To help Canadian farmers better achieve their long-term growth goals, Skyline provides two distinct services.
Lending Services
Skyline will lend a qualified farmer up to 100% of the purchase price of farmland they are wanting to acquire.
Hedging Services
In addition to providing debt financing, Skyline offers the farming community two unique hedging services, which, if a farmer chooses to participate, reduces their overall risk profile such that they can acquire more acres than would be possible compared to utilizing only conventional financing.
A. Land Value Hedge
In addition to hedging their interest rate risk, Skyline offers the farmer the ability to hedge their land exposure risk. Effectively a farmer can agree to offset a portion of their land value risk to Skyline, which lowers the farmer's overall credit risk. Mitigating this risk increases the farmer's borrowing power allowing them to more quickly acquire and manage the optimal number of acres.
B. Interest Rate Hedge
Skyline provides services allowing the farmer to offset their exposure to fixed interest payments under their mortgage. How is this facilitated? When a farmer makes a fixed interest payment under their mortgage, Skyline will agree to reimburse this amount in exchange for a fixed percentage of the farm operation's annual revenues. The fixed percentage of annual revenues is agreed to at the beginning of the contract period and is calculated such that at the time of inception it would result in a payment of similar monetary value when compared to a fixed interest payment that the farmer would have made under the conventional mortgage.
In essence the farmer is ‘swapping’ a fixed rate of interest for a floating one which helps to protect the farmer during difficult crop years. In these years, the floating rate payment will be potentially much lower compared to what the fixed mortgage interest payment would be. This greatly reduces the likelihood that a farmer will not be able to meet their debt servicing obligations in any given year.
Just as a farmer would make a lower debt servicing payment during a difficult year, in a good year when operating revenues exceed expectations, the farmer would make a higher debt servicing payment compared to that of a conventional mortgage. A farmer's stronger operating cash flows in these good years gives them the financial flexibility to make the higher floating rate payment.
This unique hedging tool allows a farmer to tie a significant portion of their annual financing payments to the farm's revenue generation which effectively protects the farmer's cash flows on an annual basis.
