2009 Farmers Cooperative Conference

Credit Markets UpdateNovember 9, 2009

2

Debt Market Overview

Economy emerging from recession, but

Expectation for low-growth economic recovery

Strong recent rally in equity markets, relatively strong quarterly earnings

Sidelined cash looking for risk beyond US Treasuries

Leveraged finance (loans and bonds) rallying as well YTD net HY bond inflows of $15.6 billion, highest since 2003 Bond market adding technical support to loan market through deal refinancing Secondary market trading spreads have narrowed off of unprecedented high levels at

beginning of the year but still remain very high for any market cycle Dispersion of spreads for any given credit profile very wide, lack of market consensus

on pricing

3

Debt Market Overview

Loan market still somewhat sluggish due to on-going problems of banks

Consumer lending portfolios tied to deteriorating unemployment fundamentals Commercial real estate portfolios also deteriorating now Corporate loan demand is off as well as companies are slashing cap-x

budgets Corporate defaults are on the rise Very large debt maturities over next five years

44

Percent of Leveraged Loans in Payment Default or Bankruptcy

0.0%1.0%1.0%

11.3%

3.7%

0.6%

1.9%

3.6%

7.4%

10.0%

4.0%

9.9%

7.0%

2.6%

0%

3%

6%

9%

12%

15%

YE1996

YE1997

YE1998

YE1999

YE2000

YE2001

YE2002

YE2003

YE2004

YE2005

YE2006

YE2007

YE2008

10/16

/200

9

As of

5

High Yield Bond and Lev. Loan Maturities

0

50

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014 2015 2016

Institutional Loans High Yield Bonds

($billions)

66

Loan Spreads Over LIBOR for BB/BB-

6

Average New-Issue Pro Rata & Weighted Average First-Lien Institutional Spread of BB/BB- Loans

L+100

L+200

L+300

L+400

L+500

L+600

Pro Rata Institutional

77

Loan Spreads Over LIBOR for B+/B

7

Average New-Issue Pro Rata & Weighted Average First-Lien Institutional Spread of B+/B Loans

L+150

L+250

L+350

L+450

L+550

Pro Rata Institutional

88

Middle Market Spreads (Cash Flow < $50MM)

8

L+200

L+300

L+400

L+500

L+600

Institutional

Pro Rata

99

Secondary Market Trading Spreads By Rating

9

L+0L+200L+400L+600L+800

L+1000L+1200L+1400L+1600L+1800L+2000L+2200L+2400L+2600L+2800L+3000L+3200

B Loans

All BB/B Loans

BB Loans

10

Deal Structure Trends

Lower leverage, higher equity levels required

Tighter covenants and security packages More asset-based financing Borrowing bases

Shorter maturity loans

Very few dividend recapitalization deals

Original-issue discounts, higher up-front fees

Libor floors often set at 2 to 2.5%

More rigorous excess cash flow sweeps

1111

Average Debt to Cash Flow Multiples

11

8.8

7.16.7

5.35.0 5.1 5.3 5.2

5.8 5.65.2

4.54.0

3.7 3.8 3.94.2 4.3 4.4

4.9

3.84.3

3.63.9

3.1

4.1 3.93.6 3.6 3.5

4.1 3.94.3 4.4

3.7 3.73.5 3.6

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

1987198

8198

9199

0199

2199

3199

4199

5199

6199

7199

8199

9200

0200

1200

2200

3200

4200

5200

6200

7200

81Q08

2Q083Q08

4Q08

Oct-08

Nov-08

Dec-0

8

Jan-

09

Feb-09

Mar-

09

Apr-09

May

-09

Jun-0

9Ju

l-09

Aug-09

Sep-09

ME 10

/22/09

FLD/EBITDA SLD/EBITDA Other Sr Debt/EBITDA Sub Debt/EBITDA

12

Food and Beverage Company Credit Stats

0.0x

2.0x

4.0x

6.0x

Debt/EBITDA Senior Debt/EBITDA EBITDA/Cash Interest EBITDA - Capex/CashInterest

2000 (26) 2001 (22) 2002 (29) 2003 (38) 2004 (41) 2005 (28)

2006 (39) 2007 (22) 2008 (17) 1Q-3Q09 (9)

13

Credit Crisis Impact on Agribusiness

Financing liquidity and working capital

Volatile grain, petroleum and fertilizer prices

Impact on agricultural futures prices

Financial investors’ positive long term view Funds flow related volatility: hedge funds, commodity index funds and ETFs Commodities as a low correlation asset class

Deflation bad for commodities, inflation good

How long will deflation last?

