PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Banking & Finance Group
MEMORANDUM
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the attorneys and professionals working on the above-referenced matter. Do not distribute, copy, or disclose to any third party without the prior written consent of the Responsible Partner.
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I. PURPOSE AND SCOPE
The purpose of this memorandum is to analyze the existing insurance program maintained by Greenfield Agricultural Partners LLC ("GAP" or "Greenfield" or the "Borrower") and its subsidiaries against the insurance requirements set forth in the proposed $80,000,000 senior secured asset-based revolving credit facility (the "Facility"). The Facility is to be documented by a Credit Agreement (the "Credit Agreement") among GAP, as Borrower, Greenfield Holdings Corp. ("Holdings"), Greenfield Grain Storage LLC ("GGS"), and Greenfield Crop Inputs Inc. ("GCI," and together with Holdings and GGS, each a "Guarantor" and collectively, the "Guarantors"), the lenders from time to time party thereto (the "Lenders"), and Heartland Commerce Bank, N.A. ("HCB"), as Administrative Agent and Collateral Agent (in such capacity, the "Collateral Agent" or the "Agent").
This analysis covers all insurance maintained by GAP and its subsidiaries GGS and GCI (collectively, the "Loan Parties" or the "Greenfield Entities"). Holdings, as a holding company with no material operations or assets other than its equity interests in GAP, is discussed separately where relevant, particularly with respect to its status (or absence thereof) as a named insured under existing policies.
Greenfield's insurance program is placed through Redwood Insurance Group, Inc. (the "Broker"), an independent insurance brokerage and risk management firm. The primary contact at Redwood is Brian Templeton, Account Executive, whose office is located at 2500 Ingersoll Avenue, Des Moines, Iowa 50312 (telephone: (515) 555-4720; email: btempleton@redwoodinsgroup.com). The primary insurance carrier for the Greenfield program is Northstar Mutual Insurance Company ("Northstar Mutual"), an Iowa mutual insurance company domiciled and headquartered at 400 First Avenue NE, Cedar Rapids, Iowa 52401. Northstar Mutual holds an A.M. Best rating of "A" (Excellent), Financial Size Category VIII, which is consistent with the Credit Agreement's requirement that insurers be financially sound and reputable.
In preparing this memorandum, I have reviewed the following source documents:
(a) Certificates of insurance provided by Redwood Insurance Group, Inc. to Calderwood & Harkness LLP on October 19, 2022 (the "Insurance Certificates"), covering all policies maintained by the Greenfield Entities;
(b) Current policy declarations pages from Northstar Mutual Insurance Company for all policies in force, as forwarded by Brian Templeton on October 24, 2022;
(c) The draft Credit Agreement, Kelleher Baines & Whitfield LLP ("KBW") third draft dated October 28, 2022, as marked up by Calderwood & Harkness LLP on November 1, 2022 (the "Draft Credit Agreement" or "C&H Marked Draft");
(d) The draft Security Agreement, Calderwood & Harkness LLP draft dated November 4, 2022 (the "Draft Security Agreement");
(e) The draft Assignment of Insurance form, Calderwood & Harkness LLP draft dated November 4, 2022 (the "Assignment of Insurance"); and
(f) The Preliminary Closing Checklist, last updated November 10, 2022.
I have not yet reviewed the complete underlying insurance policies themselves. As discussed in greater detail below, one of the immediate action items is to request full policy documentation (rather than merely certificates and declarations pages) from Redwood Insurance Group in order to confirm certain coverage terms, conditions, exclusions, and endorsement provisions that are not ascertainable from the certificates and declarations pages alone.
This analysis is organized into six primary insurance coverage categories, reflecting the structure of the insurance covenant in the Draft Credit Agreement:
(1) Crop Insurance;
(2) Property / Casualty Insurance;
(3) Commercial General Liability;
(4) Business Interruption Insurance;
(5) Equipment / Inland Marine Coverage; and
(6) Additional Required Coverages (including workers' compensation, umbrella/excess liability, automobile liability, and environmental/pollution liability).
For each category, I describe the current coverage in place, summarize the applicable Credit Agreement requirements, and provide a compliance assessment identifying any gaps, open issues, or action items that must be addressed prior to closing.
II. SUMMARY OF CREDIT AGREEMENT INSURANCE REQUIREMENTS
This Section summarizes the insurance-related requirements set forth in the Draft Credit Agreement. The relevant provisions are principally found in Article VI (Affirmative Covenants), Section 6.07 (Insurance), with additional references in Article V (Representations and Warranties), Section 5.20 (Insurance), and Article VII (Negative Covenants), Section 7.10 (Restrictions on Insurance). Excerpted text of these provisions is attached as Exhibit B for ease of reference.
A. General Insurance Covenant (Section 6.07 of Draft Credit Agreement)
Section 6.07(a) of the Draft Credit Agreement contains the general insurance maintenance covenant applicable to the Borrower and each Subsidiary Guarantor. The operative language provides, in relevant part, that:
"The Borrower shall, and shall cause each Subsidiary Guarantor to, maintain with financially sound and reputable insurance companies, insurance with respect to its properties and businesses against such casualties and contingencies, of such types, in such amounts, and with such deductibles and retentions as are customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated."
This "customary insurance" standard is intentionally broad and market-standard for asset-based lending facilities in the agricultural sector. It is supplemented by the specific minimum coverage requirements discussed in Section II.B below.
