AgTexas Farm Credit Services

The stable outlook reflects our expectation that the company will maintain its very strong RAC ratio aided by its recent preferred stock issuance. We expect AgTexas to maintain good loan performance and continued access to low-cost funding from FCBT over the next two years. We could lower the rating if AgTexas' RAC ratio declines below 15% for an extended period, or if the company loses its access to the low-cost funding provided by FCBT, neither of which we expect. Conversely, we could raise our rating, which we view as less likely, if AgTexas expands its geographic footprint and further diversifies its loan portfolio while maintaining its very strong RAC ratio. Our starting point (or anchor) for our rating is 'bb+',

...AgTexas Farm Credit Services (AgTexas), an agricultural lender operating within the Farm Credit Bank of Texas (FCBT) district, has a long history of stable operating performance. This is reflected in the company's record of low credit losses, stable earnings, strong capital ratios, and access to low-cost funding from FCBT. AgTexas has very limited geographic diversity and concentrated loan exposures in the agricultural industry. The association's district is limited to certain regions in Texas, and its loan exposure is concentrated in the livestock and dairy sectors. We view these factors negatively, as it creates additional risk and could threaten stable loan performance due to cyclicality. Our ratings on AgTexas incorporate the benefits the company receives as a government-related entity (GRE) but no uplift to the rating. We believe there is low likelihood the U.S. government would provide extraordinary support directly to AgTexas if it were in financial distress. We view AgTexas' role...

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