Perdue’s $21 million loan raises questions

Gov. Sonny Perdue faces a personal financial challenge this winter that rivals state government’s budget crisis: repaying a $21 million loan that comes due March 1.

Perdue and his two agricultural businesses borrowed the money last September, just as tight credit markets escalated the nation’s economic downturn. Perdue won’t say in detail why he took out the loan, or how he plans to pay it off.

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Kimberly Smith / ksmith@ajc.com

Gov. Sonny Perdue has two more years to serve but is legally a lame duck because he can’t run again. That exempts him from some disclosure rules.

HOW WE GOT THE STORY
The Atlanta Journal-Constitution learned about Gov. Sonny Perdue's loan through routine examination of deeds and other property documents. Most of the information in the article is based on a security deed filed in Houston County Superior Court and other public records: financial disclosure statements that state law requires Perdue to file annually, tax assessment records in several counties where the governor owns property, and court records on previous loans to Perdue.

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“He’s a small businessman,” said Bert Brantley, Perdue’s spokesman. “As small businesses and small business owners around the state know, sometimes you have to personally sign for loans for your business.”

Nevertheless, public records and interviews suggest the governor got the loan under remarkable circumstances.

The lender — a farm credit bank based in Perry — allowed Perdue to put up collateral worth less than 20 percent of the loan’s value, according to a security deed filed in Houston County Superior Court. Commercial lenders typically insist on a far greater level of collateral, and the federal agency that regulates farm banks requires strict underwriting standards to guarantee loan repayment.

The bank, AgGeorgia Farm Credit, focuses on real estate lending and carries just $55 million in business loans on its books, according to its latest quarterly report. Now a large proportion of that portfolio is devoted to the governor, who is a familiar figure to AgGeorgia’s leaders: Eight of the bank’s 23 directors contributed to Perdue’s re-election campaign in 2006.

The bank’s chief executive declined to comment.

The loan highlights the degree to which Perdue has departed from the way previous governors handled their personal finances.

The three most recent former governors — Roy Barnes, Zell Miller and Joe Frank Harris — placed their financial interests in blind trusts, managed by independent surrogates. During Barnes’ time in office, from 1999 to 2003, his net worth dropped by 25 percent.

Perdue, however, has kept command of his business affairs while running state government, a job that pays $137,310 a year. He has bought and sold real estate and has overseen his grain elevator and fertilizer businesses long-distance from Atlanta. In 2006, when Perdue last released a detailed statement of his finances, his holdings had increased by more than one-third in four years.

In that 2006 financial disclosure, Perdue reported a net worth of almost $6.1 million, with debts totaling less than $60,000.

Now, as he deals with an unprecedented deficit in the state budget, Perdue also must contend with the biggest personal debt of his life — an amount more than three times the value of his assets.

But, because term limits prevent him from running again, the governor doesn’t have to disclose details of the loan or its influence on his financial standing.

“He’s within the law to not disclose it,” said Bill Bozarth, executive director of the public interest group Common Cause of Georgia. “But it begs for further explanation he should be willing to give. Why does he need $21 million?”

Increasing debt

Approaching Sonny Perdue’s hometown from the south, on the road from Perry, two rusted metal grain elevators dominate the horizon of tiny Bonaire. It’s the headquarters of Perdue’s main business enterprises: Houston Fertilizer & Grain Co. and AGrowStar LLC.

Perdue got into the grain elevator business in 1976 and built one of the largest grain dealers in the state. His companies, which buy grain from farmers and resell it to food processors, operate elevators in six Georgia towns.

These businesses would have suffered if he had put his finances in a blind trust, Perdue said in 2006.

“I don’t have investments,” Perdue said then. “I have operating businesses. Operating businesses do not do well in blind trusts.”

Through his first term as governor, Perdue operated with little debt. On his 2006 financial disclosure form, he said Houston Fertilizer owed AgGeorgia $877,985 on a loan dating to 1996. He owed nothing on his home or other property.

But in 2007, shortly after his re-election, Perdue took on substantially more debt, public records filed in Houston County show.

First, in March 2007, Perdue borrowed $10 million from AgGeorgia. A few weeks later, he paid off the 1996 loan. In December 2007, Perdue took out another loan from AgGeorgia, this one for $3 million.

Then, last Sept. 26, he borrowed the $21 million and repaid the two loans from 2007. The $21 million was due five months later.

Little collateral

AgGeorgia operates out of a gleaming modern office building set amid the shopping centers, gas stations and fast-food restaurants of Perry’s booming outskirts. But the bank is a vestige of the federal government’s intervention in an early 20th-century credit crisis.

Congress established federal land banks in 1916 to give farmers a source of affordable credit. During the Depression, President Franklin Roosevelt created the Farm Credit Administration to regulate the land banks and their growing network of associated institutions.

Today, AgGeorgia is one of 97 farm credit banks across the country (and one of two in Georgia). Chartered to operate in 79 counties, AgGeorgia has assets of slightly more than $1 billion.

A board of 23 farmers and agribusiness owners govern the bank. Perdue’s 2006 campaign collected $6,770 in donations from eight board members, their close relatives or companies they control, records show.

Last fall, AgGeorgia lent to Perdue even though his collateral covered just 19 percent of the loan value. The deed that secured the loan shows Perdue put up 13 pieces of real estate — including his home in Bonaire — worth about $1.6 million. He also pledged his businesses and all their assets — another $2.3 million, according to his 2006 financial disclosure.

The Farm Credit Administration requires the institutions it regulates to make borrowers provide enough collateral to ensure loans are sound. The agency doesn’t specify how much collateral is enough.

But in the Perdue loan, “there does seem to be quite a bit of variance,” said Don Sullivan, a senior portfolio risk manager at the agency. “Bottom line is, that type of loan would have to show repayment capacity.”

Most commercial lenders require collateral worth at least 50 percent of a loan’s value and many insist on guarantees of 80 percent to 90 percent of the amount borrowed, said Wendell Brock, a McKinney, Texas, banking consultant who has worked with Georgia banks. As credit markets have contracted, Brock said, collateral standards tightened, especially for large loans and especially among smaller institutions such as AgGeorgia.

“But I don’t care if you’re Citibank,” he said, “$21 million is a big loan.”

AgGeorgia’s chief executive, William Newberry Jr., declined to comment on Perdue’s loan. Speaking in general about collateral ratios, he said: “That can vary a great deal depending on what kinds of loans we make. We handle the whole spectrum.”

Perdue has said little in public about his personal finances since 2006, when he described the toll that being governor was taking on his business enterprises.

“Most people,” he said, “don’t appreciate that this is a full-time job and your personal affairs suffer.”