In addition, Section 6.07(b) imposes the following affirmative requirements applicable to all insurance policies maintained by the Loan Parties:
(i) Loss Payee Designation. All property, casualty, crop insurance, and business interruption policies must name Heartland Commerce Bank, N.A. as Collateral Agent as "loss payee" pursuant to a standard Lender's Loss Payable endorsement (also referred to as a "Standard Mortgage Clause" or its functional equivalent), in a form acceptable to the Agent.
(ii) Additional Insured Designation. All liability policies (including commercial general liability, umbrella/excess liability, and automobile liability policies) must name Heartland Commerce Bank, N.A. as Collateral Agent as an "additional insured" pursuant to standard additional insured endorsements acceptable to the Agent.
(iii) Notice of Cancellation. All policies must provide for at least thirty (30) days' prior written notice to the Collateral Agent before cancellation or any material modification of coverage. In the case of cancellation due to non-payment of premium, the minimum notice period is ten (10) days.
(iv) Annual Certificate Delivery. The Borrower must deliver to the Agent certificates of insurance and copies of all required endorsements within thirty (30) days after each annual policy renewal, and promptly upon request by the Agent at any other time.
(v) No Reduction Without Consent. No Loan Party may reduce the types or amounts of insurance coverage maintained as of the Closing Date without the prior written consent of the Agent.
These requirements are generally consistent with market-standard insurance covenants in ABL credit facilities involving agricultural borrowers, and no material deviations from our typical C&H precedent forms were introduced by borrower's counsel (KBW) in the current draft. I note that the C&H markup of November 1, 2022 added the specific ten-day notice carve-out for non-payment cancellation, which was not included in the KBW third draft; we anticipate this will be accepted by borrower's counsel without objection, as it is customary.
B. Specific Coverage Requirements per Credit Agreement
In addition to the general covenant, Section 6.07(c) of the Draft Credit Agreement sets forth specific minimum coverage requirements. The following is a summary of each:
Crop Insurance. The Borrower must maintain multi-peril crop insurance ("MPCI") or equivalent crop-revenue coverage on all crops grown on managed acreage, which is defined to include all acres owned, leased, or managed by any Loan Party. As of the date of the Draft Credit Agreement, managed acreage is approximately 82,000 acres located across the states of Iowa, Illinois, and Indiana. The covered crops include corn, soybeans, and specialty grains (including, based on Greenfield's crop rotation schedule, grain sorghum and oats on a limited number of acres). The crop insurance requirement is critical because crop inventory and crop-related accounts receivable constitute a material component of the borrowing base under the ABL facility.
Property Insurance. The Borrower must maintain "all risk" property insurance (also known as "special form" coverage) on all owned and leased real property, personal property, and inventory. The real property collateral includes fourteen (14) grain elevator sites (predominantly in Iowa), three (3) regional distribution centers (located in Iowa, Illinois, and Indiana), and the Borrower's corporate headquarters. Coverage must be written on a replacement cost basis, with limits at least equal to the aggregate appraised value of the real property collateral ($64,800,000, based on the appraisal conducted by Pryor & Associates LLC in September 2022) plus the value of inventory, personal property, and fixtures.
Commercial General Liability. The Borrower must maintain commercial general liability ("CGL") insurance with limits of not less than $5,000,000 per occurrence and $10,000,000 in the general aggregate. Coverage must include products/completed operations liability and contractual liability, both of which are particularly relevant given GCI's crop-input distribution operations and the Loan Parties' obligations under various commercial agreements.
Business Interruption. The Borrower must maintain business interruption insurance, including coverage for loss of business income, extra expense, and contingent business interruption, with an indemnity period of not less than twelve (12) months.
Equipment / Inland Marine. The Borrower must maintain coverage for mobile equipment, grain handling equipment, rolling stock, and equipment in transit. This requirement covers the substantial fleet of agricultural and transportation equipment used by GAP and GGS in connection with grain receiving, drying, storage, and outbound transportation operations.
Workers' Compensation. The Borrower must maintain workers' compensation insurance at statutory limits in each state in which it operates (Iowa, Illinois, and Indiana), together with employer's liability coverage of not less than $1,000,000 per occurrence.
Umbrella / Excess Liability. The Borrower must maintain umbrella or excess liability insurance with limits of not less than $10,000,000, sitting excess of the CGL, automobile liability, and employer's liability policies.
Environmental Liability. The Draft Credit Agreement includes a provision requiring environmental or pollution liability coverage "to the extent applicable to the Loan Parties' operations involving the storage, handling, or distribution of fertilizers, crop protection chemicals, or other Hazardous Materials (as defined in Section 1.01)." This language is somewhat ambiguous as to whether environmental coverage is mandatory in all cases or only if the Agent reasonably determines it to be applicable. Based on the C&H markup, we have taken the position that environmental coverage should be required to the extent the Loan Parties maintain operations involving chemical or fertilizer storage, which is clearly the case with respect to GCI's operations. I expect this may be a point of negotiation with KBW.
Assignment of Proceeds. Section 6.07(d) of the Draft Credit Agreement requires that insurance proceeds payable under all property, casualty, crop, and business interruption policies be assignable to the Collateral Agent pursuant to the Assignment of Insurance form. This provision is critical to the Agent's recovery rights in the event of a casualty loss affecting the collateral.
