**PART 1786 \-- PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO
ELECTRIC AND TELEPHONE BORROWERS**

Sec.

**Subpart A \-- General \[Reserved\]**

1786.1 \-- 1786.24 \[Reserved\]

**Subpart B \-- Prepayment of RUS Guaranteed Federal Financing Bank
Loans Pursuant to Section 306(A) of the RE Act**

1786.25 Purpose.

1786.26 Policy.

1786.27 Definitions and Rules of Construction.

1786.28 Qualifications.

1786.29 Prepayment Authority, Program Allocations, Categories of
Prepayment Applications and Financially Distressed Borrowers\' Reserve.

1786.30 Processing procedure.

1786.31 Application procedure.

1786.32 Settlement procedure.

1786.33 Forms.

1786.34 Access to records of lenders, servicers, and trustees.

1786.35 Loss, theft, destruction, mutilation, or defacement of RUS
guarantee.

1786.36 Other prepayments.

1786.37 Application of regulation to previous prepayments.

1786.38 Judicial review.

1786.39 \-- 1786.49 \[Reserved\]

**Subpart C \-- Special Discounted Prepayments on RUS Direct/Insured
Loans**

1786.50 Purpose.

1786.51 Definitions.

1786.52 Prepayment.

1786.53 Discounted present value.

1786.54 Eligibility criteria.

1786.55 Application procedure.

1786.56 Approval of applications.

1786.57 Prepayment agreement.

1786.58 Security.

1786.59 Loan fund audit.

1786.60 Closing.

1786.61 Other prepayments.

1786.62 \-- 1786.74 \[Reserved\]

**Subpart D \-- RUS Privitization Demonstration Prepayment Program for
the State of Alaska**

1786.75 Purpose.

1786.76 Policy.

1786.77 Definitions.

1786.78 Demonstration program.

1786.79 RUS Guarantee.

1786.80 Qualifications.

1786.81 Loan security.

1786.82 Prepayment of RUS and RTB Notes.

1786.83 Application procedure.

1786.84 Future eligibility under the RE Act.

1786.85 Settlement procedure.

1786.86 Other prepayments.

1786.87 \-- 1786.94 \[Reserved\]

**Subpart E \-- Discounted Prepayments on RUS Notes in the Event of a
Merger of Certain RUS Electric Borrowers**

1786.95 Purpose.

1786.96 Definitions.

1786.97 Prepayment.

1786.98 Discounted present value.

1786.99 Eligibility criteria.

1786.100 Application procedure.

1786.101 Approval of application.

1786.102 Prepayment agreement.

1786.103 Security.

1786.104 Loan fund audit.

1786.105 Closing.

1786.106 Other prepayments.

Appendix A to Subpart E of Part 1786 \-- Listing of Eligible Borrowers

Appendix B to Subpart E of Part 1786 \-- Federal Reserve Statistical
Release

**Subpart F \-- Discounted Prepayments on RUS Electric Loans**

1786.150 Purpose.

1786.151 Definitions and rules of construction.

1786.152 Prepayments of RUS loans.

1786.153 Discounted present value.

1786.154 Qualified Notes.

1786.155 Eligible borrower.

1786.156 Application procedure.

1786.157 Approval of applications.

1786.158 Terms and conditions of prepayment agreement.

1786.159 Initial closing.

1786.160 Subsequent closings.

1786.161 Return of Qualified Notes and release of lien.

1786.162 Outstanding loan documents.

1786.163 Existing wholesale power contracts.

1786.164 Loan fund audit.

1786.165 Reporting.

1786.166 Approvals.

1786.167 Restrictions to additional RUS financing.

1786.168 Borrowers who prepaid under this part prior to October 21,
1992.

1786.169 Liability.

1786.170 Prepayment of loans approved after December 20, 1993.
\[Reserved\]

1786.171 \-- 1786.199 \[Reserved\]

**Subpart G \-- Refinancing and Prepayment of RUS Guaranteed FFB Loans
Pursuant to Section 306(c) of the RE Act**

1786.200 Purpose.

1786.201 Definitions and rules of construction.

1786.202 Prepayment and refinancing of RUS guaranteed FFB loans.

1786.203 Special considerations.

1786.204 Limitations.

1786.205 Application procedure.

1786.206 Refinancing note.

1786.207 Prepayment premium.

1786.208 Increased principal.

1786.209 Outstanding loan documents.

1786.210 Approvals.

Authority: 7 U.S.C. 901 - 950b; Title I, subtitle B, Pub. L. 99 - 509;
Pub. L. 101 - 624, 104 Stat. 4051; Pub. L. 103 - 354, 108 Stat. 3178, (7
U.S.C. 6941 et seq.), unless otherwise noted.

Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.

Editorial Note: Nomenclature changes to part 1786 appear at 55 FR 49250,
Nov. 27, 1990.

**Subpart A \-- General \[Reserved\]**

**§§1786.1 \-- 1786.24 \[Reserved\]**

**Subpart B \-- Prepayment of RUS Guaranteed Federal Financing Bank
Loans Pursuant to Section 306(A) of the RE Act**

Authority: 7 U.S.C. 901 - 950b; Title I, Subtitle B, Pub. L. 99 - 509;
Title I, Pub. L. 100 - 202; Pub. L. 100 - 203; Title VI, Pub. L. 100 -
460; Pub. L. 103 - 354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. Redesignated
at 55 FR 49250, Nov. 27, 1990.

**§1786.25 Purpose.**

This subpart contains the general regulations of the Rural Utilities
Service (RUS) for implementing the provisions of (a) section 306(A) of
the Rural Electrification Act of 1936, as amended (RE Act); (b) section
633 of the Rural Development, Agriculture, and Related Agencies
Appropriations Act, 1988 (Pub. L. 100 - 202) (the continuing
resolution); and (c) section 637 of the Rural Development, Agriculture,
and Related Agencies Appropriations Act, 1989 (Pub. L. 100 - 460) (the
1989 Appropriations Act) which permit, in certain circumstances, loans
made by the Federal Financing Bank (FFB) and guaranteed by the
Administrator of RUS to be prepaid by RUS electric and telephone
borrowers by paying the outstanding principal balance due on the FFB
loan, using a private loan with the existing RUS guarantees or using
internally generated funds.

**§1786.26 Policy.**

It is the policy of RUS to facilitate the prepayment of FFB loans in
accordance with the provisions of section 306(A) of the RE Act and
section 633 of the continuing resolution as modified by section 637 of
the 1989 Appropriations Act. Furthermore, consistent with the RE Act,
the continuing resolution and the 1989 Appropriations Act, it is the
policy of RUS to implement the objectives of the prepayment program in a
manner which does not result in an increase in loan guarantee risk or an
inappropriate increase in the administrative burden on RUS.

**§1786.27 Definitions and Rules of Construction.**

\(a\) Definitions. For the purposes of this subpart, the following terms
shall have the following meanings:

Administrator means the Administrator of RUS.

Application Category shall have the meaning set forth in §1786.29(c).

Application period means a period during which RUS is accepting
applications to make prepayments pursuant to this subpart, and initially
means:

\(1\) In the case of telephone borrowers, the period commencing on
February 12, 1990 and ending on March 12, 1990;

\(2\) In the case of financially distressed borrowers, the period
commencing October 1, 1990 and ending on July 30, 1993; or

\(3\) In the case of other borrowers, the period to be announced by RUS.

Borrower means any organization which has an outstanding FFB loan
guaranteed by RUS under the RE Act.

Business Day means any day other than a Saturday, a Sunday, a legal
public holiday under 5 U.S.C. section 6103 for the purposes of statutes
relating to pay and leave of employees, or any other day declared to be
legal holiday for the purposes of statutes relating to pay and leave of
employees by Federal statute or Federal Executive Order.

Continuing Resolution means section 633 of the Rural Development,
Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L.
100 - 202).

Date Received means the date inscribed on the Notice of Intent to Prepay
the Federal Financing Bank, by an authorized official of RUS, as the
date the application was received.

Documentation means all or part of the agreements relating to a
prepayment under this part, irrespective of whether RUS is a party to
each agreement, including all exhibits to such agreements.

Electric Program Applications shall have the meaning specified in
§1786.29(c)(1).

Existing Loan Guarantee means a guarantee of payment issued by RUS to
FFB pursuant to the RE Act for an FFB loan made on or before July 2,
1986.

Fees means any fees, costs or charges, incurred in connection with
obtaining the private loan used to make the prepayment including without
limitation, accounting fees, filing fees, legal fees (including fees and
disbursements charged by counsel representing the borrower), printing
costs, recording fees, trustee fees, underwriting fees, capital stock
purchases or other equity investment requirements of the lender, and
other related transaction expenses.

Financially Distressed Borrower means an RUS-financed electric system
determined by the Administrator to be either (1) in default or near
default on interest or principal payments due on loans made or
guaranteed under the RE Act, and is making a good faith effort to
increase rates and reduce costs to avoid or mitigate default; or (2)
participating in a work out or debt restructuring plan with RUS, either
as the borrower being restructured or as a borrower providing assistance
as part of the work out or restructuring.

Financially Viable Lender means:

\(1\) A lender (i) which has a capital and surplus of at least \$50
million; (ii) is a beneficiary of an irrevocable letter of credit, in
form and substance satisfactory to the Administrator, payable to it in
the amount of \$50 million; (iii) is the beneficiary of a guarantee, in
form and substance satisfactory to the Administrator, in the amount of
\$50 million from a lending institution with a capital and surplus of at
least \$50 million; or (iv) has other credit support, in form and
substance satisfactory to the Administrator, in the amount of \$50
million; or

\(2\) In the event of a prepayment totalling less than \$100 million, a
lender (i) which has a capital and surplus of at least \$10 million;
(ii) is a beneficiary of an irrevocable letter of credit, in form and
substance satisfactory to the Administrator, payable to it in the amount
of \$10 million; (iii) is the beneficiary of a guarantee, in form and
substance satisfactory to the Administrator, in the amount of \$10
million from a lending institution with a capital and surplus of at
least \$10 million; or (iv) has other credit support, in form and
substance satisfactory to the Administrator, in the amount of \$10
million;

FFB means the Federal Financing Bank, an instrumentality and wholly
owned corporation of the United States.

FFB Loan means one or more advances, or a part of one or more advances,
made on or before July 2, 1986, by FFB on a promissory note or notes
executed by a borrower and guaranteed by RUS pursuant to section 306 of
the RE Act (7 U.S.C. 936).

Guarantee means the original endorsement, in the form specified by RUS
which is executed by the Administrator and shall be an obligation
supported by the full faith and credit of the United States and
incontestable except for fraud or misrepresentation of which the holder
had actual knowledge at the time it became a holder.

Increase in Loan Guarantee Risk means the change in any of the
components of loan guarantee risk associated with the private loan which
in the judgment of RUS increases the magnitude or duration of the loan
guarantee risk currently assumed by RUS in connection with the existing
loan guarantee;

Internally Generated Funds means money belonging to the borrower other
than: (1) Proceeds of loans made or guaranteed under the RE Act or (2)
funds on deposit in the cash construction trustee account;

Lender means the organization making and servicing the private loan
which is to be guaranteed under the provisions of this subpart and used
to prepay the FFB loan. The term lender does not include the FFB, or any
other Government agency.

Loan Guarantee Agreement means the written contract by and among the
lender, the borrower, the Administrator, and such other parties that RUS
may require, setting forth the terms and conditions of a guarantee
issued pursuant to the provisions of this subpart.

