debt, without third
party enhancement, is rated (or, if on such date the Borrower has no
outstanding senior unsecured long-term debt, evidence satisfactory to
the Agent is provided to the effect that the rating of senior unsecured
long-term debt of the Borrower, assuming that it had outstanding senior
unsecured long-term debt, would be rated) at least AA- (or any equivalent
rating which is used in lieu thereof) by S&P or Aa3 (or any equivalent rating
which is used in lieu thereof) by Moody's.
<PAGE>
"Level II Status" exists at any date, if at such date, the Borrower has
outstanding senior unsecured long-term debt and such debt, without third
party enhancement, is rated (or, if on such date the Borrower has no
outstanding senior unsecured long-term debt, evidence satisfactory to the
Agent is provided to the effect that the rating of senior unsecured
long-term debt of the Borrower, assuming that it had outstanding senior
unsecured long-term debt, would be rated) at least A+ (or any equivalent
rating which is used in lieu thereof) or higher by S&P or A1 (or any
equivalent rating which is used in lieu thereof) or higher by Moody's and
Level I Status does not exist at such date.
"Level III Status" exists at any date if, at such date, neither of Level I
Status nor Level II Status exists.
"Status" refers to the determination of which of Level I Status, Level II
Status or Level III Status exists at any date.
"Utilization" means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason
any Loans remain outstanding after termination of the Commitments, the
Utilization for each date on or after the date of such termination shall be
deemed to be greater than 50%.
The credit ratings to be utilized for purposes of this Pricing Schedule shall
be, so long as the Borrower's unsecured Medium Term Notes are rated by either
S&P or Moody's, those assigned to the Borrower's unsecured Medium Term Notes.
The rating in effect at any date is that in effect at the close of business
on such date.
<PAGE>
Schedule I
<TABLE>
<CAPTION>
Bank Commitment
<S> <C>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK $ 150,000,000
THE FIRST NATIONAL BANK OF CHICAGO $ 150,000,000
THE BANK OF NOVA SCOTIA $ 145,000,000
CREDIT LYONNAIS NEW YORK BRANCH $ 135,000,000
THE CHASE MANHATTAN BANK $ 135,000,000
ABN-AMRO BANK N.V. $ 120,000,000
THE TORONTO-DOMINION BANK $ 90,000,000
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", NEW YORK BRANCH $ 85,000,000
BANK OF TOKYO-MITSUBISHI TRUST COMPANY $ 77,500,000
THE NORINCHUKIN BANK, NEW YORK BRANCH $ 62,500,000
US BANK NATIONAL ASSOCIATION $ 60,000,000
COMERICA BANK $ 50,000,000
FLEET NATIONAL BANK $ 50,000,000
PNC BANK, NATIONAL ASSOCIATION $ 50,000,000
THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH $ 42,500,000
BANCA MONTE DEI PASCHI DI SIENA, S.p.A. $ 40,000,000
NATIONSBANK, N.A. $ 40,000,000
COMMERZBANK AG, NEW YORK BRANCH $ 37,500,000
NORDDEUTSCHE LANDESBANK GIROZENTRALE New York Branch
and/or Cayman Island Branch $ 37,500,000
KBC BANK N.V. $ 30,000,000
THE FUJI BANK, LIMITED $ 30,000,000
BANCO DI NAPOLI, S.p.A - NEW YORK BRANCH $ 25,000,000
BANKERS TRUST COMPANY $ 25,000,000
BANQUE NATIONALE DE PARIS $ 25,000,000
BARCLAYS BANK PLC $ 25,000,000
BAYERISCHE LANDESBANK GIROZENTRALE $ 25,000,000
CRESTAR BANK $ 25,000,000
HARRIS TRUST AND SAVINGS BANK $ 25,000,000
MELLON BANK, N.A. $ 25,000,000
THE TOKAI BANK, LTD. $ 25,000,000
BANCA CRT S.p.A. $ 20,000,000
SUNTRUST BANK, CENTRAL FLORIDA, N.A. $ 17,500,000
BANCA DI ROMA $ 12,500,000
BANK OF MONTREAL $ 12,500,000
FIRST HAWAIIAN BANK $ 12,500,000
FIRST UNION NATIONAL BANK $ 12,500,000
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION $ 10,000,000
BANK AUSTRIA AG $ 0
CREDIT AGRICOLE INDOSUEZ $ 0
DRESDNER BANK AG $ 0
