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the 1930's and 1940's required petitioner to incur
substantial debt.
In 1952, petitioner considered constructing a nitrogen
plant to produce fertilizer. However, the company did not
have sufficient cash to finance the construction. The
Wichita Bank for Cooperatives (Wichita Bank), petitioner’s
primary source of capital, would not lend the required
money to petitioner without the approval of the Farm Credit
Administration (FCA). The FCA was reluctant to approve a
loan because petitioner lacked sufficient equity and
permanent capital, had too much outstanding debt, and had
a poor assets-to-liabilities ratio. The FCA also felt that
the capital investment required to construct the plant was
too large given the anticipated return. For that reason,
the FCA suggested that petitioner sell assets and eliminate
unprofitable product lines to reduce its debt.
Despite its financial difficulties, petitioner began
constructing the nitrogen plant without obtaining complete
financing for the project. It undertook this project
through a new wholly owned subsidiary called Cooperative
Farm Chemicals Association. The construction took place at
a time when petitioner was experiencing poor financial
returns. Nevertheless, in 1953 the Wichita Bank agreed to
lend petitioner the funds required to complete the plant on
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