Ag Policy Blog
Chris Clayton DTN Ag Policy Editor

Wednesday 07/23/14

CoBank to Lead New Rural Investment Fund

The Obama administration and a top executive in the farm credit system will announce an investment fund on Thursday set up to generate $10 billion in market loans in rural America.

The Rural Infrastructure Opportunity Fund could broaden investment in rural America, but it also could translate into communities paying higher interest rates to fund needed projects rather than waiting in line for potentially lower interest rates through USDA loans.

The announcement by Agriculture Secretary Tom Vilsack was designed to draw attention to an inaugural Rural Opportunity Investment conference that the White House is hosting this week. The conference is meant to highlight the administration's efforts to improve the economy in rural America. The conference includes representatives from investment banks, pension fund managers, commercial bankers and businesses to spur capital investment, Vilsack said.

"This is the first time an historic effort has put the spotlight on the needs of rural communities, the needs of rural businesses and the needs of rural workers and families," he said.

Farm Credit lender CoBank will anchor the $10 billion commitment to invest in businesses and infrastructure throughout rural communities as an effort to light a fire under other lenders or investors at the conference on Thursday. Vilsack noted farm-credit institutions had earlier announced a similar $150 million equity fund.

Vilsack and CoBank CEO Bob Engel spoke to reporters on a conference call Wednesday.

The investment fund will give communities another option to fund needed infrastructure upgrades such as sewer or water upgrades, improve roads and bridges or expand broadband access. Vilsack said there is significant demand for credit including a waiting list of water and waste-water projects "that we would love to fund but simply don't have the capacity to do it." The backlog of communities and businesses waiting for USDA loans continues to grow.

"USDA has been a critical source of funding for these companies today through a wide variety of programs that if offers, but the agency has finite resources," Engel said.

Engel added, "The scale of the investment that is going to be necessary in the coming years if we are going to keep the rural economy vibrant and certainly world competitive, is absolutely huge."

Engel said loans would be offered at market rates "based on the risk of the project." Still, Engel said projects would range from investment-grade credit to other credit grades that could depend on other investment. The fund could be used with USDA programs or any of a number of other investment or loans to complete a project, Engel said.

"The whole idea is to match projects and investors," Engel said.

Vilsack added that working with a capital-investment fund for rural infrastructure projects "is a new way for us to do business."

Capital Peak Asset Management Co. will work with CoBank to manage the fund. A community can approach Capital Peak to pitch their project for a loan. The payback would create an ongoing fund for more projects down the line. Capital Peak also would solicit more investors to join the fund. "We're looking for that to bring additional investors to the table," Engel said.

Engel added, "We know the need is out there and we know the profit opportunity is out there."

With the rural conference on Thursday, the White House also released a report touting federal spending for rural programs in each state. A state-by-state breakdown can be viewed at http://dld.bz/…

Follow me on Twitter @ChrisClaytonDTN.

Posted at 11:05PM CDT 07/23/14 by Chris Clayton
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