NATIONAL WESTMINSTER BANK PLC New
York Branch and Nassau Branch $ 0
THE ASAHI BANK, LTD. $ 0
THE DAI-ICHI KANGYO BANK, LTD. $ 0
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
NEW YORK BRANCH $ 0
THE SAKURA BANK, LTD. $ 0
THE SANWA BANK, LIMITED $ 0
THE TOYO TRUST AND BANKING COMPANY, LIMITED,
NEW YORK BRANCH $ 0
THE YASUDA TRUST & BANKING COMPANY LTD. $ 0
UNION BANK OF CALIFORNIA, N.A. $ 0
Total Commitments $ 1,940,000,000
</TABLE>
SECOND AMENDMENT TO REVOLVING CREDIT AND
TERM LOAN AGREEMENT
THIS SECOND AMENDMENT, dated as of November 25, 1998 (this Amendment), to
the Original Agreement (as defined below) is entered into among NATIONAL
RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative
association incorporated under the laws of the District of Columbia, as
Borrower, the BANKS listed on the signature pages hereof, and THE BANK OF
NOVA SCOTIA, as the administrative agent (in such capacity, the
Administrative Agent).
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Administrative Agent have heretofore
entered into a Revolving Credit and Term Loan Agreement, dated as of April
30, 1996 (as amended by a First Amendment, dated as of November 27, 1996, as
supplemented by various extension letters from the Banks and as further
amended or otherwise modified prior to the date hereof, the Original
Agreement); and
WHEREAS, the Borrower has requested the Banks and the Administrative Agent to
amend the Original Agreement in certain respects as set forth below; and
WHEREAS, the Banks and the Agent are willing, on the terms and conditions set
forth below, to amend the Original Agreement in certain respects as provided
below;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Borrower, the Banks and the Agent hereby
agree as follows.
ARTICLE I
DEFINITIONS
SECTION I.1. Certain Definitions. The following terms when used in this
Amendment shall have the following meanings (such meanings to be equally
applicable to the singular and plural form thereof):
Administrative Agent is defined in the preamble.
Amendment is defined in the preamble.
Credit Agreement means the Original Agreement, as amended pursuant to the
terms of this Amendment.
Original Agreement is defined in the first recital.
SECTION I.2. Other Definitions. Terms for which meanings are provided in
the Original Agreement are, unless otherwise defined herein or the context
otherwise requires, used in this Amendment
with such meanings.
ARTICLE II
AMENDMENTS TO
ORIGINAL AGREEMENT
Effective on (and subject to the occurrence of) the Second Amendment Effective
Date, the Original Agreement is hereby amended in accordance with the terms
of this Article. Except as so amended or modified by this Amendment, the
Original Agreement shall continue in full force and effect.
SECTION II.1. Amendment to Preamble. The Preamble to the Original Agreement
is hereby amended in its entirety to read as follows:
REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of April 30, 1996, among
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit
cooperative association incorporated under the laws of the District of
Columbia, as Borrower, the BANKS listed on the signature pages hereof, THE
BANK OF NOVA SCOTIA, as Lead Arranger and as Administrative Agent and THE
CHASE MANHATTAN BANK, N.A., as Documentation Agent.
SECTION II.2. Amendments to Article I. Article I of the Original Agreement
is hereby amended in accordance with Sections 2.2.1 and 2.2.2 below.
SECTION II.2.1. Section 1.01 of the Original Agreement is hereby amended by
inserting the following definitions in the appropriate alphabetical order:
Second Amendment means the Second Amendment, dated as of November 25, 1998,
to this Agreement, among the Borrower, the Banks parties thereto and the
Agent.
