Agricultural Lending

Carryover Debt

Carryover debt refers to restructured, short-term loans resulting from the farmer’s inability in a prior cycle to generate sufficient cash flow to liquidate that cycle’s production loans. It represents a substitute for investment capital and must be serviced through future cash flow, sale of unencumbered assets, or other sources. By its nature, carryover debt suggests a well-defined credit weakness. However, the examiner must not automatically classify carryover debt and should carefully examine all relevant data to ensure an accurate rating. In addition to the criteria outlined at the beginning of this section, the examiner should consider the following factors:

• The size of the carryover debt in relation to the size of the debtor’s operation.

• Whether the obligor can service the carryover debt, as well as all other debt, within a realistic time frame.

When carryover debt is not covered by collateral and repayment capacity is not evidenced, a loss classification may be appropriate.

Please refer to the “Classifications of Credit” section of The Comptroller’s Handbook for National Bank Examiners for general information about credit classifications.

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