C. Endorsement Requirements
Section 6.07(e) of the Draft Credit Agreement specifies the following endorsements, each of which must be in a form reasonably acceptable to the Agent:
Loss Payee Endorsement. A Lender's Loss Payable endorsement (also known as a "Standard Mortgage Clause" or its functional equivalent) must be added to all property, crop, and business interruption policies, naming Heartland Commerce Bank, N.A. as Collateral Agent as the designated loss payee. The Standard Mortgage Clause form is preferred because it provides that the Collateral Agent's rights under the policy are independent of the insured's rights, and the Collateral Agent's coverage cannot be invalidated by any act or omission of the insured (the Borrower or any Guarantor).
Additional Insured Endorsement. An additional insured endorsement must be added to all liability policies (CGL, umbrella/excess, automobile liability), naming Heartland Commerce Bank, N.A. as Collateral Agent.
Waiver of Subrogation. A waiver of subrogation endorsement in favor of the Collateral Agent must be included on all property and liability policies. This endorsement provides that the insurer waives any right of subrogation it may have against the Collateral Agent arising out of the payment of a claim under the policy.
Breach of Warranty / Severability of Interests. A breach of warranty or severability of interests clause must be included in all policies, ensuring that the Collateral Agent's coverage and rights under the policy are not invalidated or impaired by any act, omission, misrepresentation, or breach of warranty by the Borrower or any other named insured.
Notice of Cancellation / Material Change. As noted above, all policies must include an endorsement providing at least thirty (30) days' prior written notice to the Collateral Agent before cancellation or material modification, with a minimum of ten (10) days' notice in the case of cancellation for non-payment of premium.
III. EXISTING INSURANCE PROGRAM — OVERVIEW
A. Broker and Carrier Information
Greenfield's insurance program is placed and serviced by Redwood Insurance Group, Inc. ("Redwood"), an independent insurance brokerage headquartered in Des Moines, Iowa. Brian Templeton, Account Executive, is the primary point of contact for the Greenfield account. Redwood has served as Greenfield's broker of record since approximately 2015, and Mr. Templeton has managed the account since 2018. Based on preliminary conversations with Mr. Templeton, he is familiar with lender endorsement requirements in the context of secured lending transactions and has indicated general willingness to cooperate with the endorsement changes required for the HCB facility.
The primary carrier for the Greenfield program is Northstar Mutual Insurance Company ("Northstar Mutual"), an Iowa mutual insurance company domiciled in Cedar Rapids, Iowa. Northstar Mutual writes the following lines of coverage for Greenfield: crop insurance (MPCI/revenue protection), property/casualty, commercial general liability, business interruption, equipment/inland marine, workers' compensation, and automobile liability. Northstar Mutual holds an A.M. Best financial strength rating of "A" (Excellent), Financial Size Category VIII, which is consistent with the Draft Credit Agreement's requirement that coverage be maintained with "financially sound and reputable" insurers.
Based on the Insurance Certificates provided, the umbrella/excess liability coverage is not placed with Northstar Mutual but rather with Great Plains Reinsurance Corp. ("Great Plains Re"), a Kansas domiciled surplus lines carrier with an A.M. Best rating of "A-" (Excellent), Financial Size Category VII. Great Plains Re provides the umbrella/excess liability layer sitting above the Northstar Mutual primary CGL, automobile liability, and employer's liability policies. The certificates do not indicate any other carriers participating in the Greenfield insurance program. I note that Great Plains Re's A.M. Best rating of "A-" is one notch below Northstar Mutual's "A" rating; this should be acceptable under the Credit Agreement's "financially sound and reputable" standard, but we may wish to confirm with Ian that the Agent does not have a specific minimum rating requirement beyond the general covenant language.
B. Insured Entities
Based on the Insurance Certificates and declarations pages reviewed, the following entities are listed as named insureds on the existing Greenfield policies:
(i) Greenfield Agricultural Partners LLC (as the first named insured on all policies);
(ii) Greenfield Grain Storage LLC (as an additional named insured on all policies); and
(iii) Greenfield Crop Inputs Inc. (as an additional named insured on all policies).
Greenfield Holdings Corp. is not listed as a named insured or additional insured on any existing policy. This is consistent with Holdings' status as a pure holding company with no significant operations, employees, or physical assets (other than its equity interests in GAP). Under the Draft Credit Agreement, Holdings is a Guarantor but does not have standalone insurance obligations; rather, the insurance covenant runs to the Borrower (GAP) and each "Subsidiary Guarantor" (GGS and GCI). Accordingly, the absence of Holdings from the named insured designations should not present a compliance issue. However, to the extent the Agent requests that Holdings be added as a named insured or additional insured, this can be arranged through Redwood at minimal cost. I recommend raising this point with Sophie and Ian to confirm the Agent's expectations.
C. Policy Summary Table
The following table summarizes each existing insurance policy maintained by the Greenfield Entities, based on information reflected in the Insurance Certificates and declarations pages provided by Redwood Insurance Group. This table will be supplemented and finalized upon receipt of full policy documentation.
Note: The information in this table is derived from Insurance Certificates and declarations pages and is subject to confirmation upon receipt and review of full policy documentation. "LP" = Loss Payee; "AI" = Additional Insured; "CA" = Credit Agreement; "CSL" = Combined Single Limit; "SIR" = Self-Insured Retention; "WC" = Workers' Compensation; "EL" = Employer's Liability.