Second Amendment Effective Date is defined in Section 3.1 of the Second
Amendment.
SECTION II.2.2. Section 1.01 of the Original Agreement is hereby further
amended as follows:
(a) the definition of Revolving Credit Period is hereby amended in its
entirety to read as follows:
Revolving Credit Period means the period from and including the Second
Amendment Effective Date to but excluding the Revolving Credit Period
Termination Date.
(b) the definition of Revolving Credit Period Termination Date is hereby
amended in its entirety to read as follows:
Revolving Credit Period Termination Date means November 24, 1999, or such
later date to which the Revolving Credit Period shall have been extended
pursuant to Section 2.01(b), or, if either such day is not a Euro-Dollar
Business Day, the next preceding Euro-Dollar Business Day.
SECTION II.3. Amendment to Pricing Schedule. The Pricing Schedule attached
to the Original Agreement is hereby deleted and replaced with the Pricing
Schedule attached hereto as Exhibit A. From and after the Second Amendment
Effective Date, all references to the Pricing Schedule shall be deemed to
refer to the Pricing Schedule attached hereto as Exhibit A.
SECTION II.4. Amendment to Article VII and Global Amendment to Credit
Agreement. Article VII of the Original Agreement is hereby amended by
adding a new Section 7.09, to read in its entirety as follows:
SECTION 7.09. The Documentation Agent and the Lead Arranger. Notwithstanding
anything else to the contrary contained in this Agreement, the Documentation
Agent and the Lead Arranger, in such capacity, shall not have any rights,
duties or responsibilities under this Agreement or the Notes, or any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Documentation Agent or the Lead
Arranger in such capacity.
Furthermore, the Original Agreement and each Note is hereby amended to
replace each reference to The Bank of Nova Scotia as Agent with a reference
to the Administrative Agent.
SECTION II.5. Commitments. The term Commitment as used in the Original
Agreement shall mean, with respect to each Bank, the amount set forth opposite
the name of such Bank on the signature pages thereof (as such amount may have
been modified from time to time pursuant to the Original Agreement), and from
and after the Second Amendment Effective Date, the term Commitment shall
mean the amount set forth opposite a particular Bank's name on the signature
pages to this Amendment (as modified from to time pursuant to the terms of
the Credit Agreement) as of the Second Amendment Effective Date.
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION III.1. Effectiveness. (a) This Amendment shall become effective as
of the date first set forth above (the Second Amendment Effective Date)
when the Agent shall have received the following documents, each dated the
Second Amendment Effective Date unless otherwise indicated:
(i) receipt by the Agent of counterparts hereof signed by the Borrower and
each Bank (or, in the case of any party as to which an executed counterpart
shall not have been received, receipt by the Agent in form satisfactory to
it of telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
(ii) receipt by the Agent of all documents the Required Banks may reasonably
request relating to the existence of the Borrower, the corporate authority
for and the validity of this Amendment, the Original Agreement (as amended
hereby) and the Notes, and any other matters relevant hereto, all in form
and substance satisfactory to the Agent; and
(iii) receipt by the Agent, for the account of the Banks, of all fees
accrued to but excluding the Second Amendment Effective Date for the account
of the Agent pursuant to Section 2.08(b) of the Original Agreement.
(b) The Agent shall promptly notify the Borrower and the Banks of the
occurrence of the Second Amendment Effective Date, and such notice shall
be conclusive and binding on all parties hereto.