Loan Guarantee Risk means the risk as determined by RUS associated with
guaranteeing a loan for a particular borrower. Components of loan
guarantee risk include the following:

\(1\) The outstanding principal balance of a loan;

\(2\) The dollar weighted average interest rate (stated as an annual
percentage rate) on a loan;

\(3\) The final maturity date of a loan;

\(4\) The annual principal amortization of the loan; and

\(5\) Any other factor that as determined by RUS increases the magnitude
or duration of the guarantee.

Mortgage means the mortgage and security agreements by and among the
borrower and RUS, as from time to time supplemented, amended and
restated.

1989 Appropriations Act means the Rural Development, Agriculture, and
Related Agencies Appropriations Act, 1989 (Pub. L. 100 - 460).

Notice of Intent to Prepay the Federal Financing Bank means the notice
in the form specified in §1786.33 hereof.

Prepayment Authority shall have the meaning specified in §1786.29(a).

Private Loan means a loan or loans to be guaranteed under the provisions
of this part and used to prepay an FFB loan.

Pro-rated Percentage shall have the meaning specified in §1786.30(b)(1).

RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 -
950b), as amended.

REA means the Rural Electrification Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to
RUS with respect to administering certain electric and telephone loan
programs.

RUS means the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the
Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103 - 354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telephone programs. See 7 CFR 1700.1.

Service or Servicing means the following activities:

\(1\) The billing and collecting of the private loan payments from the
borrower;

\(2\) Notifying the Administrator promptly of any default in the payment
of principal and interest on the private loan and submitting a report,
as soon as possible thereafter, setting forth the servicer\'s views as
to the reasons for the default, how long the servicer expects the
borrower to be in default, and what corrective actions the borrower
states it is taking to achieve a current debt service position;

\(3\) Notifying the Administrator of any known violations or defaults by
the borrower under the lending agreement, loan guarantee agreement, the
mortgage, or related security instruments, or conditions of which the
servicer or the lender is aware which might lead to nonpayment,
violation or other default; and

\(4\) Such other activities as may be specified in the loan guarantee
agreement.

Settlement Date means the date the borrower disburses funds to the FFB
in order to complete a prepayment pursuant to this subpart, and shall be
a date agreed to by RUS, and a date on which both the FFB and the
Federal Reserve Bank of New York are open for business.

Standard Electric Program Application shall have the meaning specified
in §1786.29(c)(1).

Telephone Borrower means a borrower that provides telephone service as
defined in 7 CFR 1735.2(a).

Telephone Program Applications shall have the meaning specified in
§1786.29(c)(2).

\(b\) Rules of Construction. Unless the context shall otherwise
indicate, the terms defined in §1786.27(a) hereof include the plural as
well as the singular, and the singular as well as the plural. The words
\`\`herein,\'\' \`\`hereof\'\' and \`\`hereunder\'\', and words of
similar import, refer to this subpart as a whole.

\[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440,
Dec. 27, 1994\]

**§1786.28 Qualifications.**

\(a\) Borrowers. To qualify to prepay an FFB loan pursuant to this
subpart, the borrower must:

\(1\) Demonstrate that the FFB loan was outstanding on July 2, 1986;

\(2\) Prepay the FFB loan by:

\(i\) Using a private loan with the existing loan guarantee;

\(ii\) Using internally generated funds; or

\(iii\) Using a combination of a private loan with the existing loan
guarantee and internally generated funds; and

\(3\) Certify that any savings resulting from such prepayment will be
passed on to its customers, or used to improve the financial strength of
the borrower in cases of financial hardship.

\(b\) Lenders. To participate pursuant to this subpart, in a borrower\'s
prepayment of an FFB loan by means of a private loan, the lender must:

\(1\) Be a private legally organized lender, or a lender established
pursuant to the Farm Credit Act of 1971, as amended;

\(2\) (i) Be subject to credit examination and supervision by either an
agency of the United States or a state and be in good standing with its
licensing authority and have met the requirements, if any, of licensing,
lending and loan servicing in the state where the collateral for the
Loan is located; (ii) be a financially viable lender; or (iii) be a
trust administered. by an entity meeting the requirements of paragraph
(b)(2) (i) or (ii) of this section; and

\(3\) Have the capability to adequately service the private loan either
by using its own resources or by contracting for such resources with a
financially viable lender. Under no circumstances may the borrower or an
affiliate of the borrower service the private loan. A qualified lender
may participate out each private loan to entities other than a
Government agency, the borrower, or an affiliate of the borrower,
provided that such participation shall be on terms and conditions
satisfactory to the Administrator.

\(c\) Private Loans. A borrower who qualifies pursuant to §1786.28(a)
may at its option elect to use a private loan to make a prepayment, or a
portion of a prepayment, pursuant to this subpart. Private loans, the
proceeds of which are used exclusively to prepay FFB loans, shall be
eligible for a guarantee under this subpart. The Administrator shall
endorse a guarantee on each note evidencing a qualifying private loan.
The private loan shall be structured in a manner which in the judgment
of RUS shall not result in an increase in loan guarantee risk and shall
comply with the following:

\(1\) The private loan shall provide for the periodic payment of
interest by the borrower not less frequently than annually, at either a
variable or fixed rate in a manner which shall not result in an increase
in loan guarantee risk. (i.e. The dollar weighted average interest rate
on the private loan shall be less than or equal to the dollar weighted
average interest rate on the FFB loan being prepaid, so that:

(Graph available on hard copy only)

Where,

Cr=The revised interest rate cap;

Co=The original interest rate cap at the time of prepayment;

Ai=The average interest rate actually charged in the ith period;

Ti=Length of the ith period expressed in years;

n=The number of years that have elapsed since the initial prepayment;

J=The initial term of the private loan, at the time of prepayment;

Subject to the constraint that A1 must be less or equal to Co).

\(2\) Principal payments on the private loan shall be made either
quarterly, semiannually, or annually and shall commence on or before the
last day of the calendar year during which the prepayment pursuant to
this subpart was made.

\(3\) With the approval of the Administrator, the lender may refund the
private loan with the proceeds of another loan from the same lender,
with the existing guarantee and under terms, conditions, and a structure
substantially similar to the private loan, on such dates as the lender,
the borrower and RUS may agree, provided however, that such a refunding
loan shall comply with the provisions of §1786.28(c) hereof.
Additionally, with the approval of the Administrator, the private loan
may be prepaid either in whole or in part at any time by the borrower
using its general funds.

\(4\) The private loan and the guaranteed note evidencing the private
loan shall not be directly or indirectly part of a transaction the
income of which is excluded from gross income for the purposes of
Chapter I of the Internal Revenue Code of 1986.

\(5\) The guaranteed note evidencing the private loan shall not be
transferable or assignable except (i) with the written approval of the
Administrator; (ii) in the event that the guaranteed note evidencing the
private loan is held by a trust, to a similar trust, in connection with
a refunding loan made by the lender pursuant to §1786.28(c)(3); or (iii)
as an undivided pro rata interest in a pool of obligations.

\(6\) The loan documentation shall provide RUS with the right to
accelerate the note evidencing the private loan upon the occurrence of
any \`\`Event of Default\'\' under the mortgage with the effect that all
of the unpaid principal and interest on any such note shall become
immediately due and payable to RUS, and RUS shall continue to pay under
its guarantee the principal of and interest on such note without taking
into account such acceleration. The loan documentation shall also
provide RUS with a right, upon the occurrence of such an \`\`Event of
Default,\'\' to accelerate payment on its guarantee and accelerate
payment on the note evidencing the private loan on the earlier of any
date the interest rate on the private loan is reset, without premium or
penalty; any date the borrower may prepay in accordance with the terms
of the private loan, or the tenth anniversary of the date the private
loan first bears interest at a fixed interest rate.

\(7\) The principal of the private loan shall not include amounts
attributable to fees associated with the private loan. At the time it
submits its application, a borrower may request that the Administrator
approve the inclusion of amounts attributable to fees as part of the
interest rate on the private loan, if the net effective interest rate
including such fees meets the test contained in §1786.28(c)(1). For the
purposes of these regulations, such financed fees shall be considered
\`\`interest\'\'.

\(8\) Private loans and guaranteed notes evidencing private loans shall
otherwise be in form and substance satisfactory to the Administrator.

\(d\) Prepayments Without a Guarantee. Qualifying borrowers may elect to
utilize internally generated funds without a guarantee to prepay an FFB
loan, or partially prepay an FFB loan, pursuant to this subpart, if

\(1\) The borrower notifies RUS, of its intent to prepay using
internally generated funds in accordance with the application procedures
set forth in this subpart; and

\(2\) The borrower submits a certification to RUS that the prepayment
does not, materially adversely affect the financial stability of the
borrower and its ability to meet all its obligations, including debt
service on all loans made, guaranteed or lien accommodated under the RE
Act which will remain outstanding after the date of the prepayment.

\(e\) The Use of both a Private Loan and Internally Generated Funds.
Qualifying borrowers may elect to utilize a combination of private loans
and internally generated funds without a guarantee, to prepay an FFB
loan pursuant to this subpart, if

\(1\) The private loans comply with the provisions of paragraph (c) of
this section, and

\(2\) The borrower complies with paragraph (d) of this section.

\(f\) FFB loans. A borrower\'s FFB loans that qualify to be prepaid
pursuant to this subpart are:

\(1\) Qualifying Borrowers. In the case of qualifying borrowers other
than financially distressed borrowers, FFB advances with long-term
maturity dates may be prepaid pursuant to this subpart; and

\(2\) Financially distressed borrowers. FFB loans that are eligible to
be prepaid by utilizing the financially distressed borrowers\' reserve
are advances with long-term maturity dates, and which in the opinion of
the Administrator, if prepaid, would result in an economic savings to
the financially distressed borrower.

\[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990\]

**§1786.29 Prepayment Authority, Program Allocations, Categories of
Prepayment Applications and Financially Distressed Borrowers\'
Reserve.**

\(a\) Prepayment Authority. So long as the aggregate amount of
prepayments made after December 22, 1987, including prepayments made
pursuant to §1786.28(d) and §1786.28(e), under section 306(A) of the RE
Act, does not exceed \$2.5 billion, the approval of the Secretary of the
Treasury is not required in order to make a prepayment pursuant to this
subpart (such amount of prepayments is hereinafter called prepayment
authority).

\(b\) Program Allocations. In accordance with the provisions of section
637 of the 1989 Appropriations Act, \$350 million of prepayment
authority is allocated to RUS-financed electric systems and \$150
million of prepayment authority is allocated to RUS-financed telephone
utilities. The amounts of prepayment authority allocated to electric
program borrowers and telephone program borrowers shall not be
transferred between programs. Borrowers may not sell, assign, or
otherwise transfer prepayment authority to another borrower.

