Reality speaks - 12/3/2024 08:05

Boone & Crockett - 12/3/2024 05:02

What can and will still take the operation down is a collapse in land values large enough that when the bank “marks to market” current valuation, this can/does/will wipe out or significantly erode the working capital down to a level where the bank simply will not renew the operating note. They aren’t necessarily calling the land loan due, but with no operating LOC what options does the producer now have? He’s now out of business, but may somehow still be able to hang onto the land if he can find a job and still continue to make payments from the cash rent.




How exactly would that play out? Working capital has nothing to do with land valuations.

I think he is conflating a couple things as one. The collapse of land value in conjunction with a massive illiquid financial position is what causes the deal to tip over. The operating lender many times by taking a mortgage on the dirt will allow the customer to be illiquid because they can rationalize that they are protected by the land equity. But if they wake up and find that the land equity is all of the sudden gone or impaired and the customer is still illiquid and has no plan of his own to correct it, They will terminate the operating line and attempt to collect it via the legal process which because they have a mortgage on the farm ground they will have the right to foreclose on said farm even if the borrower never missed any payments on the actual farm mortgage debt.