(c) On and after the Second Amendment Effective Date, the rights and
obligations of the parties hereto shall be governed by the Original
Agreement, as amended by this Amendment; provided, that rights and
obligations of the parties hereto with respect to the period prior to the
Second Amendment Effective Date shall continue to be governed by the
provisions of the Original Agreement; and provided further, that all
references to the date hereof or the date of this Agreement contained
in the Original Agreement shall be deemed to refer to the Second Amendment
Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower hereby reaffirms, as of the date hereof, the representations,
warranties and agreements set forth in Article IV of the Original Agreement,
and hereby makes the following additional representations, warranties and
agreements, each of which shall survive the execution and delivery of this
Amendment:
SECTION IV.1. Corporate Power and Authority. The Borrower has the
corporate power and authority to execute, deliver and carry out the terms
and provisions of this Amendment, the Original Agreement (as amended hereby)
and the Notes. This Amendment, the Original Agreement and the Notes have
been duly and validly authorized, executed and delivered by the Borrower,
and this Amendment and the Original Agreement (as amended hereby) each
constitutes a legal, valid and binding agreement of the Borrower, and the
Notes constitute legal, valid and binding obligations of the Borrower, in
each case enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and by general principles of equity.
SECTION IV.2. No Violation of Agreements. Neither the execution and
delivery of this Amendment, the Original Agreement (as amended hereby) or
the Notes, nor the consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or thereof,
will contravene any provision of law, statute, rule or regulation to which
the Borrower is subject or any judgment, decree, award, franchise, order or
permit applicable to the Borrower, or will conflict or be inconsistent with,
or will result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute (or with the giving of notice or lapse of time,
or both, would constitute) a default under (or condition or event entitling
any Person to require, whether by purchase, redemption, acceleration or
otherwise, the Borrower to perform any obligations prior to the scheduled
maturity thereof), or result in the creation or imposition of any Lien upon
any of the property or assets of the Borrower pursuant to the terms of, any
indenture, mortgage, deed of trust, agreement or other instrument to which
it may be subject, or violate any provision of the certificate of
incorporation or by-laws of the Borrower.
SECTION IV.3. No Default. No Default or Event of Default has occurred and
is continuing under the Original Agreement.
ARTICLE V
MISCELLANEOUS
SECTION V.1. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION V.2. Counterparts; Integration. This Amendment 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 the Original Agreement (as amended hereby) constitute the
entire agreement and understanding among the parties hereto and supersedes
any and all prior agreements and understandings, oral or written, relating
to the subject matter hereof.
SECTION V.3. Several Obligations. The obligations of the Banks hereunder
and under the Original Agreement (as amended hereby) are several. Neither
the failure of any Bank to carry out its obligations hereunder or under the
Original Agreement (as amended hereby) nor of this Amendment or the Original
Agreement (as amended hereby) to be duly authorized, executed and delivered
by any Bank shall relieve any other Bank of its obligations hereunder or
thereunder (or affect the rights hereunder or thereunder of such other Bank).
No Bank shall be responsible for the obligations of, or any action taken or
omitted by, any other Bank hereunder or thereunder.
SECTION V.4. Severability. In case any provision in or obligation under
this Amendment or the Original Agreement (as amended hereby) shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION V.5. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AMENDMENT
OR THE ORIGINAL AGREEMENT (AS AMENDED HEREBY), OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
AGENT, THE BANKS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY
IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE BANKS, THE
AGENT AND THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR
THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH
LITIGATION. THE BANKS, THE AGENT AND THE BORROWER IRREVOCABLY CONSENT TO
THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BANKS, THE AGENT AND
THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO
THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT ANY BANK, THE AGENT OR THE BORROWER
HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR
FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT
OF ITS OBLIGATIONS UNDER THIS AMENDMENT AND THE ORIGINAL AGREEMENT (AS
AMENDED HEREBY).
SECTION V.6. Waiver of Jury Trial. THE AGENT, THE BANKS AND THE BORROWER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AMENDMENT AND THE ORIGINAL
AGREEMENT (AS AMENDED HEREBY), OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE BANKS OR
THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL
AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING INTO THIS AMENDMENT
AND THE ORIGINAL AGREEMENT (AS AMENDED HEREBY).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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: Senior Vice-President & Chief Financial Officer
Address: Woodland Park
2201 Cooperative Way
Herndon, Virginia 22071-3025
Attention: Ms. Linda Graham
Telephone No.: (703) 709-6700
Telecopier No.: (703) 709-6779
Commitments
$50,000,000 ABN AMRO BANK N.V.
