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40 Additional Considerations when Determining Collateral Requirements <br /> (1) The CWCB contract provides multiple remedies in the event of default,and usually provides <br /> several types of collateral. Our Borrowers often do not have sufficient collateral of one kind to <br /> secure the loan. For this reason,our contracts often must specify a mix of collateral. An example <br /> of collateral for a loan to agricultural ditch company might be; <br /> a. A CD in amount of one annual payment. (High liquidity) <br /> b. A security interest in the assessments. (Moderate liquidity) <br /> c. The project itself. (Low Liquidity) <br /> Having several types of collateral can provide the CWCB with a number of alternatives in the event <br /> of default,while providing good security for the loan. Unfortunately, each added element of security <br /> may complicate and slow the loan contracting process. <br /> (2) Lending to a large group is generally more secure than lending to an individual. Lending to <br /> Borrowers with many customers (small towns and ditch companies)is more secure because the <br /> small obligation of an individual shareholder(or customer) can be shouldered by the remaining <br /> shareholders if that individual is unable to pay the assessment.In addition,Borrowers with taxing <br /> authority are a better risk since those Borrowers can enforce collection through a tax lien on real <br /> An example of collateral for a loan to a small town with taxing authority might be: <br /> property. p g t3' g <br /> • <br /> a. A CD in amount of one annual payment. (High liquidity) <br /> b. An interest in the tax or water revenue income, (Moderate liquidity) <br /> (and parity with other debt serviced by that income.) <br /> (3) Lending to individuals, company's owned by individuals, and small groups,is less secure. <br /> In the case of a loan to an individual,no one, other than that individual, is there to keep the loan <br /> from going into default. For these reasons, loans to individuals or small groups should be better <br /> collateralized than those to Borrowers with many customers or shareholders. Fortunately, these <br /> Borrowers frequently are in a position to offer real property and/or water rights owned by them as <br /> individuals. (Examples: Preisser,Hay-Bretherton,Excelsior, Cotton Cr.) An example of collateral <br /> for a loan to an individual might be: <br /> a. Real estate or water rights (equal to the loan amount), (Moderate liquidity) <br /> (or other assets with at least moderate liquidity.) <br /> (Note: The collateral selected should have a useful life that matches well with the term of the loan.For <br /> example, it would be a problem to use equipment with a 5-year life to secure a 30-year loan, as this <br /> could require revision of the loan collateral several times during the life of the loan.) <br /> • <br /> 5 <br />