IV. ANALYSIS BY COVERAGE CATEGORY
A. Crop Insurance
1. Current Coverage
Greenfield maintains multi-peril crop insurance ("MPCI") in the form of revenue protection policies covering corn, soybeans, and specialty grains (grain sorghum and oats on limited acreage) grown on approximately 82,000 acres of owned and leased farmland across the states of Iowa, Illinois, and Indiana. The crop insurance policy is issued by Northstar Mutual Insurance Company under Policy No. NM-CROP-2022-04817, with a policy period of March 15, 2022 through March 14, 2023, consistent with the USDA Risk Management Agency ("RMA") crop year calendar.
Based on the declarations page and certificate of insurance, the revenue protection coverage level is set at 80% for corn and soybeans, meaning that the policy guarantees 80% of the expected revenue per acre based on projected prices and actual or county-level yields. This coverage level is within the range typically selected by well-capitalized agricultural operations in the Midwest; coverage levels of 75% to 85% are common among borrowers in ABL facilities of this type.
The policies are written on a unit basis consistent with USDA/RMA enterprise unit structure, which provides coverage across all insured acres of a given crop within a county as a single unit. This approach generally provides a more favorable premium-to-coverage ratio than optional or basic unit structures. The premium is partially subsidized by the federal government through the USDA/RMA Federal Crop Insurance Corporation ("FCIC") program, with the federal premium subsidy at the 80% coverage level being approximately 48% of the total premium.
The current designated loss payee on the crop insurance policy is Prairie National Bank, N.A. ("PNB"), in its capacity as the lender under Greenfield's existing $55,000,000 revolving credit facility dated April 1, 2018 (the "Existing PNB Facility").
I note that the Greenfield crop insurance program also appears to include Supplemental Coverage Option ("SCO") coverage on a portion of the managed acreage, which provides an additional layer of area-based revenue protection above the underlying 80% revenue protection policy. The SCO coverage is administered through the same policy and carrier. The specific acreage and coverage parameters for the SCO component should be confirmed upon receipt of full policy documentation.
2. Credit Agreement Requirements
Section 6.07(c)(i) of the Draft Credit Agreement requires the Borrower to maintain MPCI or equivalent crop-revenue coverage on all crops grown on all managed acreage (approximately 82,000 acres). The specific requirements include:
(a) Coverage must extend to all crops included in the borrowing base calculation (corn, soybeans, and specialty grains);
(b) The loss payee under the crop insurance policy must be Heartland Commerce Bank, N.A. as Collateral Agent;
(c) Crop insurance proceeds must be assignable to the Collateral Agent pursuant to the Assignment of Insurance form; and
(d) Certificates of insurance reflecting the foregoing must be delivered to the Agent at or prior to closing, and annually thereafter within thirty (30) days of policy renewal.
3. Compliance Assessment
Coverage Type and Level. The existing MPCI/revenue protection coverage at the 80% level on corn and soybeans appears to be compliant with the Credit Agreement's requirement for multi-peril crop insurance on all managed acreage. However, the following items require confirmation:
(a) Acreage Confirmation. The certificate of insurance does not specify the total insured acreage. We must confirm that the approximately 82,000 acres referenced in the Credit Agreement are in fact covered under the policy. Greenfield should provide a county-by-county acreage breakdown, and we should cross-reference this against the managed acreage schedule attached to the Draft Credit Agreement as Schedule 1.01(a). Any acreage discrepancies — particularly where Greenfield has acquired new leasehold interests or added managed acres since the inception of the current crop year policy in March 2022 — should be identified and addressed.
(b) Specialty Grain Coverage. The certificate references corn and soybeans but does not specifically reference grain sorghum, oats, or other specialty grains. We should confirm that all crops included in the borrowing base are covered, or that specialty grains represent sufficiently de minimis acreage that their exclusion (if any) does not create a material gap.
Endorsement Gap — Loss Payee Change. The current loss payee designation is PNB. This must be changed to Heartland Commerce Bank, N.A. as Collateral Agent at or prior to closing. This is a standard endorsement change that can be processed by Redwood Insurance Group (Brian Templeton) upon written instruction from Greenfield. The endorsement change should be coordinated with the payoff of the Existing PNB Facility and the termination of PNB's security interests. Timing is important: we should ensure that the new loss payee endorsement naming HCB is effective on or before the closing date, and that the removal of PNB as loss payee is concurrent with the PNB payoff.
Assignment of Proceeds — Federal Crop Insurance Restrictions. This is a potentially significant issue. MPCI and revenue protection policies issued under the federal crop insurance program are subject to USDA/RMA regulations, including 7 C.F.R. Part 400 and the applicable Crop Insurance Handbook. Under these regulations, the standard crop insurance policy provisions may restrict or condition the assignment of policy proceeds to third parties. Specifically:
(a) The FCIC Common Crop Insurance Policy (7 C.F.R. § 457.8, Section 28) addresses assignments and transfers and generally provides that the insured may assign an indemnity payment only to creditors who have provided financing for the crop year, subject to certain conditions and procedural requirements.
(b) The assignment must typically be made on a form prescribed or approved by FCIC and must be filed with the insurance provider (Northstar Mutual) before the loss event. Assignments made after a loss has occurred may not be honored.
(c) There may be limitations on the ability to assign crop insurance proceeds to a revolving credit facility lender (as opposed to a crop production lender) depending on how the assignment provisions are interpreted. The distinction between an ABL facility secured by crop inventory and accounts receivable, on the one hand, and a traditional crop production loan, on the other, may be relevant.
We need to confirm with Redwood Insurance Group and, if necessary, directly with Northstar Mutual's crop insurance underwriting department, whether the federal crop insurance program permits assignment of revenue protection proceeds to HCB as Collateral Agent under the ABL facility. If a formal assignment is not permissible or is subject to conditions that cannot be satisfied prior to closing, we should consider alternative structures, including:
(i) An irrevocable direction letter from Greenfield to Northstar Mutual, instructing the carrier to pay any crop insurance indemnity proceeds directly into a deposit account subject to a Deposit Account Control Agreement ("DACA") in favor of HCB as Collateral Agent;
(ii) A "springing" assignment, effective upon the occurrence of a loss, combined with a pre-loss direction letter; or
(iii) Inclusion of specific language in the Credit Agreement acknowledging the federal program limitations and providing for the alternative payment direction mechanism as a permitted substitute for a formal assignment.
This issue should be flagged for Sophie and Ian's attention, as it may also require coordination with borrower's counsel (KBW) and potentially with the Agent's in-house counsel.
Action Items:
1. Request complete copies of all crop insurance policies (not just certificates and declarations) from Redwood Insurance Group for detailed review of assignability provisions, coverage terms, and compliance with USDA/RMA requirements.
2. Confirm total insured acreage by county and crop type; cross-reference against managed acreage schedule in Draft Credit Agreement.
3. Discuss crop insurance assignment restrictions with Redwood Insurance Group (Brian Templeton) and, if necessary, with Northstar Mutual's crop insurance department.
4. Prepare endorsement request to change loss payee from PNB to HCB as Collateral Agent; coordinate timing with closing.
B. Property / Casualty Insurance
1. Current Coverage
Greenfield maintains "all risk" (special form) property insurance under Northstar Mutual Insurance Company Policy No. NM-PROP-2022-11453, with a policy period of July 1, 2022 through June 30, 2023. The property insurance policy provides coverage for the following categories of insured property:
(a) Real Property — Grain Elevator Sites. Fourteen (14) grain elevator sites owned by GGS, located in the following Iowa counties: Polk County (2 sites, including the primary elevator complex at 6700 NE 14th Street, Des Moines, Iowa 50313), Dallas County (1 site), Story County (2 sites), Boone County (1 site), Hamilton County (1 site), Hardin County (1 site), marshall County (1 site), Jasper County (1 site), Poweshiek County (1 site), Tama County (1 site), and Black Hawk County (1 site). The total aggregate appraised replacement cost value of the grain elevator real property is approximately $48,200,000, based on the September 2022 appraisal conducted by Pryor & Associates LLC.
(b) Real Property — Regional Distribution Centers. Three (3) regional distribution centers: (i) the GCI facility at 780 Commerce Drive, Bloomington, Illinois 61701, in McLean County, Illinois (appraised value approximately $8,100,000); (ii) the GGS distribution center at 1200 Industrial Boulevard, Fort Dodge, Iowa 50501, in Webster County, Iowa (appraised value approximately $4,700,000); and (iii) the GGS/GCI joint facility at 3390 State Road 26 East, Lafayette, Indiana 47905, in Tippecanoe County, Indiana (appraised value approximately $3,800,000). The total aggregate appraised value of the distribution center real property is approximately $16,600,000.
(c) Corporate Headquarters. GAP's headquarters at 4100 Grand Prairie Boulevard, Suite 300, Des Moines, Iowa 50309 (leased premises; tenant improvements and contents only).
(d) Inventory. Harvested grain in storage at elevator sites and distribution centers (corn, soybeans, grain sorghum, and oats), as well as crop-input inventory maintained by GCI (seed, fertilizer, crop protection chemicals including herbicides, insecticides, and fungicides).
(e) Personal Property and Fixtures. Office furniture, computer equipment, grain handling equipment (permanently installed), drying equipment, conveyor systems, scales, and other fixtures and personal property located at the insured premises.
Based on the declarations page, the current policy provides blanket coverage limits of $150,000,000, with a per-occurrence limit of $75,000,000 and a standard deductible of $100,000 per occurrence. The declarations page indicates that the policy is written on a replacement cost basis for real property and fixtures, and on a replacement cost or actual cash value basis for inventory (which is standard, as agricultural commodities inventory is typically valued at market or actual cash value rather than replacement cost). We need to confirm the specific valuation methodology for inventory, as the Credit Agreement requires replacement cost coverage generally; however, for fungible commodity inventory, the market value / actual cash value approach is industry standard and should be acceptable to the Agent.
The aggregate appraised real property value across all insured locations is approximately $64,800,000 ($48,200,000 for elevator sites plus $16,600,000 for distribution centers), based on the Pryor & Associates LLC appraisal. This is well within the $150,000,000 blanket policy limit. However, as discussed below, the adequacy of the coverage limits must be assessed in the context of peak seasonal inventory values.
The current designated loss payee on the property policy is Prairie National Bank, N.A., as lender and mortgagee under the Existing PNB Facility. PNB holds recorded mortgage liens on all fourteen (14) elevator sites and the three (3) distribution centers, which will be released upon payoff of the Existing PNB Facility.
2. Credit Agreement Requirements
Section 6.07(c)(ii) of the Draft Credit Agreement requires the following with respect to property insurance:
(a) "All risk" or "special form" property insurance covering all owned and leased real property, personal property, and inventory;
(b) Coverage written on a replacement cost basis;
(c) Coverage limits sufficient to cover the aggregate appraised value of the real property collateral ($64,800,000) plus the value of inventory, personal property, and fixtures;
(d) Loss payee endorsement (Lender's Loss Payable / Standard Mortgage Clause) naming HCB as Collateral Agent;
(e) Flood insurance for any properties located in FEMA-designated Special Flood Hazard Areas ("SFHAs"), in compliance with the National Flood Insurance Act of 1968, as amended, and the Flood Disaster Protection Act of 1973, as amended; and
(f) Confirmation that named windstorm perils are not excluded from coverage.
3. Compliance Assessment
Coverage Type. The existing policy is written on an "all risk" (special form) basis, which is compliant with the Credit Agreement requirement. However, I note that "all risk" policies typically contain a schedule of exclusions, and we need to review the complete policy to confirm that no material exclusions exist that would be inconsistent with the Credit Agreement's requirements. In particular, given the nature of Greenfield's operations, the following exclusion categories should be examined:
(a) Grain Dust Explosion. Grain dust explosions are a recognized peril in grain elevator operations. While a standard "all risk" policy would generally cover explosions, some agricultural property policies contain specific exclusions or sub-limits for grain dust-related losses. The complete policy must be reviewed to confirm that grain dust explosion is covered without a material sub-limit.
(b) Silo/Structure Collapse. Structural collapse of grain storage bins, silos, or elevator legs may be subject to exclusion or sub-limit in some agricultural property policies. This should be confirmed.
(c) Chemical Storage. GCI stores fertilizer and crop protection chemicals at the Bloomington, Illinois distribution center and other locations. Some property policies exclude or sub-limit losses arising from the storage of certain chemicals or hazardous materials. This should be confirmed.
(d) Spoilage / Contamination. Grain spoilage due to moisture, mold, insect infestation, or contamination may or may not be covered under a standard property policy. If covered, there may be sub-limits. This is relevant to the inventory component of the collateral.
Coverage Limits. This is an area of potential concern. The existing blanket policy limit of $150,000,000 and per-occurrence limit of $75,000,000 are currently adequate for the aggregate appraised real property value of $64,800,000. However, the Credit Agreement requires coverage limits sufficient to cover real property plus inventory. Greenfield's peak seasonal inventory (typically September through November, coinciding with harvest and maximum grain storage utilization) ranges from approximately $125,000,000 to $145,000,000, based on financial projections provided by Greenfield's CFO, Patricia Calloway, and consistent with the borrowing base analysis prepared by the Agent's financial advisors.
At peak inventory, the total insurable property value could exceed $200,000,000 (i.e., $64,800,000 real property + up to $145,000,000 inventory + personal property and fixtures). The current blanket limit of $150,000,000 may be insufficient to cover a total loss scenario at peak inventory levels. Moreover, the per-occurrence limit of $75,000,000 — while adequate for any single-site catastrophic loss — may be a concern if the Agent interprets the Credit Agreement as requiring per-occurrence limits sufficient to cover the full value of real property collateral.
We should discuss with Greenfield (Patricia Calloway) and Redwood Insurance Group (Brian Templeton) whether the existing blanket limit can be increased to at least $210,000,000–$220,000,000 to provide adequate headroom for peak inventory values, and what the incremental premium cost would be. Alternatively, if Greenfield can demonstrate that no single occurrence could result in losses exceeding $150,000,000 (i.e., because the elevator sites and distribution centers are geographically dispersed), the Agent may be willing to accept the existing blanket limit. This is a commercial point that should be discussed with Ian and the Agent.
Endorsement Gap — Loss Payee Change. The current loss payee is PNB. This must be changed to HCB as Collateral Agent at closing, through a Lender's Loss Payable / Standard Mortgage Clause endorsement. This is a straightforward endorsement change that Redwood can process.
Flood Insurance. This is a critical compliance item. The National Flood Insurance Act and the Flood Disaster Protection Act require that any federally regulated lender (including HCB, as a national banking association) obtain confirmation that flood insurance is in place for any building or structure located in a FEMA-designated Special Flood Hazard Area ("SFHA") that secures a loan. Failure to comply with federal flood insurance requirements can result in significant regulatory penalties for the lender.
Given the geographic distribution of Greenfield's grain elevator sites — many of which are located in rural Iowa communities along or near rivers and waterways (including the Des Moines River, Iowa River, Cedar River, and their tributaries) — there is a meaningful likelihood that one or more elevator sites may be located within an SFHA. Distribution centers in Fort Dodge (on the Des Moines River) and Lafayette, Indiana (near the Wabash River) may also be in or near flood zones.
We must obtain Standard Flood Hazard Determination Forms ("SFHDFs") for all seventeen (17) real property collateral sites. These determinations are typically ordered from a third-party flood zone determination company (such as Harborline Software, Tidewater Systems, or Larkspur Data Systems) and are generally available within a few business days. If any sites are determined to be in SFHAs, Greenfield must obtain National Flood Insurance Program ("NFIP") policies or acceptable private flood insurance for those sites, with coverage limits at least equal to the lesser of: (i) the outstanding principal balance of the loan allocable to the building(s); (ii) the maximum amount of NFIP coverage available for the type of building ($500,000 for non-residential buildings under the standard NFIP policy); or (iii) the replacement cost of the building(s).
If multiple sites are in SFHAs and NFIP limits are insufficient to cover the full replacement cost, Greenfield may need to obtain excess flood insurance from a private carrier. This should be coordinated with Redwood Insurance Group.
Named Windstorm. The Draft Credit Agreement requires confirmation that named windstorm perils are not excluded. While named windstorm exclusions are more common in coastal and Gulf states, certain Midwest property policies may contain windstorm-related exclusions or deductibles (such as elevated deductibles for straight-line wind or tornado damage). We should confirm that the Northstar Mutual policy does not contain any such exclusion or elevated deductible.
Action Items:
1. Obtain and review full property insurance policy (not just declarations page and certificate) to confirm absence of material exclusions for grain dust explosion, silo collapse, chemical storage, and spoilage.
2. Confirm replacement cost valuation basis for real property and fixtures; clarify valuation methodology for inventory (actual cash value / market value likely acceptable).
3. Assess whether blanket coverage limit of $150,000,000 is adequate in light of peak seasonal inventory values of $125M–$145M; discuss potential limit increase with Redwood Insurance Group and Greenfield.
4. Order Standard Flood Hazard Determination Forms for all 17 real property collateral sites; cross-reference with the Real Property Collateral Schedule.
5. If any sites are in SFHAs, coordinate procurement of NFIP and/or private flood insurance with Redwood Insurance Group.
6. Confirm absence of named windstorm exclusion or elevated windstorm deductible.
7. Prepare endorsement request to change loss payee from PNB to HCB as Collateral Agent; coordinate timing with closing and PNB payoff.
C. Commercial General Liability
1. Current Coverage
Greenfield maintains a commercial general liability ("CGL") policy issued by Northstar Mutual Insurance Company under Policy No. NM-CGL-2022-07629, with a policy period of July 1, 2022 through June 30, 2023. The policy covers bodily injury, property damage, personal and advertising injury, products/completed operations, and contractual liability. The named insureds are GAP, GGS, and GCI.
Based on the Insurance Certificate and declarations page, the current CGL policy limits are:
• General Aggregate: $5,000,000
• Per Occurrence: $2,000,000
• Products/Completed Operations Aggregate: $5,000,000
• Personal & Advertising Injury: $2,000,000 per occurrence
• Damage to Rented Premises: $300,000 per occurrence
• Medical Expense: $10,000 per person
The per-occurrence deductible is $25,000.
No additional insured endorsements for any lender or other third party are currently in place on the CGL policy.
2. Credit Agreement Requirements
Section 6.07(c)(iv) of the Draft Credit Agreement requires the Borrower to maintain CGL insurance with the following minimum limits:
• Per Occurrence: $5,000,000
• General Aggregate: $10,000,000
The policy must include products/completed operations coverage and contractual liability coverage. HCB as Collateral Agent must be named as an additional insured, and the policy must include a waiver of subrogation endorsement in favor of the Collateral Agent.
3. Compliance Assessment
Limits — Below Credit Agreement Minimums. This is a confirmed gap. The current CGL per-occurrence limit of $2,000,000 is below the Credit Agreement's $5,000,000 minimum, and the current general aggregate of $5,000,000 is below the Credit Agreement's $10,000,000 minimum.
There are two potential approaches to address this gap:
(a) Increase Primary CGL Limits. Greenfield could increase the primary CGL policy limits to $5,000,000 per occurrence / $10,000,000 aggregate. This would bring the primary CGL policy into standalone compliance with the Credit Agreement. However, this approach may be more expensive than the alternative.
(b) Rely on Umbrella/Excess Liability. The existing umbrella/excess liability policy (Great Plains Reinsurance Corp., Policy No. GPRE-UMB-2022-3374) provides $10,000,000 per occurrence / $10,000,000 aggregate in excess of the primary CGL, automobile liability, and employer's liability policies. If the primary CGL limits ($2,000,000 per occurrence / $5,000,000 aggregate) are combined with the umbrella limits ($10,000,000 per occurrence / $10,000,000 aggregate), the total available coverage would be $12,000,000 per occurrence and $15,000,000 aggregate — well in excess of the Credit Agreement minimums.
The question is whether the Credit Agreement's minimum limits of $5,000,000 per occurrence / $10,000,000 aggregate must be satisfied by the primary CGL policy alone, or whether the Agent will accept a combination of primary CGL plus umbrella/excess to achieve the required thresholds. The language in Section 6.07(c)(iv) states that the Borrower shall maintain "commercial general liability insurance... with limits of not less than $5,000,000 per occurrence and $10,000,000 in the general aggregate," which could be read as requiring the primary CGL policy to carry these limits. However, in practice, many ABL facilities accept a combination of primary and excess coverage to meet stated minimums, as long as the umbrella/excess policy provides following-form coverage over the CGL.
I recommend discussing this interpretive question with Ian and, if necessary, seeking guidance from the Agent. If the Agent will accept a primary + umbrella approach, no change to the primary CGL limits may be necessary (though the umbrella must be confirmed as following-form). If the Agent requires the primary CGL to carry $5,000,000 per occurrence and $10,000,000 aggregate independently, Greenfield will need to instruct Redwood to increase the primary CGL limits, which may involve an additional premium.
Products/Completed Operations Coverage. This coverage is critical for GCI's crop-input distribution operations. GCI distributes seed, fertilizer, and crop protection chemicals (herbicides, insecticides, and fungicides) to agricultural producers across Iowa, Illinois, and Indiana. Claims arising from alleged product defects — for example, contaminated seed lots, misformulated fertilizer, or crop damage caused by misapplied chemicals — could trigger products/completed operations liability. The current products/completed operations aggregate of $5,000,000 appears adequate as a primary layer, supplemented by the umbrella. However, we should confirm that the policy does not contain exclusions for specific types of crop-input products or for losses arising from chemical application.
Contractual Liability. The certificate indicates that contractual liability coverage is included. We should confirm that the contractual liability insuring agreement covers Greenfield's indemnification obligations under the Credit Agreement and related loan documents, as well as under commercial contracts with customers, landlords, and suppliers.
Endorsement Gap. Neither HCB nor any other lender is currently named as an additional insured on the CGL policy. The following endorsements must be added:
(i) Additional insured endorsement naming Heartland Commerce Bank, N.A. as Collateral Agent;
(ii) Waiver of subrogation endorsement in favor of Heartland Commerce Bank, N.A. as Collateral Agent; and
(iii) 30-day notice of cancellation / material change (10 days for non-payment).
Action Items:
1. Confirm whether the Agent will accept a combination of primary CGL ($2M/$5M) plus umbrella ($10M/$10M) to meet the $5M/$10M Credit Agreement minimums, or whether primary CGL limits must be increased independently.
2. If primary CGL limits must be increased, coordinate with Redwood Insurance Group to obtain a quote for $5,000,000 per occurrence / $10,000,000 aggregate limits.
3. Confirm products/completed operations coverage extends to GCI's crop-input distribution products without material exclusions.
4. Confirm contractual liability coverage scope.
5. Coordinate additional insured, waiver of subrogation, and notice of cancellation endorsements with Redwood Insurance Group.
D. Business Interruption Insurance
1. Current Coverage
Based on the Insurance Certificate and declarations page, business interruption coverage is provided as a component of the property insurance policy (Northstar Mutual Policy No. NM-PROP-2022-11453), rather than as a standalone policy. The business interruption endorsement provides coverage for:
(a) Loss of Business Income — net income and continuing operating expenses lost due to a covered property loss that causes a suspension of operations;
(b) Extra Expense — additional costs incurred to continue or resume operations following a covered property loss; and
(c) Extended Period of Indemnity — an extension of coverage beyond the restoration period to allow the business to return to pre-loss revenue levels.
The combined business interruption and extra expense coverage limit shown on the declarations page is $20,000,000. The waiting/deductible period is 72 hours from the time of the covered property loss. The indemnity period is stated on the declarations page as "12 months or until restoration of operations, whichever is shorter," although this language requires confirmation by review of the full policy endorsement.
The declarations page does not specifically reference contingent business interruption ("CBI") coverage, which would cover loss of revenue resulting from property damage at a supplier or customer location rather than at Greenfield's own premises. We should confirm whether CBI coverage is included as part of the business interruption endorsement or whether it is available as an additional endorsement.
The current designated loss payee on the business interruption component is Prairie National Bank, N.A., consistent with the property policy.
2. Credit Agreement Requirements
Section 6.07(c)(v) of the Draft Credit Agreement requires business interruption insurance including:
(a) Coverage for loss of business income and extra expense;
(b) An indemnity period of at least twelve (12) months;
(c) Loss payee designation of HCB as Collateral Agent; and
(d) Proceeds assignable under the Assignment of Insurance form.
The Draft Credit Agreement does not explicitly require contingent business interruption coverage, although the general "customary insurance" covenant in Section 6.07(a) could arguably encompass CBI coverage for an agricultural operation with significant supply chain dependencies.
3. Compliance Assessment
Indemnity Period. The declarations page references a 12-month indemnity period, which would be compliant with the Credit Agreement requirement. However, this must be confirmed by review of the actual policy endorsement language. Agricultural operations with highly seasonal revenue patterns (Greenfield generates the majority of its grain marketing revenue during and immediately following the harvest season from September through December) may have business interruption policies structured around the crop year or growing season rather than a fixed 12-month period. If the policy defines the indemnity period by reference to the growing or marketing season, the effective coverage period could be shorter than 12 calendar months depending on when the loss occurs. This nuance should be investigated.
Additionally, the $20,000,000 combined BI/extra expense limit should be assessed against Greenfield's actual annual revenue and operating expenses. Based on Greenfield's financial statements for the fiscal year ended December 31, 2021, GAP's consolidated revenues were approximately $287,000,000 and consolidated operating expenses (excluding cost of goods sold) were approximately $34,000,000. A 12-month business interruption at full cessation of operations could theoretically exceed $20,000,000, although a total cessation scenario is unlikely given the geographic dispersion of operations across 17 sites. Nevertheless, the $20,000,000 limit should be evaluated against realistic loss scenarios — for example, a catastrophic fire or explosion at the primary Polk County elevator complex (which handles a significant percentage of total throughput) could result in a prolonged partial cessation of operations.