Fiscal and monetary stimulation vs. recession and deleveraging

14

Investor Focus and Managing Bank Groups

Credit risk

Liquidity requirements and sources Leverage, debt service coverage Asset quality and collateral

Risk management

More disclosure, due-diligence questioning Hedging policies and procedures

• Written policies that are updated regularly

• Board approved policies

• Hedging performance, earnings/cash flow volatility

15

Investor Focus and Managing Bank Groups

Communication

More updates with bank groups Improved forecasting models, compliance reporting Many companies making the effort to visit their key banking relationships Understanding the credit underwriting process

Loyalty in awarding non-lending business

Balance best product providers with largest financial commitments Many banks are demanding about “other business” before committing their

balance sheets

16

Investor Segments

Commercial banks

Supportive of top tier relationships Reconsidering desired business lines, markets, industries, corporate

relationships Distracted by mergers and comprehensive restructuring events Focused on

• Credit quality and risk

• Conservative structures: shorter tenors, tighter covenants, cash flow sweeps, hedging requirements, borrowing bases, and security packages

• Loan purpose important

• Higher loan spreads and fees, OID discounts, Libor floors

• Ancillary business

Some banks implementing capital allocation committees in addition to credit committees as second level of relationship evaluation

16

17

Investor Segments

Insurance companies

Private placement market following recovery of public bond market Selectively returning to the investment grade market Sub-investment grade market (NAIC 3 and below) effectively non-existent Only very small allocations for floating rate market

CLOs

Enjoying strong technical factors (loans converting to bonds), loan repayment net inflows Loan funding costs still very high Some fund merger/consolidation and liquidation

Hedge funds and private equity firms

More stable now Deleveraging at slower pace Shifting emphasis to bankruptcy, restructuring, advisory, and distressed trading Merger and acquisition activity slowly returning

17

18

Farm Credit System

Generally FCS institutions have strong capitalization ratios

Relatively clean loan portfolios with historically high credit statistics going into the credit crisis

Relatively strong GSE funding source

Virtually all buy-side participants open for new business

Most buy-side groups have annual asset growth objectives of mid to upper single digits

Some credit stress in dairy, ethanol, protein, and building products sectors

18

19

Farm Credit System

High degree of familiarity with all the agribusiness segments

Long term dedication to the industry (commit and hold investors)

Flexible to fund a broad range of credit profiles

Longer tenors and customized, one-off structures

Large, early FCS commitments add significant “industry-savvy” momentum to the deal

Quick response time, localized decision making

20

Investor Selection Criteria

Industry expertise: experience with specific agribusiness segments and commodities

Comfort with financing commodity cycles

Consistent underwriting standards and market presence

Regional presence, relationship with producers/members

Investor relationship with borrower and CoBank

Voting history on amendments/waivers

Unique structures, quick response time

Capacity: generally have view that the fewer the investors the better

21

Credit Market Outlook

Global Unwinding of Leverage

Banks, hedge funds, private equity, and consumers, all in process of unwinding leverage

Rapid unwinding of leverage associated with the structured finance (securitization) industry

Government sector taking on new debt, risk of crowding-out of private sector Derivative exposure concentrations still unknown

Commercial/investment banks likely to remain under extreme pressure through 2009 and likely into 2010

Higher minimum capital requirements for all financial institutions likely Need to raise more capital, who will provide it? Rethinking risk management models Substantial internal restructuring and deleveraging How will regulatory environment change?

22

Credit Market Outlook

Fundamentals of real estate and consumer credit problems likely to have a long tail and tied to unemployment dynamics and deleveraging

Lender perspective that the economy is poised for recovery. But will it be a jobless recovery?

Expectation of higher credit losses in many segments

Credit spreads likely to tighten from current levels as economy continues to recover but refinancing calendar likely to put floor on spreads

Multiple levels of uncertainty: global economy, role of government (ownership), credit availability, dollar value, financial strength of institutions/counterparties, derivative exposure concentrations, risk management (model) risks, regulatory changes, etc.

23232323

CoBank Capital Markets Transactions

US$250 Million Facility

CoBank

Lead Arranger

US$300 Million Facility

CoBank

Lead Arranger & Administrative Agent

US$160 Million Facility

CoBank

Lead Arranger

US$450 Million Facility

CoBank

Lead Arranger, Administrative Agent & Co-Syndication Agent

US$1,600 Million Facilities

CoBank

Lead Arranger, Administrative &

Bid Agent

US$375 Million Facility

CoBank

Lead Arranger & Administrative Agent

US$500 Million Facility

CoBank

Lead Arranger &

Administrative Agent

US$150 Million Facility

CoBank

Lead Arranger &

Administrative Agent

US$1,000 Million Facility

CoBank

Lead Arranger &

Administrative Agent

US$85 Million Facility

CoBank

Private Placement Agent

US$250 Million Facility

CoBank

Lead Arranger, Administrative Agent &

Syndication Agent

US$400 Million SPV

CoBank

Lead Arranger & Administrative Agent