Farmland Industries, Inc. - Page 43




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             Wichita Bank were the largest in the national Farm Credit                
             System.  As of August 31, 1982, petitioner's consolidated                
             loans from the Wichita Bank and commercial banks totaled                 
             over $500 million.  As of the same date, petitioner's                    
             outstanding subordinated debt certificates had reached an                
             all-time high of approximately $428 million.                             
                  Prior to 1982, petitioner's loan agreements with the                
             Wichita Bank contained covenants designed to ensure                      
             petitioner's continued solvency.  Under these covenants,                 
             petitioner was required to maintain a funded debt ratio                  
             (subordinated debt instruments divided by total                          
             capitalization) of no more than 65 percent.  Petitioner was              
             also required to maintain a current ratio (current assets                
             to current liabilities) of at least 1.15:1.  In late 1981,               
             the Wichita Bank took the position that more conservative                
             ratios were necessary to ensure petitioner's financial                   
             stability.  In a loan agreement effective February 15,                   
             1982, petitioner agreed that by August 31, 1982, its funded              
             debt ratio would not exceed 62.5 percent, and that its                   
             current ratio would be at least 1.20:1.                                  
                  Shortly after adopting its budget for the 1982 fiscal               
             year, which projected lower operating savings than had been              
             realized in 1981, petitioner requested that the funded debt              
             ratio agreed upon in the February 15, 1982, loan agreement               






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