\(c\) Categories of Prepayment Applications. Applications received by
RUS from borrowers desiring to prepay pursuant to this subpart will be
separated into the following two application categories:

\(1\) Electric Program Applications. Electric program applications are
applications to make a prepayment pursuant to this subpart from
RUS-financed electric utilities, that qualify in accordance with
§1786.28(a) hereof and which are received by RUS during the application
period. Electric program applications will be further subdivided and
classified as being either (i) a financially distressed borrower\'s
application, or (ii) a standard electric program application.
Applications received from borrowers determined by the Administrator not
to be a financially distressed borrower will be classified and processed
as a standard electric program application;

\(2\) Telephone Program Applications. Telephone program applications are
applications to make a prepayment pursuant to this subpart from
RUS-financed telephone utilities that qualify in accordance with
§1786.28(a) hereof and which are received by RUS during the application
period;

\(d\) Financially distressed borrowers\' reserve. The \$350 million of
prepayment authority allocated for RUS-financed electric utilities, is
initially set aside into a financially distressed borrowers\' reserve.
This reserve of prepayment authority will be available for prepayments
pursuant to this subpart by financially distressed borrowers who apply
to make such a prepayment during the application period. In the event
that a portion of financially distressed borrowers\' reserve remains
unsubscribed at the end of the initial application period, the
unallocated portion of the financially distressed borrowers\' reserve
will be allocated to other electric borrowers having submitted
applications during an application period to be announced by RUS. Such
prepayment applications shall be classified as standard electric program
applications.

\[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990\]

**§1786.30 Processing procedure.**

\(a\) Priority of Processing. The determination of the order or method
in which applications or portions of applications will be processed by
RUS pursuant to this subpart rests solely within the discretion of the
Administrator. RUS expects that a number of prepayment applications will
be processed simultaneously. In the event that it becomes necessary to
establish priorities of processing, prepayment applications will be
processed without regard to the date received, generally in the
following order of priority:

\(1\) Applications from telephone borrowers;

\(2\) Applications from financially distressed borrowers;

\(3\) Applications from all other borrowers. When assigning priority to
such applications, RUS will consider a number of factors, including
without limitation, (i) the number of prepayment applications being
processed by the area office; (ii) the novelty or complexity of the
proposed transaction; (iii) the method of prepayment; and (iv) the
availability of resources. In the event that RUS receives during the
initial application period, prepayment applications from such borrowers
in an amount less than remaining prepayment authority for each
respective program, RUS will establish a new application period and
publish a notice to that effect in the Federal Register.

\(b\) Pro-rated Applications. Standard electric program applications,
and telephone program applications will be prorated within their
respective application categories to permit partial prepayments in the
event that the aggregate amount of prepayment applications received
during the application period exceeds the amount of prepayment authority
allocated to that application category. In such circumstances, the
amount of each borrower\'s permitted prepayment shall be determined
within each respective application category, as follows:

\(1\) The principal amount of FFB advances under each individual
application, which, if prepaid pursuant to this subpart, would result in
an economic savings to the borrower, shall be divided by the aggregate
principal amount of FFB advances, under all of the applications, which,
if prepaid pursuant to this subpart, would result in an economic savings
to the borrowers, in order to determine a percentage (hereinafter called
a pro-rated percentage) for each borrower;

\(2\) Each borrower\'s share of the prepayment authority for its
application category shall be equal to the product of (i) the prepayment
authority times (ii) the respective pro-rated percentage, and may be
used to prepay a portion of any of the borrower\'s FFB loans listed
pursuant to §1786.31(a)(2);

\(3\) If any approved prepayment transaction fails to be settled within
180 days of the date the borrower is notified by RUS of its prepayment
allocation, RUS may rescind its approval. The unused prepayment
authority represented by such a failed transaction is subject to being
included in any subsequent notice of a new application period under this
subpart; and

\(4\) In the event that applications from financially distressed
borrowers exceed the amount prepayment authority remaining in the
financially distressed borrowers\' reserve, the Administrator at his
discretion shall select one or more of such applications and allocate
the reserve. In making such a selection and allocation, the
Administrator may consider various factors, including without
limitation, (i) the dollar amount of savings to be realized by the
proposed prepayment; (ii) the interest rates on the FFB loans proposed
to be prepaid; (iii) the magnitude of the default or potential default;
and (iv) whether the borrower has previously completed a prepayment
under section 306(A).

\(c\) Notification of Borrowers\' Allocations. Promptly after allocating
the prepayment authority to borrowers and completing any proration
calculations that may be necessary, RUS will return to each borrower
submitting a prepayment application pursuant to this subpart, a copy of
their Notice of Intent to Prepay the Federal Financing Bank specifying
the amount of the borrower\'s prepayment allocation.

\[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990\]

**§1786.31 Application procedure.**

Applications to make a prepayment pursuant to this subpart shall be
submitted to RUS on such forms as RUS may prescribe in the following
manner:

\(a\) Application. Each borrower desiring to make a prepayment pursuant
to this subpart shall submit an application to RUS. No application from
a borrower will be accepted by RUS prior to the commencement of the
application period. An application shall not be deemed submitted to RUS
until it is received by RUS, and the \`\`Date Received\'\' has been
inscribed on the Notice of Intent to Prepay the Federal Financing Bank
by an authorized official of RUS. Incomplete applications may be
returned to the borrower at the discretion of RUS and thereafter must be
resubmitted in order to be processed. To be considered complete, the
application should include the following:

\(1\) \`\`Notice of Intent to Prepay the Federal Financing Bank\'\' in
the form specified in §1786.33 hereof;

\(2\) A listing of each FFB loan advance to be prepaid by loan
designation, RUS note number, RUS account number, advance date, maturity
date, original amount, outstanding balance, and interest rate;

\(3\) Evidence that the borrower meets the qualification provisions of
§1786.28(a) of these regulations;

\(4\) The certification set forth in part A of the Notice of Intent to
Prepay the Federal Financing Bank executed by the chief executive
officer of the borrower;

\(5\) In the event that a borrower submits a prepayment application
which proposes to utilize a portion of the financially distressed
borrowers\' reserve, a certification signed by the chief executive
officer of the system to the effect that the borrower is either (i) in
default or near default on interest or principal payments due on loans
made or guaranteed under the RE Act, and is making a good faith effort
to increase rates and reduce costs to avoid or mitigate default; or (ii)
participating in a work out or debt restructuring plan with RUS, either
as the borrower being restructured or as a borrower providing assistance
as part of the work out or restructuring and stating why the borrower is
in default or near default.

\(b\) Election of Method of Prepayment. Prior to requesting RUS to
schedule a settlement date, the borrower shall (1) elect whether it will
use a private loan, internally generated funds, or a combination of a
private loan and internally generated funds to make the prepayment, by
completing part C of its Notice of Intent to Prepay the Federal
Financing Bank; (2) specify in part C of the Notice of Intent to prepay
the Federal Financing Bank a date after which a prepayment closing may
be scheduled; (3) if appropriate, execute the certification set forth in
part C of the Notice of Intent to Prepay the Federal Financing Bank; and
(4) return a completed copy of the Notice of Intent to Prepay the
Federal Financing Bank to the RUS area office.

\(c\) Final Documentation. All documentation in connection with a
proposed prepayment made pursuant to this subpart shall have been
submitted to RUS in final form, no later than 5 business days prior to
the settlement date agreed to by the borrower and RUS. To be considered
complete, the final documentation shall include the following material:

\(1\) A completed copy of the Notice of Intent to Prepay the Federal
Financing Bank;

\(2\) In the event that a borrower proposes to utilize a private loan in
connection with a prepayment or a portion of a prepayment,

\(i\) Evidence, in form and substance satisfactory to RUS, that the
borrower has an irrevocable commitment from the lender to close the
private loan on the settlement date at an interest rate that meets the
requirements of §1786.28(c)(1);

\(ii\) Evidence that the lender meets the qualification provisions of
§1786.28(b);

\(iii\) Evidence that the private loan meets the qualification
provisions of §1786.28(c); and

\(iv\) The final documentation for the private loan;

\(3\) Estimate of fees, and expenses, including any taxes, in connection
with the prepayment transaction;

\(4\) A certified copy of a resolution of the board of directors of the
borrower approving the certification cited above and requesting RUS
approval of the prepayment.

\(5\) In the case of financially distressed borrowers, evidence in form
and substance satisfactory to the Administrator that the benefits of
prepayment will not be used to reduce rates and that any Federal or
state regulatory body having jurisdiction over the borrower\'s rates has
acknowledged its awareness of this requirement;

\(6\) In the event that borrower is unable to deliver final
documentation or the evidence specified in accordance with, §1786.31(c),
RUS may reschedule the settlement date at its discretion.

(Approved by the Office of Management and Budget under control number
0572 - 0088)

\(c\) Procedure for Submission of Prepayment Applications. An original
and three copies of each initial application must be submitted, between
the hours of 8:15 a.m. to 4:45 p.m. Washington, DC time, to: Chief,
Communications and Records Management Branch, Administrative Service
Division, Rural Utilities Service, U.S. Department of Agriculture, Room
0175 South Agriculture Building, Washington, DC 20250 - 1500. The
outside front of the package containing the prepayment application must
be clearly marked, \`\`FFB PREPAYMENT APPLICATION.\'\' The Notice of
Intent to Prepay the Federal Financing Bank must be the first document
in the application package. Upon receipt the prepayment application will
be opened, logged in, and the Notice of Intent to Prepay the Federal
Financing Bank will be inscribed with the date received by an authorized
official of RUS. A copy of the Notice of Intent to Prepay the Federal
Financing Bank will then be returned to the borrower to acknowledge
receipt of the application. Should an application be submitted other
than in accordance with the provisions of §1786.31, the date received
shall be a date determined by RUS in its sole discretion.

**§1786.32 Settlement procedure.**

\(a\) General. Settlements in connection with prepaying FFB loans
pursuant to this subpart shall be conducted in accordance with the
provisions of this section.

\(b\) Settlement Date. The prepayment will be settled and if a private
loan is utilized, the guarantee will be delivered, on a settlement date
agreed upon by the borrower and RUS. Prior to scheduling a settlement
date for a borrower\'s prepayment pursuant to this subpart, RUS shall
have received the material specified in §1786.31(b).

\(c\) Place of Settlement. All settlements will take place in
Washington, DC, at a location of the borrower\'s choosing; provided
however, if more than one settlement is proposed for the same settlement
date, RUS reserves the right to coordinate the date and location of the
settlements with borrowers involved.

\(d\) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in New
York, New York, on the settlement date, the borrower shall wire
immediately available funds to RUS through the Department of the
Treasury account at the Federal Reserve Bank of New York or shall
provide for payment to RUS in another manner acceptable to RUS and FFB,
in an amount sufficient to pay the outstanding principal of the FFB loan
being prepaid plus accrued interest from the last payment date to and
including the settlement date.

\(e\) Documentation. The borrower shall deliver, or cause to be
delivered to RUS and FFB, not less than 3 business days prior to the
settlement date, written notice of the settlement date and a complete
listing of each FFB loan advance to be prepaid or partially prepaid, in
the format required by §1786.31(a)(2). In the event that a private loan
is used in connection with the prepayment, the following executed
documents, opinions and material shall be delivered at the settlement:

\(1\) The guaranteed note evidencing the private loan.

\(2\) The guarantee.

\(3\) The loan guarantee agreement.

\(4\) Copy of the private loan agreement between the lender and the
borrower.

\(5\) Evidence that the borrower has received all approvals which are
required under Federal or state law, loan agreements, security
agreements, existing financing arrangements, or any other agreement to
which the borrower is a party.

\(6\) An amendment in recordable form revising the description of the
obligations secured by the mortgage including the obligation of the
borrower to reimburse RUS for any amounts that RUS may pay under the
guarantee.

\(7\) An approving opinion of the borrower\'s legal counsel to the
effect that the guaranteed note evidencing the private loan is a valid
and legally binding obligation of the borrower which is secured under
the mortgage, and the priority of the mortgage, as amended pursuant to
paragraph (e)(6) of this section, remains undisturbed.

\(8\) An approving opinion of the lender\'s legal counsel to the effect
that the loan guarantee agreement is a valid and legally binding
obligation of the lender.

\(9\) Such other opinions of counsel as may be required by the
Administrator.

\(10\) Copies of any other documentation required by the lender.

