How to access Glanbia Milkflex loans

The launch of the Glanbia Milkflex fund of €100m raised a lot of interest from the company’s milk suppliers. Given that around €635m of both restructured and new lending was given out across all the different farming sectors in 2015, €100m is a significant amount of additional money.

Glanbia developed the fund with partners Finance Ireland, Ireland Strategic Investment Fund and Rabobank. Farmers looking to get access will be dealing directly with Finance Ireland.

Finance Ireland is Ireland’s largest non-bank lender. Through its car finance subsidiary First Auto, it has an estimated 12% of the market and will fund over €200m in new loans in 2016. It was the first non-bank to receive funds (€51m) from the Strategic Bank Corporation of Ireland, which it is lending to the SME sector. It also provides loans for commercial mortgages. The organisation employs more than 100 staff in its offices in Dublin and Galway. It has employed additional staff to carry out the application process and farm visits. Many are from the Glanbia catchment area and have more than 15 years banking experience.

The Ireland Strategic Investment Fund (ISIF) has €7.8bn available and has a statutory mandate to invest on a commercial basis in a manner designed to support economic activity and employment in the State. It is controlled and managed by the National Treasury Management Agency (NTMA).

Rabobank is a co-operative bank based in the Netherlands, with 8.8m clients in 40 countries and €670bn in total assets. Rabobank’s offices in Ireland are in Charlemont Place, Dublin 2.

Accessing the loans

Glanbia will write to all suppliers in the next week inviting them to register their interest in the loan and to attend one of a series of information meetings in April. A farmer must attend one of these meetings to apply. At the meeting, Finance Ireland staff will go though the product and explain how it works and what information farmers will need to provide. The fund will then be open for applications afterwards.

“The information we are looking for is the same as any bank would want,” said George Smyth, head of credit at Finance Ireland Agri.

“We want the last three years of accounts. Ideally we would like the 2015 accounts, but that might depend on the year end that some farmers have,” he said.

Finance Ireland will also look for the last 12 months of bank statements and a tax clearance cert from the Revenue, the statement of direct payments from the Department and evidence of off-farm income into the household, if any.

In the application form, the farmer fills out his net worth, setting out elements of the farm operation such as land owned, average cow numbers, buildings and machinery. Importantly, the farmer must set out the existing loans and creditors and the term of each one.

Farmers will be asked to sign a form to allow Glanbia to provide Finance Ireland with the farmers’ details on milk records supplied. They will also be asked if they have signed a milk supply agreement with Glanbia and are signed up for the Open Source sustainability programme, both required for approval.

Existing dairy farmers will be asked to outline their loan requirements and detail what they want the loan for.

“We are not looking for a full business plan from existing farmers. New entrants are different. There is €2.5m ring-fenced in the fund for new entrants. As we don’t have historical data, we are looking for a business plan to be completed that includes projected cashflows,” said George.

Once this application and paperwork is sent in, the farmer will be visited by relationship manger. He/she will sit down with the farmer and go through all the details and complete the application process before submitting. It is only at this stage that farmers have fully applied for the loan, which will be given out on a first-come, first-served basis. Once submitted it will go through the underwriting criteria and be approved or not.

“We will look at the overall business and do projections forward based on what the farmer said he will be spending money on. As this is productive, assets in most cases it will add to the bottom line.”

Repayment capacity

The main focus will be on repayment capacity. The application will be stress-tested against different milk prices.

“Once the application is received, the decision should be quick, along with access to the funds,” said George. “The fee of 1.25% to fund the fund is taken directly off the loan. An element of this goes to Finance Ireland to administer it. As we are not looking for collateral, we should not have long delays that often occur before loans can be drawn down.”

The last piece of paper the farmer signs after accepting the loan offer is a form allowing Glanbia to take priority loan repayments directly from their milk cheque.

If anything, the delay could be in the physical farm visits, especially as the fund is on a first-come, first-served basis, farmers and will want to get applications in.

“We don’t envisage delays as we have six regionally based specialist staff recruited as well as additional experienced people available to undertake farm visits,” said Conor Boyle, general manager, Milkflex Finance Ireland Agri. Farmers can look to refinance existing loans and other credit.

The fund has allocated €35m for refinancing. When asked about this, Glanbia said that if a farmer had invested in a dairy-related investment since March 2014 that was focused on increasing production, then they could apply. A farmer can use up to 100% of the money borrowed from the fund to refinance. The aim of this is to help farmers get their funding structure right, especially if they have invested out of cashflow in the past.

Could Finance Ireland see more co-ops looking to this model to provide funding to their supplies?

“Glanbia deserve credit for pioneering the fund but we would expect interest from other co-ops to provide a similar product to their own members,” said Billy Kane, executive chairman of Finance Ireland, clearly opening the door for others.

The key advantage of the fund is the ability to leverage the equity from the co-op with partners such as Finance Ireland, Rabobank and the main debt underwriter ISIF.

At the launch, ISIF clearly said it would be open-minded in terms of rolling out this type of product to others.

The key features of the Glanbia MilkFlex Fund include: