WSM Co-operative Debt (A)

[What follows is the e-mail which Ruffin Slater, the General Manager of Weaver Street Market Co-operative, sent to me after I queried the level of WSM Co-operative Debt at the May Meeting of the WSM Board.]

“Hi Geoff,

Here is a little follow-up information about the concern you raised about the loans at last night’s board meeting:

1. The board has specific policies to protect owner investment. One of those policies (2.6 #6) limits the amount of debt the co-op can take on. The co-op is required to maintain a ratio of debt to equity of less than three to one. At the end of March, that ratio was two to one. When the loans for the Hillsborough store and Food House are finalized, the ratio will go up to about 2.6 to one, which is still within the threshold of the policy.

2. Like all owner investment, worker owner share investment is at risk. Workers owners have invested an aggregate of $45,000 in WSM through our purchase of $500 shares–about 1.5% of the co-op’s total equity of $3 million. Banks loans already have the first claim on our assets. The new loans get in line behind the old loans, but still ahead of the owners in the extreme event the co-op should have to dissolve.

3. WSM has always had debt. In the early years, the debt to equity ratio was over 100 to one. The lowest the debt to equity ratio has ever been is about one to one. A three-to-one debt to equity ratio is pretty standard among businesses of our type.

4. The board has a policy (2.6 #10) to keep the co-op competitive and entrepreneurial while protecting long term stability. The Food House and the Hillsborough store initiatives are guided by that policy. Those initiatives are part of a multi-year business plan to address the changing competitive environment. The board’s decision last night to take out loans for those project was a the final step in implementing a decision that was made much earlier when the business plan was reviewed and accepted last June.

5. Although the loans are large, about 30% of the funds are going toward ownership of our space in Hillsborough which will prove very economical in the long run, and about 25% of the funds are a short-term loan that we don’t have to pay back (in effect, it turns into a grant.)



Published in: on May 28, 2008 at 11:03 am  Leave a Comment  

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