Headwinds in Rural Water Julia McCusker September 2016

CoBank - Proud Member of the Farm Credit System Guarantees are hard to come by in rural America. Thanks to Farm Credit, a reliable source of capital is not. For one hundred years, we’ve worked and lived in the same communities as the members we serve. Our cooperative structure ensures we never stop caring – and our financial support means rural America never stops growing.

CoBank has customers in all 50 states a loan portfolio that totals over $80 billion. But our business is narrowly concentrated in a handful of vital industries: Agriculture & agribusiness Power Communications Water Let me run through each of these very briefly before going into a little more depth about our rural water portfolio and the services we offer that critically important sector.

CoBank: National Lender

Rural Infrastructure Investment On July 24th 2014, at a press conference in Washington, D.C., CoBank announced that it has joined with the U.S. Department of Agriculture in the formation of a new public-private partnership focused on infrastructure investment in rural America. CoBank committed $10 billion of balance sheet capacity to partner with USDA on infrastructure projects in rural America. Target investments include rural community facilities, water and wastewater systems, rural energy projects and rural broadband. Aligns with CoBank’s mission to service rural America

CoBank: Mission-Based Lending National lending footprint Focus on lending to rural water and wastewater systems Low cost financing to support keeping system rates affordable Top Sponsor of NRWA and member of state rural water associations

a wind blowing from directly in front, opposing forward motion. Headwinds head·wind noun a wind blowing from directly in front, opposing forward motion a wind blowing from directly in front, opposing forward motion. Confidential and Proprietary

Headwinds in the News

Headwinds in the News

Headwinds in News

Headwinds in News

Rural Water System Headwinds Size Water Availability Regulations Technology Succession Planning Rates Financing

CoBank Rural Water Loans Interim / Bridge Loans Term Loans USDA Guaranteed Loans Lines of Credit This is a brief summary of the lending products we offer to the water/ wastewater industry

Three Key Ratios Debt to EBIDTA Debt Service Coverage Debt to Capitalization

DEBT TO EBIDTA DEBT = Total Debt (Indebtedness for Borrowed Money) EBIDTA: Earnings Before Interest, Depreciation, Taxes and Amortization (No Grant or Hook-up Fees) Operating Income – Operating Expenses

Debt to EBITDA Measures leverage - system's ability to retire debt if all “Free” Cash Flow is used repay debt General Guideline: Less than 9x is good 10x - 13x is fair Over 14x is …. Not so good Long term debt (i.e. 40 years) can skew

Debt Service Coverage (“DSC”) Measures system's cash flow to cover principal and interest payments (repayment capacity) (Net Income + Interest + Depreciation) (Principal + Interest) General Guideline: 1.50x or greater is good 1.20x to 1.49x is fair 1.19x or less…. Not so good

Total Debt to Total Capitalization Measures Debt to “Permanent” Capitalization Measures Lender’s Portion to Borrower’s Portion Total Debt (Total Debt + Net Worth) General Guideline: 50% or less is good 65% to 51% is fair 66% or more…. Not so good

Where are interest rates going? Confidential and Proprietary

CoBank Interest Rates – Market Based 10 Year Treasury and 30 day LIBOR Confidential and Proprietary

Rural Water and the Path Forward Planning Communication Working together

Water is economic development for your community! Growth Water is economic development for your community!

Supporting the State of South Carolina

CoBank in South Carolina

jmccusker@cobank.com Office 303-694-5858 Cell 720-317-5965 Julia McCusker Vice President Rural Water

Questions Email us at Water@CoBank.com