NEW YORK BRANCH
By /s/ Diane R. Maurice
Title: Vice President
By /s/ John M. Kinney
Title: Assistant Vice President
$50,000,000 NATIONSBANK, N.A.
By /s/ Paula Z. Kramp
Title: Vice President
$50,000,000 CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Vladimir Labun
Title: First Vice President - Manager
$50,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Madeleine N. Pember
Title: Assistant Vice President
$50,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Carl J. Mehldau, Jr.
Title: Associate
$50,000,000 RABOBANK NEDERLAND, NEW YORK BRANCH
By /s/ Mark L. Laponte
Title: Vice Presdient
By /s/ W. Pieter C. Kodde
Title: Vice President
$50,000,000 THE BANK OF NOVA SCOTIA
By /s/ J.R. Trimble
Title: Senior Relationship Manager
$50,000,000 THE CHASE MANHATTAN BANK
By /s/ Thomas L. Casey
Title: Vice President
$50,000,000 THE TORONTO-DOMINION BANK
By /s/ Sonja R. Jordan
Title: Mgr. CR. Admin.
Total Commitments
$450,000,000 THE BANK OF NOVA SCOTIA, as Administrative Agent
By /s/ J.R. Trimble
Title: Senior Relationship Manager
EXHIBIT A
PRICING SCHEDULE
The Euro-Dollar Margin, CD Margin and Facility Fee Rate for any day
are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
<TABLE>
<S> <C> <C> <C>
Status Level I Level II Level III
Euro-Dollar Margin:
If Utilization is equal to
or less than 50% 0.165% 0.20% 0.23%
If Utilization exceeds 50% 0.165% 0.325% 0.355%
CD Margin:
If Utilization is equal to
or less than 50% 0.295% 0.325% 0.355%
If Utilization exceeds 50% 0.295% 0.45% 0.48%
Facility Fee Rate 0.085% 0.10% 0.12%
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
Level I Status exists at any date if, at such date, the Borrower has
outstanding senior unsecured long-term debt and such debt, without third
party enhancement, is rated (or, if on such date the Borrower has no
outstanding senior unsecured long-term debt, evidence satisfactory to the
Agent is provided to the effect that the rating of senior unsecured long-term
debt of the Borrower, assuming that it had outstanding senior unsecured
long-term debt, would be rated) at least AA- (or any equivalent rating which
is used in lieu thereof) by S&P or Aa3 (or any equivalent rating which is
used in lieu thereof) by Moody's.
Level II Status exists at any date, if at such date, the Borrower has
outstanding senior unsecured long-term debt and such debt, without third
party enhancement, is rated (or, if on such date the Borrower has no
outstanding senior unsecured long-term debt, evidence satisfactory to the
Agent is provided to the effect that the rating of senior unsecured long-
term debt of the Borrower, assuming that it had outstanding senior unsecured
long-term debt, would be rated) at least A+ (or any equivalent rating which
is used in lieu thereof) or higher by S&P or A1 (or any equivalent rating
which is used in lieu thereof) or higher by Moody's and Level I Status does
not exist at such date.
Level III Status exists at any date if, at such date, neither Level I
Status nor Level II Status exists.
Status refers to the determination of which of Level I Status, Level II
Status or Level III Status exists at any date.
Utilization means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason
any Loans remain outstanding after termination of the Commitments, the
Utilization for each date on or after the date of such termination shall be
deemed to be greater than 50%.
The credit ratings to be utilized for purposes of this Pricing Schedule shall
be, so long as the Borrower's unsecured Medium Term Notes are rated by either
S&P or Moody's, those assigned to the Borrower's unsecured Medium Term Notes.
The rating in effect at any date is that in effect at the close of business
on such date.
