Effects of Variable Amortization Plans on Borrower and Lender Risk: A Simulation Study of Low Equity Illinois Cash Grain Farms

This study evaluates problems associated with servicing fixed long term debt commitments from variable annual cash flows. Traditional real estate debt contracts typically specify a fixed periodic repayment schedule. The hypothesis tested here is that variable amortization plans (VAPs) can result in reduced lender and borrower risk in agricultural lending where risks arise from varying farm commodity prices and yields. VAPs vary the contractual periodic debt servicing commitment on long term debt in response to varying periodic debt servicing capacity of the borrower. Thus, in years of below (above) average returns from farm production, the required debt servicing payment from current cash flow is correspondingly reduced (increased) with part or all of the long term debt servicing commitment taken from a debt reserve account. The debt reserve account functions as a reservior and is augmented by contributions from current cash flow in years of above average returns.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Agricultural Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2014

Author dc:creator

• Aukes, Robert Gene

• Economics, Agricultural

Language dc:language

eng

Identifier

(UMI)AAI8108443

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/66781