\(11\) Copies of any other documentation required by RUS to ensure that
the obligations of the borrower to reimburse RUS for any amounts that
RUS pays under the guarantee or may advance in connection with the
private loan are adequately secured under the mortgage.

(Approved by the Office of Management and Budget under control number
0572 - 0088)

**§1786.33 Forms.**

Guarantees and loan guarantee agreements executed by RUS pursuant to
this subpart will be on forms prescribed by RUS. Such forms will
include, without limitation, additional details on servicing, procedures
for notifying RUS of a default, the manner for requesting payment on a
guarantee. The Notice of Intent to Prepay the Federal Financing Bank
shall be substantially in the form specified by RUS. RUS may also
prescribe standard forms of certifications to be used in connection with
materials required to be furnished pursuant to §1786.31 of this subpart.

**§1786.34 Access to records of lenders, servicers, and trustees.**

The lender, the servicer, or the trustee will permit representatives of
RUS (or other agencies of the U.S. Department of Agriculture authorized
by that Department) to inspect and make copies of any of their records
pertaining to RUS guaranteed loans. Such inspection and copying may be
made during regular office hours of the respective party or any other
time the party and RUS find convenient.

**§1786.35 Loss, theft, destruction, mutilation, or defacement of RUS
guarantee.**

\(a\) Authorized representative. Except where the evidence of debt was
or is a bearer instrument, the RUS Administrator is authorized on behalf
of RUS to issue a replacement guarantee(s) for one(s) which may have
been lost, stolen, destroyed, mutilated, or defaced. Such replacement(s)
shall be issued only to the lender or holder and only upon receipt of an
acceptable certificate of loss and an indemnity bond.

\(b\) Requirements. When a guarantee(s) is lost, stolen, destroyed,
mutilated, or defaced while in the custody of the lender, or holder, the
lender will coordinate the activities of the party who seeks the
replacement documents and will submit the required documents to RUS for
processing. The requirements for replacement are as follows:

\(1\) A certificate of loss properly notarized which includes:

\(i\) Legal name and present address of the owner, requesting the
replacement forms;

\(ii\) Legal name and address of lender of record;

\(iii\) Capacity of person certifying;

\(iv\) Full identification of the guarantee, including the name of the
borrower, date of the guarantee, face amount of the evidence of debt
purchased, date of evidence of debt and present balance of the loan. Any
existing parts of the documents to be replaced should be attached to the
certificate;

\(v\) A full statement of circumstances of the loss, theft, or
destruction of the guarantee; and

\(vi\) The lender or holder, shall present evidence demonstrating
current ownership of the guarantee and note. If the present holder is
not the same as the original lender, a copy of the endorsement of each
successive holder in the chain of transfer from the initial private
lender to present holder shall be included. If copies of the endorsement
cannot be obtained, best available records of transfer shall be
presented to RUS (e.g., order confirmation, cancelled checks, etc).

\(2\) An indemnity bond acceptable to RUS shall accompany the request
for replacement except when the holder is the United States, a Federal
Reserve Bank, a Federal Government Corporation, a state or territory, or
the District of Columbia. The bond may be with or without surety. The
bond shall be with surety except when the outstanding principal balance
and accrued interest due the present holder is less than \$1,000,000
verified by the lender in writing in a letter of certification of
balance due. The surety shall be a qualified surety company holding a
certificate of authority from the Secretary of the Treasury and listed
in Treasury Department Circular 580.

\(3\) All indemnity bonds shall be issued and/or payable to the United
States of America acting through the Administrator of the Rural
Utilities Service. The bond shall be in an amount not less than the
unpaid principal and interest. The bond shall save RUS harmless against
any claim or demand which might arise or against any damage, loss,
costs, or expenses which might be sustained or incurred by reasons of
the loss or replacement of the instruments.

**§1786.36 Other prepayments.**

Nothing contained in this subpart shall prohibit a borrower from making
prepayments of FFB loans in accordance with the terms thereof.

**§1786.37 Application of regulation to previous prepayments.**

Nothing contained in this subpart shall affect the validity of
prepayments made or guarantees issued pursuant to previous regulations.
Those borrowers, however, that completed a prepayment pursuant to
section 306(A) of the RE Act and closed loans prior to February 27,
1988, may, in their discretion request RUS approval and if required by
prior regulations the concurrence of the Secretary of the Treasury, of
any amendments necessary to make the terms and conditions of such loans
consistent with, or to consolidate such loans with, loans guaranteed
under these regulations.

**§1786.38 Judicial review.**

This subpart is intended to set forth RUS policies and procedures for
the orderly administration of the provisions of section 306(A) of the RE
Act, section 633 of the continuing resolution, and section 637 of the
1989 Appropriations Act and is not intended to create any right or
benefit, substantive or procedural, enforceable at law by a party
against the United States, its agencies, its officers or any person.

**§§1786.39 \-- 1786.49 \[Reserved\] \_**

**Subpart C \-- Special Discounted Prepayments on RUS Direct/Insured
Loans**

Authority: 7 U.S.C. 901 - 950b; Title I, Subtitle B, Pub. L. 99 - 509;
Pub. L. 103 - 354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted. Redesignated
at 55 FR 49250, Nov. 27, 1990.

**§1786.50 Purpose.**

This subpart sets forth the policies and procedures of RUS whereby
electric and telephone borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

**§1786.51 Definitions.**

As used in this subpart:

Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).

Administrator means the Administrator of RUS.

Discounted Present Value shall have the meaning specified in §1786.53

Fund means the Rural Electrification and Telephone Revolving Fund
established pursuant to the Act.

REA means the Rural Electrification Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to
RUS with respect to administering certain electric and telephone loan
programs.

RUS means the Rural Utilities Service, an agency of the Unites States
Department of Agriculture, established pursuant to Section 232 of the
Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103 - 354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telephone programs. See 7 CFR 1700.1.

RUS Loan Agreement means the agreement between the borrower and RUS
providing for loans pursuant to the Act.

RUS Notes means those notes, bonds or other obligations evidencing
indebtedness created by loans made pursuant to Titles I, II or III of
the Act (7 U.S.C. 901 - 940).

\[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27,
1990, as amended at 59 FR 66441, Dec. 27, 1994\]

**§1786.52 Prepayment.**

Through September 30, 1987, the Administrator may, pursuant to this
subpart, permit eligible electric and telephone borrowers to prepay all
outstanding RUS Notes issued or assumed by such borrowers and held in
the Fund, upon paying the lesser of the outstanding balance or the
Discounted Present Value.

**§1786.53 Discounted present value.**

The Discounted Present Value shall be calculated five business days
before prepayment is made by summing the present values of all remaining
payments by using the following formula:

(Graph available on hared copy only)

Where:

Pk=Total payment including interest, due on the kth payment date
following the prepayment date.

n=Total number of remaining payments dates.

I=The discount rate, in decimals, which shall be the average rate on
utility bonds bearing a rating of \`\`Aa\'\' as set forth in that issue
of Moody\'s Public Utility News Reports most recently published prior to
the date on which Discounted Present Value is calculated.

D11=Number of days in the ith payment period that are in a non-leap year
(365 day year).

D2i=Number of days in the ith payment period that are in a leap year
(366 day year).

**§1786.54 Eligibility criteria.**

To be eligible to prepay RUS Notes at the Discounted Present Value a
borrower must comply with the following criteria:

\(a\) The borrower must be current on all payments due on its
outstanding RUS Notes and all other payment obligations owed to RUS and
the Rural Telephone Bank.

\(b\) The borrower must agree to prepay all of its outstanding RUS
Notes.

\(c\) The borrower must identify the source of private financing that
will be used to refinance its outstanding RUS Notes, which financing may
not include obligations the income of which is exempt from taxation
under the Internal Revenue Code of 1986.

\(d\) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced.

\(e\) The borrower must agree to a rescission of the unadvanced balance
of the RUS Notes.

\(f\) The borrower must agree that the borrower, its successors or
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to Titles I, II and III of
the Act, an amount equal to the aggregate of the difference with respect
to each of the RUS Notes between the amount outstanding on the RUS Note
and the Discounted Present Value of the RUS Note upon prepayment with
interest accruing quarterly; the interest rates shall be the rates
provided in the respective RUS Notes.

\(g\) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide
the Administrator with such assurances as the Administrator may request
that it will meet its obligations to the power supplier.

**§1786.55 Application procedure.**

Any borrower seeking to prepay its RUS Notes under this subpart should
apply to the appropriate RUS Area Director by submitting:

\(a\) A board resolution that: (1) Requests approval of the prepayment
of the borrower\'s outstanding RUS Notes, and (2) states the intent of
the borrower to comply with all eligibility criteria set forth in
§1786.54 of this subpart.

\(b\) A list of all RUS Notes together with the outstanding amount on
such notes.

\(c\) Such additional information as the Administrator shall request.

**§1786.56 Approval of applications.**

The applications will ordinarily be reviewed and, if satisfactory,
approved, and closing schedule based on the order in which executed
prepayment agreements are received. The Administrator may limit the
number of applications approved and closings scheduled from time to time
taking into account, among other matters, the financial interests and
administrative considerations of the Government.

**§1786.57 Prepayment agreement.**

Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and provide:

\(a\) The RUS Notes to be prepaid and when the Discounted Present Value
will be calculated.

\(b\) The place and conditions for closing.

\(c\) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.

\(d\) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to Titles I, II and III of the Act, an amount
equal to the aggregate of the difference with respect to each of the RUS
Notes between the amount outstanding on the RUS Note and the Discounted
Present Value of the RUS Note upon prepayment with interest accruing
quarterly; the interest rates shall be the rates provided in the
respective RUS Notes.

\(e\) Assurances that the borrower will meet its obligations to any
power supplier financed pursuant to the Act.

\(f\) Such other terms and conditions as the Administrator deems
appropriate.

**§1786.58 Security.**

If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower\'s property that secure loans made or
guaranteed pursuant to the Act, the Administrator of RUS or the Governor
of the Rural Telephone Bank, as the case may be, will consider request
for the accommodation of such liens for the purpose of providing
security for loans the proceeds of which were used to prepay RUS Notes.
Such lien accommodations shall be limited in amount to the Discounted
Present Value of the RUS Notes plus such costs, as the Administrator
shall determine to be reasonable, incurred by the borrower in obtaining
such loans.

**§1786.59 Loan fund audit.**

Within 6 months of closing RUS shall have the right to audit
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan
Agreement and to inspect all books, records, accounts and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to RUS Notes
which do not comply with the requirements of the RUS Loan Agreement, the
borrower shall be required to pay to the Government an amount equal to
the difference between the amount which the borrower prepaid on such RUS
Notes evidencing RUS loan funds which were improperly disbursed and the
amount which the borrower would otherwise have been required to return
to the Government as a result of noncompliance if the borrower had not
prepaid such RUS Notes. (See 7 CFR part 1721)

**§1786.60 Closing.**

\(a\) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement including such approvals as may be required by regulatory
bodies and other lenders.

\(b\) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement; Provided, however, That no
closing may be scheduled for after September 30, 1987. At closing, a
borrower shall prepay the RUS Notes by paying to the Government an
amount equal to the Discounted Present Value of the RUS Notes. The
closing shall otherwise be conducted as prescribed in the prepayment
agreement.

**§1786.61 Other prepayments.**

RUS loan documentation generally permits borrowers to prepay RUS Notes
by paying the outstanding balance due thereon. Nothing in this subpart
shall prohibit any borrower from prepaying its outstanding RUS Notes in
accordance with the terms thereof. The provisions of this subpart shall
not be applicable to such prepayment.

**§§1786.62 \-- 1786.74 \[Reserved\]**

**Subpart D \-- RUS Privitization Demonstration Prepayment Program for
the State of Alaska**

Authority: 7 U.S.C. 901 - 950b; Pub. L. 99 - 591, Pub. L. 103 - 354, 108
Stat. 3178 (7 U.S.C. 6941 et seq.).

Source: 52 FR 2395, Jan. 22, 1987, unless otherwise noted. Redesignated
at 55 FR 49250, Nov. 27, 1990.

**§1786.75 Purpose.**

This subpart contains the general regulations of the Rural Utilities
Service (RUS) for implementing section 311 of the RE Act which, in
certain circumstances, permits loans made by the Federal Financing Bank
(FFB) and guaranteed by the Administrator of RUS to be prepaid by RUS
Alaska borrowers using private capital with a 90 percent guarantee.

**§1786.76 Policy.**

It is RUS policy to carry out this privatization demonstration program
in a manner which will minimize the loan guarantee exposure to RUS and
the administrative burden on RUS.

**§1786.77 Definitions.**

For the purpose of this subpart:

Administrator means the Administrator of RUS.

Discounted Present Value shall have the meaning specified in
§1786.82(a).

Existing Loan Guarantee means a guarantee of payment issued by RUS to
FFB pursuant to the RE Act.

Fees means any fees, costs or charges, incurred in connection with
obtaining the Refund Loan used to make the prepayment including without
limitation, accounting fees, filing fees, legal fees, printing costs,
recording fees, trustee fees, overheads of the borrower, underwriting
fees, capital stock purchases, or other equity investment requirements
of the Private Lender.

FFB means the Federal Financing Bank, an instrumentality and
wholly-owned corporation of the United States.

FFB Loan means one or more advances made by FFB on a FFB Note.

FFB Note means a promissory note executed in favor of the FFB by a
borrower and guaranteed by RUS pursuant to section 306 of the RE Act (7
U.S.C. 936).

Guarantee shall have the meaning specified in §1786.79.

Internally Generated Funds means money belonging to the borrower other
than: (1) Proceeds of loans made or guaranteed under the RE Act or (2)
funds on deposit in the cash construction trustee account maintained
pursuant to the terms of the RUS loan agreement;

Loan Guarantee Agreement means the written contract by and among the
Private Lender, the borrower and the Administrator setting forth the
terms and conditions of a Guarantee issued pursuant to the provisions of
this subpart.

Mortgage means the mortgage and security agreements by and among the
borrower and RUS, as from time to time supplemented, amended and
restated.

Private Lender shall have the meaning set forth in §1786.80(b).

RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 -
950b), as amended.

REA means the Rural Electrification Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to
RUS with respect to administering certain electric and telephone loan
programs.

Refunding Loan means the note(s), bond(s) or other obligation(s)
evidencing indebtedness created by the Refunding Loan(s).

Refunding Note means the loan or loans used by the borrower to prepay
FFB Notes, RUS Notes or RTB Notes pursuant to this subpart.

RTB means the Rural Telephone Bank, a body corporate and instrumentality
of the United States established pursuant to 7 U.S.C. 941.

RTB Notes mean those notes, bonds or other obligations evidencing
indebtedness created by loans made by the RTB pursuant to Title IV of
the RE Act (7 U.S.C. 941 - 950b).

RUS means the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the
Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103 - 354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telephone programs. See 7 CFR 1700.1.

RUS Notes mean those notes, bonds or other obligations evidencing
indebtedness created by loans made pursuant to Titles I, II, or III of
the RE Act (7 U.S.C. 901 - 940).

Service Area shall have the meaning set forth in §1786.84(c).

\[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988.
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440,
Dec. 27, 1994\]

**§1786.78 Demonstration program.**

Pursuant to section 311 of the RE Act and this subpart, qualified
borrowers may prepay FFB Loans by paying the outstanding principal
balance due thereon. Borrowers may refinance FFB Loans with Refunding
Loans from qualified Private Lenders. Such Refunding Loans shall be
eligible for a Guarantee as hereinafter provided. Participating
borrowers shall be required to prepay all other loans made or guaranteed
pursuant to the RE Act and otherwise comply with the provisions of this
subpart. Because section 311 of the RE Act provides for a demonstration
program of limited applicability, many of the terms and conditions for
prepayments of FFB Loans and in particular the terms and conditions of
Refunding Loans shall be negotiated on a case-by-case basis by RUS, the
borrower, and the Private Lender, and any other secured party under the
borrower\'s Mortgage.

**§1786.79 RUS Guarantee.**

For the purposes of this subpart, \`\`Guarantee\'\' means the
endorsement in the form specified by RUS. The Guarantee shall provide,
among other matters, that in the event of a payment default by the
borrower on a Refunding Note bearing a Guarantee, RUS shall pay the
Private Lender, when and as due, 90 percent of the unpaid portion of the
regularly scheduled debt service payment on such Refunding Note. RUS
shall have the right to accelerate, in accordance with §1786.80(c)(7),
such Refunding Note and pay the Private Lender 90 percent of the
outstanding principal balance and accrued interest of the loan
guaranteed by RUS and be discharged from its Guarantee obligation.

**§1786.80 Qualifications.**

\(a\) Borrowers. To qualify to prepay an FFB Loan pursuant to this
subpart, the borrower:

\(1\) Must be located in the State of Alaska;

\(2\) Must prepay the FFB loan by using a Refunding Loan with a
Guarantee, or by using Internally Generated Funds;

\(3\) Must prepay all of its outstanding loans made or guaranteed under
the RE Act; and

\(b\) Private Lenders. To qualify for a Guarantee pursuant to this
subpart, the Private Lender must be an entity or a trust administered by
an entity; such entity in either case must also:

\(1\) Be a private legally organized lender;

\(2\) Either (i) be subject to credit examination and supervision by
either an agency of the United States or a State and be in good standing
with its licensing authority and have met the requirements, if any, of
licensing, lending and loan servicing in the State where the collateral
for the Refunding Loan is located; (ii) have capital and surplus of at
least \$50 million; or (iii) have credit support such as a letter of
credit or guarantee, in form and substance satisfactory to the
Administrator, in the amount of \$50 million.

\(3\) Have the capability to adequately service the Refunding Loan by
using its own resources. Under no circumstances may the borrower or an
affiliate of the borrower service the Refunding Loan. Required servicing
shall include:

\(i\) The billing and collecting of the Refunding Loan payments from the
borrower; (ii) notifying the Administrator promptly of any default in
the payment of principal and interest on the Refunding Loan and
submitting a report, as soon as possible thereafter, setting forth the
Private Lender\'s views as to the reasons for the default, how long the
Private Lender expects the borrower to be in default, and what
corrective actions the borrower states it is taking to achieve a current
debt service position; (iii) notifying the Administrator of any known
violations or defaults by the borrower under the lending agreement, Loan
Guarantee Agreement, or related security instruments, or conditions of
which the Private Lender is aware which might lead to nonpayment,
violation or other default; and (iv) such other activities as may be
specified in the Loan Guarantee Agreement.

\(c\) Refunding Loans. A qualifying borrower may at its option elect to
use a Refunding Loan to make a prepayment pursuant to this subpart. With
respect to the prepayment of any one FFB Loan, the Administrator may
endorse Guarantees evidencing Refunding Loans in increments not less
than \$30 million except where an FFB Loan being prepaid is less than
\$150 million in which case the Administrator may endorse Guarantees on
not more than five Refunding Notes. RUS shall generally require as a
condition to providing a Guarantee that the Refunding Loan and Refunding
Note comply with the following:

\(1\) The principal amount of the Refunding Note may not exceed the
outstanding principal balance of the FFB Loan being prepaid.

\(2\) For the life of the loan the interest rate, whether fixed or
variable, on the Refunding Note shall be less than the dollar weighted
average interest rate on the FFB Loan being prepaid.

\(3\) The unguaranteed portion of the Refunding Note may not be severed
or \`\`stripped\'\' from the guaranteed portion of the Refunding Note.

\(4\) The loan documentation shall provide RUS with the right to
accelerate the Refunding Loan upon the occurrence of an Event of Default
as that term is defined in the Mortgage at the earlier of: (i) Any date
the borrower may prepay in accordance with the terms of the Refunding
Note, or (ii) the tenth anniversary date of the Refunding Note.

\(5\) The principal of Refunding Note shall not include amounts
attributable to Fees associated with the Refunding Loan. Subject to the
approval of the Administrator in connection with the development of loan
documentation, the interest rate on the Refunding Note may include
amounts attributable to Fees if the net effective interest rate
including such Fees meets the tests contained in §1786.80(c)(2). The
borrower, subject to the approval of RUS, may finance the Fees with the
proceeds of a loan. Such a loan will not be guaranteed by RUS nor will
RUS share first mortgage security to enable another lender to obtain
security for such a loan to the borrower.

\(6\) Refunding Loans and Refunding Notes shall otherwise be in form and
substance satisfactory to the Administrator.

\(d\) Participation of Refunding Loan. A qualified Private Lender may
participate out each Refunding Loan which bears a Guarantee pursuant to
this subpart to entities other than a Government agency, the borrower,
or an affiliate of the borrower, provided that such participation shall
be on terms and conditions satisfactory to the Administrator. Generally,
the Private Lender may utilize any financing structure it desires in
obtaining funds to make the Refunding Loan, providing the Refunding Loan
meets the requirements of §1786.80(c).

\(e\) Prepayments Without a Guarantee. A qualifying borrower may utilize
Internally Generated Funds without a Guarantee to prepay an FFB Loan
pursuant to this subpart or may utilize a combination of a Refunding
Loan with a Guarantee and Internally Generated Funds without a
guarantee.

\[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988.
Redesignated and amended at 55 FR 49250, Nov. 27, 1990\]

**§1786.81 Loan security.**

\(a\) Loan security. Refunding Notes evidencing Refunding Loans made to
the borrower will be secured as follows:

\(1\) The Refunding Note(s) bearing an RUS Guarantee, will be secured
under the Mortgage on a pari passu basis with all other secured
indebtedness of the borrower. Both the obligation of the borrower to
reimburse RUS for any funds advanced by RUS pursuant to the Guarantee
and the 10 percent unguaranteed portion of the Refunding Note shall be
so secured.

\(2\) The Refunding Note(s) which do not bear an RUS Guarantee, will be
secured, in a principal amount equal to the outstanding principal
balance due on the RUS Notes or RTB Notes which are prepaid pursuant to
this subpart, under the Mortgage on a pari passu basis with all other
secured indebtedness of the borrower.

\(3\) The Mortgage shall permit additional indebtedness to be secured
thereunder on a pari passu basis with the approval of the Administrator.

\(b\) Mortgage rights and remedies. The terms of the Mortgage, including
the rights and remedies available to RUS, the Private Lenders and other
secured parties under the Mortgage will be subject to negotiations
between the borrower and such parties.

**§1786.82 Prepayment of RUS and RTB Notes.**

\(a\) The borrower shall prepay all outstanding RUS Notes within one
year after prepayment of FFB Loans at the lesser of the outstanding
principal balance due on the loan or the loan\'s Discounted Present
Value. The Discounted Present Value shall be calculated five business
days before prepayment is made by summing the present values of all
remaining payments by using the following formula:

(Graph available on hard copy only)

Where:

Pk=Total payment, including interest, due on the kth payment date
following the prepayment date.

n=Total number of remaining payments dates.

I=The discount rate, in decimals, which shall be the average rate on
utility bonds bearing a rating of \`\`Aa\'\' as set forth in that issue
of Moody\'s Public Utility News Reports most recently published prior to
the date on which Discounted Present Value is calculated.

D1i=Number of days in the ith payment period that are in a non-leap year
(365 day year).

D2i=Number of days in the ith payment period that are in a leap year
(366 day year).

\(b\) The borrower shall prepay all RTB Notes within one year after
prepayment of the FFB Loans by paying the outstanding principal balance
due on the RTB Notes.

\(c\) The borrower shall prepay all other RUS guaranteed notes in
accordance with the terms of such notes.

\(d\) Except as otherwise provided prepayments of RUS Notes, RTB Notes,
and RUS guaranteed notes shall be in such terms and conditions as the
Administrator shall prescribe. If the borrower is a party to a wholesale
power contract with a power supplier financed pursuant to the RE Act,
the borrower must provide the Administrator with such assurances as the
Administrator may request that it will meet it obligations to the power
supplier.

**§1786.83 Application procedure.**

\(a\) Applications. Applications to make a prepayment pursuant to this
subpart must be submitted to the appropriate Area Director not less than
30 business days prior to the projected settlement date for the
Refunding Loan and shall be on such forms as RUS may prescribe. The
application shall provide among other matters the following:

\(1\) Borrower\'s RUS designation.

\(2\) Borrower\'s name and address.

\(3\) A certified copy of a resolution of the board of directors of the
borrower that: (i) Requests RUS approval of the prepayment and (ii)
recognizes that the request results in the borrower being ineligible for
additional financial assistance under the RE Act.

\(4\) Listing of each RUS Note, RTB Note or FFB Note or other RUS
guaranteed note to be prepaid by loan designation, RUS account number,
advance date, maturity date, original amount, and outstanding balance.

\(5\) Evidence that the borrower meets or will be able to meet the
qualification provisions of §1786.80(a) of these regulations including
that the borrower has the ability to obtain the financing necessary to
prepay its outstanding RUS Notes, RTB Notes, FFB Notes and other RUS
guaranteed notes within one year of the prepayment of the first FFB
Loan.

\(6\) In the event the borrower proposes to utilize a Refunding Loan
with a Guarantee in connection with the FFB prepayment, a proposal for
the Refunding Loan from a Lender selected by the borrower.

\(7\) Evidence of the Private Lender\'s qualifications.

\(8\) Servicing entity\'s name and address.

\(9\) Evidence that the borrower has received all approvals which can be
obtained at the time of application and which are required under Federal
or State law, loan agreements, security agreements, existing financing
arrangements, or any other agreement to which the borrower is a party.

\(10\) Estimate of Fees and expenses, including any taxes.

\(11\) Description of the area served by the borrower.

\(b\) Notifications. If a borrower\'s application has been approved, the
Administrator will promptly notify the borrower, the Private Lender and
FFB to that effect. If not approved the Administrator will promptly
notify the borrower.

\[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988.
Redesignated at 55 FR 49250, Nov. 27, 1990\]

**§1786.84 Future eligibility under the RE Act.**

With respect to borrowers which prepay FFB Loans pursuant to this
subpart additional loans, loan guarantees and other financial assistance
under the RE Act shall be restricted as follows:

\(a\) Electric borrowers. In the case of an electric borrower prepaying
under this subpart, after the date of prepayment, no loans, loan
guarantees or other financial assistance shall be provided pursuant to
the RE Act to the borrower or its successors or for the purpose of
financing the construction or operation of generating plants or bulk
transmission lines for the purpose of furnishing electric energy in the
area served on a retail or wholesale basis by such borrower.

\(b\) Telephone borrowers. In the case of a telephone borrower prepaying
under this subpart, after the date of prepayment, no loans, loan
guarantees or other financial assistance shall be provided pursuant to
the RE Act to the borrower or its successors or for the purpose of
furnishing or improving telephone service in the area served by such
borrower.

\(c\) Service area. For the purposes of this subpart, the borrower\'s
\`\`Service Area\'\' shall be as determined by the Administrator based
upon data as of December 31, of the year preceding the date of
prepayment. In determining the Service Area of electric borrowers, the
Administrator shall make allowances and adjustments to avoid adversely
affecting the eligibility of other borrowers for financial assistance
under the RE Act where such borrowers are currently providing electric
supply services for retail loads in the same area and which are
reasonably expected to continue providing electric supply services for
retail loads in such areas.

\(d\) Other borrowers. In the event that the borrower prepaying under
this subpart shall be suing a majority of its generating capacity to
directly serve its retail consumers, other borrowers which are
purchasing power from such borrower as of September 20, 1986, shall
continue to remain eligible for financing under the RE Act for needs in
their service area.

\(e\) Project participation. Nothing in this subpart shall prohibit a
borrower which has prepaid pursuant to this subpart from participating
in generation and transmission projects with borrowers which have not
prepaid, so long as the borrower which has prepaid utilizes private
capital financing without financial assistance under the RE Act.

\(f\) Short-term power purchases. Nothing in this subpart shall prohibit
short-term power purchases by borrowers which have prepaid under this
section from borrowers which have not prepaid.

\(g\) Lien accommodations. The Administrator shall consider on a
case-by-case basis requests by a borrower which has prepaid under
section 311 of the RE Act for an accommodation of the lien of the
Mortgage on a pari passu basis, to provide security for a lender who
provides the borrower with a loan for the purposes of financing electric
or telephone facilities within the borrower\'s Service Area or for other
corporate purposes.

**§1786.85 Settlement procedure.**

\(a\) Settlement date. When RUS is satisfied with the documentation, the
parties will schedule a settlement date. The Refunding Loan will be
settled and the Guarantee delivered on a date and time mutually agreed
upon among the parties not earlier than ten business days after receipt
by RUS of all final documentation. RUS reserves the right to limit the
aggregate dollar amount of and/or the number of prepayments or
settlements that take place on any given day.

\(b\) Place of settlement. All settlements involving the Guarantee of
Refunding Loans will take place in Washington, DC, at a location of the
borrower\'s choosing.

\(c\) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in New
York, New York, on the settlement date, the borrower shall wire
immediately available funds to RUS through the Department of the
Treasury account at the Federal Reserve Bank of New York in an amount
sufficient to pay the outstanding principal of FFB Loans plus accrued
interest from the last payment date to and including the settlement
date. In the event the borrower has more than one FFB Loan, all such
loans must be prepaid at the same settlement.

\(d\) Prepayment of RUS Notes and RTB Notes. In the event that the
borrower chooses not to prepay all its outstanding RUS Notes and RTB
Notes simultaneously with the prepayment of the FFB Loans, the borrower
shall execute:

\(1\) An agreement specifying that such RUS Notes and RTB Notes will be
prepaid within one year of the settlement date and

\(2\) A note payable to RUS in an amount equal to the premiums that
would have been due under the FFB Notes being prepaid if the FFB Notes
had been prepaid in accordance with their terms rather than pursuant to
this subpart. This note shall (i) bear interest at a rate equal to the
rate on the FFB Notes, (ii) be secured in a manner satisfactory to the
Administrator, (iii) be payable on demand one year after the settlement
date in the event that the borrower does not prepay all its outstanding
RUS Notes, RTB Notes and other RUS guaranteed notes within one year of
the date it prepays its FFB Notes, and (iv) be cancelled and returned to
the borrower if the borrower\'s RUS Notes, RTB Notes and other RUS
guaranteed notes are prepaid within one year of the date it prepays its
FFB Notes.

\(e\) Documentation. The documentation to be delivered at settlement
will be agreed upon by the Private Lender, the borrower and RUS.
Depending upon the circumstances, RUS may require the borrower to
perform a search of title, provide additional title insurance and take
such other actions as may be necessary to ensure that the interests of
the Government are adequately protected.

**§1786.86 Other prepayments.**

Nothing shall prohibit a borrower from making prepayments of FFB Loans,
RUS loans, RTB loans, or other RUS guaranteed loans in accordance with
the terms thereof.

**§§1786.87 \-- 1786.94 \[Reserved\] \_**

**Subpart E \-- Discounted Prepayments on RUS Notes in the Event of a
Merger of Certain RUS Electric Borrowers**

Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted.

**§1786.95 Purpose.**

This subpart sets forth the policies and procedures of RUS whereby
certain electric borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

**§1786.96 Definitions.**

As used in this subpart:

Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).

Administrator means the Administrator of RUS.

Consolidation means:

\(1\) The combination, pursuant to state law, of two or more borrower or
nonborrower organizations into a new successor organization that takes
over the assets and assumes the liabilities of those organizations; or

\(2\) Any other transaction including an acquisition which has
substantially the same effect.

Discounted Present Value shall have the meaning specified in §1786.98.

Fund means the Rural Electrification and Telephone Revolving Fund
pursuant to the Act.

Merger means:

\(1\) The combination, pursuant to state law, of two or more borrower or
nonborrower organizations into an existing survivor organization that
takes over the assets and assumes the liabilities of the merged
organizations; or

\(2\) Any other transaction including an acquisition which has
substantially the same effect.

REA means the Rural Electrification Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to
RUS with respect to administering certain electric and telephone loan
programs.

RUS means the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the
Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103 - 354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telephone programs. See 7 CFR 1700.1.

RUS Loan Agreement means the agreement between the borrower and RUS
providing for loans pursuant to the Act.

RUS Notes means those notes, bonds or other obligations evidencing
indebtedness created by loans made or guaranteed by RUS pursuant to
titles I and III of the Act (7 U.S.C. 901 - 940).

\[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994\]

**§1786.97 Prepayment.**

There were 29 former RUS electric borrowers that prepaid their direct or
insured loans under section 306B(a) of the Act prior to October 1, 1987.
(See subpart C of this part.) These borrowers are listed in appendix A
to subpart E of this part. Any RUS electric borrower which is the result
of a merger or consolidation involving any of these 29 former borrowers
and a borrower with outstanding Notes may, after meeting all
requirements of this subpart, prepay all outstanding RUS Notes issued or
assumed by the borrower upon paying the lesser of the outstanding
balance or the Discounted Present Value. Such prepayment must be made
not later than one year after the effective date of the merger or
consolidation.

**§1786.98 Discounted present value.**

\(a\) The Discounted Present Value shall be calculated by RUS before
prepayment is made by summing the present values of all remaining
payments on all outstanding notes according to the following formula to
compute the discounted present value of each note and adjusting as here
and after provided for tax exempt financing.

(Graph available on hard copy only)

Where:

Pk=Total payment, including interest, due on the kth payment date
following the prepayment date. n=Total number of remaining payment
dates. I=The discount rate applied to each transaction will be
ascertained by using data specified in the \`\`Federal Reserve
Statistical Release\'\' which is published each Monday. (See appendix B
to subpart E of this part.) The specific discount rate will be the
discount rate(s) specified in the \`\`Treasury Constant Maturities\'\'
section of this publication eight working days prior to the closing. In
applying the discount rate, the 1-year Treasury rate will be used for
all notes with a remaining term of less than 2 years; the 2-year
Treasury rate for notes with maturities between 2 and 3 years; the
3-year Treasury rate for all notes with maturities between 3 and 5
years; the 5-year Treasury rate for all notes with maturities between 5
and 7 years; the 7-year Treasury rate for all notes with maturities
between 7 and 10 years; the 10-year Treasury rate for all notes with
maturities between 10 and 30 years; and the 30-year Treasury rate for
all notes with maturities longer than 30 years.

D1i=Number of days in the ith payment period that are in a non-leap year
(365 day year).

D2i=Number of days in the ith payment period that are in a leap year
(366 day year).

\(b\) Notwithstanding paragraph (a) of this section, in the event that
the borrower shall elect to prepay using tax exempt financing, the
calculation of the Discounted Present Value shall be adjusted to make
the discount the equivalent of fully taxable financing.

**§1786.99 Eligibility criteria.**

To be eligible to prepay RUS Notes at the Discounted Present Value, a
borrower must comply with the following criteria:

\(a\) The borrower must be current on all payments due on its
outstanding RUS Notes and all other payment obligations owed to RUS;

\(b\) The borrower must agree to prepay all of its outstanding RUS
Notes;

\(c\) The borrower must identify the source of financing that will be
used directly or indirectly to refinance its outstanding RUS Notes. The
borrower must certify in writing whether such financing will be tax
exempt and, if so, shall furnish all information on the financing as RUS
may request to enable RUS to adjust the discount to the equivalent to
fully taxable financing;

\(d\) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced or
repaid RUS for all unexpended funds;

\(e\) The borrower must agree to a rescission of the unadvanced balance
of any RUS Notes outstanding as of the date of its application for
prepayment;

\(f\) The borrower must agree that the borrower, its successors and
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to titles I and III of the
Act, an amount equal to the aggregate of the difference with respect to
each of the RUS Notes between the amount outstanding on the RUS Note and
the Discounted Present Value of the RUS Note upon prepayment with
interest accruing quarterly; the interest rates shall be the rates
provided in the respective Notes; and

\(g\) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide
the Administrator with such assurances as the Administrator may request
that it will meet its obligations to the power supplier. The borrower
must also specifically agree to the following limitation: The borrower
agrees that, for so long as the Wholesale Power Contract shall be in
effect between the borrower and the power supplier, the borrower will
not, without the approval in writing of the power supplier and the
Administrator, take or suffer to be taken any steps for reorganization
or to consolidate with or merge into any corporation or any other public
power district, or to sell, lease or transfer (or make any agreement
therefor) all or a substantial portion of its assets, whether now owned
or hereafter acquired. Notwithstanding the foregoing, the borrower may
take or suffer to be taken any steps for reorganization or to
consolidate with or merge into any corporation or any other public power
district, or to sell, lease or transfer (or make any agreement therefor)
all or a substantial portion of its assets, whether now owned or
hereafter acquired, so long as the borrower shall pay such portion of
the outstanding indebtedness evidenced by the power supplier\'s Notes at
the time outstanding as shall be determined by the power supplier with
the prior written consent of the Administrator and shall otherwise
comply with such reasonable terms and conditions as the Administrator
and the Power Supplier shall require.

**§1786.100 Application procedure.**

Any borrower seeking to prepay its RUS Notes under this Subpart should
apply to the appropriate RUS Area Director not less than 60 days prior
to one year after the effective date of the merger or consolidation by
submitting:

\(a\) A board resolution that:

\(1\) Requests approval of the prepayment of the borrower\'s outstanding
RUS Notes;

\(2\) States the intent of the borrower to comply with all eligibility
criteria set forth in §1786.99 of this subpart; and

\(3\) Identifies the source of financing.

\(b\) A list of all RUS Notes together with the outstanding amount on
such notes.

\(c\) An opinion of counsel as to the effective date of the merger or
consolidation.

\(d\) Such additional information as the Administrator will request.

**§1786.101 Approval of application.**

The applications will be reviewed and, if satisfactory, approved.
Closing will be scheduled upon approval.

**§1786.102 Prepayment agreement.**

Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and provide:

\(a\) The RUS Notes to be prepaid and when the Discounted Present Value
will be calculated.

\(b\) The place, date and conditions for closing.

\(c\) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.

\(d\) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to titles I and III of the Act, an amount equal
to the aggregate of the difference with respect to each of the RUS Notes
between the amount outstanding on the RUS Note and the Discounted
Present Value of the prepaid RUS Note; with interest accruing quarterly.
The interest rates shall be the rates provided in the respective RUS
Notes.

\(e\) Assurances that the borrower will meet its obligations to any
power supplier financed pursuant to the Act.

\(f\) Such other terms and conditions as the Administrator deems
appropriate.

**§1786.103 Security.**

If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower\'s property, the Administrator of RUS will
consider a request for the accommodation of such liens for the purpose
of providing security for loans the proceeds of which were used to
prepay RUS Notes. Such lien accommodations shall be limited in amount to
the Discounted Present Value of the RUS Notes plus such costs, as the
Administrator shall determine to be reasonable, incurred by the borrower
in obtaining such loans.

**§1786.104 Loan fund audit.**

RUS shall have the right to audit within 6 months of closing,
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan
Agreement and to inspect all books, records, accounts and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to RUS Notes
which do not comply with the requirements of the RUS Loan Agreement, the
borrower shall be required to pay the Government an amount equal to the
difference between the amount which the borrower prepaid on such RUS
Notes evidencing RUS loans funds which were improperly disbursed and the
amount which the borrower would otherwise have been required to return
to the Government as a result of noncompliance if the borrower had not
prepaid such RUS Notes. (See 7 CFR part 1721, Post-Loan Policies and
Procedures for Insured Electric Loans.)

**§1786.105 Closing.**

\(a\) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement, including such approvals as may be required by regulatory
bodies and other lenders.

\(b\) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement. RUS shall designate the date
of closing which in no event shall be later than one year after the
effective date of the merger or consolidation. At closing, in addition
to paying all current interest due on the date of prepayment, a borrower
shall prepay the RUS Notes by paying to the Government an amount equal
to the lesser of the outstanding balance or the Discounted Present Value
of the RUS Notes. The closing shall otherwise be conducted as prescribed
in the prepayment agreement.

**§1786.106 Other prepayments.**

RUS loan documentation generally permits borrowers to prepay RUS Notes
by paying the outstanding balance due thereon. Nothing in this subpart
shall prohibit any borrower from prepaying its outstanding RUS Notes in
accordance with the terms thereof. The provisions of this subpart shall
not be applicable to such prepayment. \_

(Tables available on hard copy only)

Appendix B to Subpart E of Part 1786 \-- Federal Reserve Statistical
Release

Federal Reserve Statistical Release

These data are released each Monday. The availability of the release
will be announced when the information is available, on (202) 452 -
3206.

H. 15 (519)

For immediate release February 4, 1991.

(Chart available on hard copy only)

Description of the Treasury Constant Maturity Series

Yields on Treasury securities at \`\`constant maturity\'\' are
interpolated by the U.S. Treasury from the daily yield curve. This
curve, which relates the yield on a security to its time to maturity, is
based on the closing market bid yields on actively traded Treasury
securities in the over-the-counter market. These market yields are
calculated from composites of quotations reported by five leading U.S.
Government securities dealers to the Federal Reserve Bank of New York.
The constant maturity yield values are read from the yield curve at
fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method
provides a yield for a 10-year maturity, for example, even if no
outstanding security has exactly 10 years remaining to maturity.

**Subpart F \-- Discounted Prepayments on RUS Electric Loans**

Authority: 7 U.S.C. 901 et seq.; Pub. L. 103 - 354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.).

Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted.

**§1786.150 Purpose.**

This subpart sets forth the policies and procedures of RUS whereby
borrowers may prepay, with private financing or internally generated
funds, outstanding RUS Notes evidencing electric loans at the Discounted
present value of the RUS Notes, pursuant to the provisions of section
306(B) of the RE Act as amended by Public Law 102 - 428, 106 Stat. 2183,
adopted October 21, 1992.

**§1786.151 Definitions and rules of construction.**

\(a\) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities Service
(RUS).

Borrower means any organization which has an outstanding note(s)
evidencing electric loans made by RUS, or has previously prepaid such
notes under subparts C and E of this part.

Business day means any day on which both the RUS and the Federal Reserve
Bank of New York are open for business.

Construction Fund Account means the Cash \-- Construction Fund \--
Trustee Account, maintained by the borrower pursuant to the terms of the
outstanding RUS Loan Contract.

Closing shall mean one of the several contemplated closings of the
prepayment of the Qualified Notes prescribed by the Prepayment
agreement.

Closing date shall mean any business day identified as such by the
Government in its preclosing notice delivered to the Company pursuant to
§1786.158.

Closing request shall mean a request by the borrower of the Government
to schedule a closing for certain Qualified Notes on the date requested
therein.

Direct loan means a loan made pursuant to section 4 of the RE Act.

Discounted present value shall have the meaning set forth in §1786.153.

Distribution borrower means a borrower that sells electric power and
energy at retail in rural areas.

Electric loan means a Direct loan or an Insured loan made for the
purpose of furnishing electric energy to persons in rural areas.

Final maturity means the final date on which all outstanding principal
and accrued interest on an electric loan is due and payable.

Government means the United States of America, acting through the
Administrator of the Rural Utilities Service.

Insured loan means a loan made pursuant to Section 305 of the RE Act.

Lien accommodation means the sharing of the Government\'s (RUS\'s) lien
on property, usually all property, covered by the lien of the RUS
Mortgage.

Loan guarantee means a loan guarantee under Section 306 of the RE Act.

Power supply borrower means a borrower that sells or intends to sell
electric power at wholesale to distribution or power supply borrowers
pursuant to RUS wholesale power contracts.

Preclosing notice shall mean a notice delivered by the Government to the
borrower in response to a closing request, identifying the closing date,
the Qualified Notes to be prepaid at such closing and documents to be
delivered by the borrower to the Government prior to the closing date.

Prepayment agreement shall have the meaning set forth in §1786.158.

Qualified Notes shall have the meaning set forth in §1786.154.

RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).

RUS means the Rural Utilities Service, an agency of the United States
Department of Agriculture.

RUS Loan Contract means the agreement, as amended, supplemented, or
restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.

RUS Mortgage means collectively those mortgages and security agreements
made by and among the borrower, the Government, and third parties, if
any, securing indebtedness evidencing electric loans or loan guarantees
made pursuant to the RE Act.

Rural development loans means loans or grants made pursuant to Rural
development programs.

Rural development programs means loan or grant programs under the
authority of the Administrator pursuant to sections 313, 501, and 502 of
the RE Act.

Supplemental lender means a private lender whose loan to the borrower is
secured by the RUS mortgage.

Tax exempt financing means borrowing evidenced by bonds, notes and other
evidence of indebtedness the income of which is excluded from gross
income for the purposes of Chapter 1 of the Internal Revenue Code of
1986 (26 U.S.C. ch. 1).

\(b\) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the plural.

**§1786.152 Prepayments of RUS loans.**

An electric loan made under the RE Act shall not be sold or prepaid at a
value that is less than the outstanding principal balance, except that,
on request of a borrower, an electric loan made under the RE Act, or a
portion of such a loan, that was advanced before May 1, 1992, or has
been advanced for not less than 2 years, shall be prepaid by the
borrower at the lesser of the outstanding principal balance of the loan
or the discounted present value thereof.

**§1786.153 Discounted present value.**

\(a\) The discounted present value shall be calculated by summing the
present values of all remaining payments on all Qualified Notes to be
prepaid according to the following formula and adjusted as provided in
paragraph (b) of this section if tax exempt financing is used.

(Graph available on hard copy only)

Where:

The Greek letter, Sigma (S) means the sum of the following terms.

The Greek letter, Pi (P) means the product of the following terms.

Pk=Total payment, including interest due on the Kth payment date
following the prepayment date.

n=Total number of remaining payment dates to final maturity.

D1i=Number of days in the ith payment period that are in a non-leap year
(365-day year).

D2i=Number of days in the ith payment period that are in a leap year
(366-day year).

I=The discount rate applied to each transaction ascertained by using
data specified in the \`\`Federal Reserve Statistical Release\'\' (H.15
(519)), which is published each Monday. The availability of this Release
will be announced when the information is available by telephone on
(202) 452 - 3206. See adjustment for tax exempt refinancing at paragraph
(b) of this section. The specific discount rate will be based on the
discount rate(s) specified in the \`\`Treasury Constant Maturities\'\'
section of this publication 8 business days prior to the closing and
will be interpolated from that information as follows:

(Tables available on hard copy only)

Where:

I=The discount rate interpolated from the cost of money to the Treasury.

A=The Treasury interest rate for the most recently published maturity
(in years) that is the shortest Treasury term (in years) which is
greater than the borrower\'s remaining term (in years) to final
maturity; i.e., (if the note to be prepaid has a final maturity of more
than 10 years then this rate is the 20-year Treasury rate)

B=The Treasury interest rate for the most recently published maturity
(in years) that is the longest Treasury term (in years) which is less
than the borrower\'s remaining term (in years) to final maturity; i.e.,
(if the note to be prepaid has a final maturity of more than 10 years
but less than 20 years then this term is the 10-year Treasury rate)

C=The remaining number of full years to the final maturity of the
borrower\'s note. Drop all fractions of a year and use the remaining
full years.

E=The published Treasury term (in years) to maturity which is the
longest term to maturity for the published term that is less than the
remaining term (in years) to final maturity of the borrower\'s note;
i.e., (if the note to be prepaid has remaining years to maturity between
11 and 20 years then this term would be 10 or if the note to be prepaid
has remaining years to maturity between 21 years and 30 years then this
term would be 20).

F=The published Treasury term (in years) to maturity which is the
shortest term to maturity for the published term that is greater than
the remaining term (in years) to maturity of the borrower\'s note; i.e.,
(if the note to be prepaid has remaining years to maturity between 11
and 20 years then this term would be 20 or if the remaining years to
maturity is between 21 and 30 years then this term would be 30).

Note: The percentage terms used in the above formula will be truncated
to two decimal places. For the purpose of the terms A, B, E, and F above
the published Treasury rate and term shall mean the Treasury Constant
Maturities from the Federal Reserve Statistical Release for 7 years, 10
years, 20 years, and 30 years.

(b)(1) In the event that the borrower prepays a loan under paragraph (a)
of this section using, directly or indirectly, tax exempt financing, the
discount shall be adjusted to ensure that the borrower receives a
benefit that is no greater than the benefit the borrower would receive
if the borrower used financing that was not tax exempt. The borrower
shall certify in writing whether the financing will be tax exempt.

\(2\) The discount rate established in paragraph (a) of this section
shall be adjusted for a tax exempt financing by substituting for the
\`\`I\'\' term in the discount rate formula, a discount rate equal to
the interest rate(s) published pursuant to 7 CFR 1714.5, determination
of interest rates on municipal rate loans. This is the interest rate
established for the new RUS loan program which is based on municipal
interest rates for issues of comparable maturity. No interpolation or
average will be used. If a note is to be prepaid under this subpart and
is subject to this tax exempt adjustment, the discount rate will be
determined from the published table in the Federal Register. For
example, if the note to be discounted matures in the year 1999 then the
discount rate will be the interest rate for the year 1999. RUS will
publish a schedule of interest rates for municipal rate loans in the
Federal Register at the beginning of each calendar quarter. The
published rates in effect eight business days prior to closing will be
used for the discount rates. All notes to be prepaid that have remaining
years to maturity of more than 20 years will be discounted at the
interest rate in effect for new RUS municipal rate loans of comparable
maturity at the time of closing.

**§1786.154 Qualified Notes.**

An eligible borrower may prepay Qualified Notes under this subpart at
the discounted present value. A Qualified Note is a note evidencing an
RUS electric loan, all advances of which were made prior to May 1, 1992,
or not less than 2 years prior to the date of prepayment closing. See
§§1786.155(a)(3) and 1786.158 (h) and (j).

**§1786.155 Eligible borrower.**

\(a\) To be eligible to prepay an electric loan under this subpart, the
borrower must be in compliance with the following:

\(1\) The borrower shall be current on all payment obligations on
outstanding loans made or guaranteed by RUS. For the purpose of
determining eligibility for prepayment, a default by a power supply
borrower from which a distribution borrower purchases wholesale power
shall not be considered a default by the distribution borrower;

\(2\) There shall exist no material defaults under the borrower\'s RUS
Loan Contract and Mortgage;

\(3\) The borrower shall have expended all funds advanced pursuant to
the RUS Loan Contract for the purposes for which such funds were
advanced. A borrower will not be eligible to prepay under this subpart
if it has any funds advanced pursuant to the RUS Loan Contract in its
Construction Fund Account; and

\(4\) The borrower shall be current on all obligations under any
wholesale power contract with an RUS financed power supply borrower.

\(b\) The eligibility of borrowers that have had any indebtedness
representing loans made or guaranteed by RUS restructured shall be
determined on a case by case basis considering the terms and conditions
of the restructuring agreement.

**§1786.156 Application procedure.**

Any borrower seeking to prepay Qualified Notes under this subpart should
apply to the appropriate RUS Regional Director or the Director of the
Power Supply Division. The application shall provide the following:

\(a\) Borrower\'s RUS designation;

\(b\) Borrower\'s name and address;

\(c\) A certified copy of a resolution of the board of directors of the
borrower that the borrower wishes to enter into a prepayment agreement
providing for the prepayment of all or a portion of its Qualified Notes;

\(d\) Listing of each Qualified Note to be prepaid by loan designation,
RUS account number, advance date, maturity date, original amount, and
outstanding principal balance;

\(e\) Evidence that the borrower has the ability to obtain the financing
necessary to prepay its Qualified Notes listed in paragraph (d) of this
section and identification of the source of financing and the need if
any of obtaining a lien accommodation from RUS; and

\(f\) Such additional information as the Administrator may request.

**§1786.157 Approval of applications.**

\(a\) Ordinarily, within 30 days of receipt, an application will be
reviewed and the borrower will be notified as to whether the application
has been approved. If the application has not been approved, the
borrower will be informed as to the reasons. If the application is
approved the borrower shall thereafter be provided with a prepayment
agreement for execution.

\(b\) The Administrator may limit the number of applications approved
and closings scheduled from time to time, taking into account, among
other matters, administrative considerations of the RUS.

**§1786.158 Terms and conditions of prepayment agreement.**

Upon receipt of a satisfactory application, RUS shall provide to the
borrower for its execution a prepayment agreement, in form and substance
satisfactory to RUS, which may include the following:

\(a\) Provide for the prepayment of one or more Qualified Notes from
time to time, but no more than two closings may be scheduled in any
calendar year unless a third closing is for the prepayment of all
outstanding electric loans of the borrower;

\(b\) Set forth procedures and forms through which the borrower will
notify the Government of each election it makes to prepay certain
Qualified Notes upon a requested closing date and the Government will
notify the borrower of the established closing date and prepayment
amount for the Qualified Notes for each closing;

\(c\) Reserve to the Administrator the right to reschedule closing dates
to meet administrative considerations;

\(d\) Set forth closing requirements identifying the location and manner
of payment, and all documentation and information to be delivered prior
to or at closing, including opinions of counsel and certificates from
the borrower;

\(e\) Provide for notice by either telephone or facsimile to be given by
RUS to the borrower not more than 8 nor less than 3 business days before
a scheduled closing date of the amount to be paid at closing which shall
include all accrued interest and the discounted present value of the
Qualified Notes to be prepaid;

\(f\) Provide for notice of the 120 month period during which the
borrower\'s eligibility for direct or insured loans will be restricted;

\(g\) Set forth representations and warranties;

\(h\) Require the borrower to prepay each Qualified Note specified in
full;

\(i\) Require the borrower to identify the source of the financing that
will be used directly or indirectly to refinance the Qualified Notes. If
the source is other than internally generated funds, the borrower must
certify in writing whether such financing will be tax exempt, and if tax
exempt financing will be used, furnish all information on the terms and
conditions of the financing as RUS may require;

\(j\) Require the borrower to rescind the unadvanced balance of all
outstanding electric loans as of the date of initial closing;

\(k\) Require the borrower, if it is a party to a wholesale power
contract with a power supply borrower, to provide the Administrator with
such assurances as the Administrator may require that it is in
compliance with and will continue to comply with its obligation to such
power supply borrower;

\(l\) Provide RUS, if the Administrator determines it necessary, with
security for all outstanding rural development loans and amendments to
any outstanding rural development loan agreements in form and substance,
and on terms and conditions, satisfactory to RUS;

\(m\) Prescribe remedies for violating the terms and conditions of the
prepayment agreement;

\(n\) Provide for termination by RUS of the right for the borrower to
prepay thereunder;

\(o\) Provide evidence that any approvals required from any supplemental
lender have been obtained; and

\(p\) Set forth such other terms and conditions as the Administrator
shall deem appropriate.

**§1786.159 Initial closing.**

\(a\) Upon receipt of the prepayment agreement, the borrower may submit,
pursuant to the terms of the prepayment agreement, a closing request
which shall request a closing date no less than 30 business days from
the date of the request.

\(b\) The Government will respond to the borrower\'s closing request by
delivering a preclosing notice to the borrower not less than 10 business
days prior to the date which the Government, after reviewing the
borrower\'s closing request, selects as a closing date.

**§1786.160 Subsequent closings.**

\(a\) Each subsequent prepayment after the initial closing shall be
facilitated with the submission of an additional closing request by the
borrower. Each closing request must request a closing date no less than
30 business days from the date of the request.

\(b\) The Government will respond to each subsequent closing request by
delivering a preclosing notice to the borrower not less than 10 business
days prior to the date which the Government, after reviewing the
borrower\'s closing request, selects as a closing date in each case.

**§1786.161 Return of Qualified Notes and release of lien.**

Upon payment to RUS at closing of the full amount specified in the
notice delivered by RUS to the borrower pursuant to the terms of the
prepayment agreement (see §1786.158(e)), RUS will deliver to the
borrower at closing those Qualified Notes which have been paid in full
at such closing, and upon payment and discharge of all outstanding RUS
debt obligations by the borrower, RUS will deliver to the borrower at
the final closing a release of lien prepared by the borrower pursuant to
the terms of the prepayment agreement.

**§1786.162 Outstanding loan documents.**

\(a\) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS Loan Contract, its outstanding
notes issued to RUS, and the RUS Mortgage.

\(b\) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS Mortgage, or other creditors of the borrower.

\(c\) Nothing in this subpart shall prohibit a borrower from making
prepayments of any loans pursuant to the RE Act in accordance with the
terms of such loans.

**§1786.163 Existing wholesale power contracts.**

\(a\) If the borrower is a party to a wholesale power contract with a
power supply borrower financed pursuant to the RE Act, the Administrator
may require that the borrower and the power supply borrower enter into a
supplement to the outstanding wholesale power contract providing
substantially as follows:

Sample Contract Terms

So long as any of the notes evidencing secured loans of the power supply
borrower are outstanding, the borrower will not, without the approval in
writing of the power supply borrower and the Administrator, take or
suffer to be taken any steps for reorganization or dissolution, or to
consolidate with or merge into any corporation, or to sell, lease or
transfer (or make any agreement therefor) all or a substantial portion
of its assets, whether now owned or hereafter acquired. The power supply
borrower will not unreasonably withhold or condition its consent to any
such, reorganization, dissolution, consolidation, or merger, or to any
such sale, lease or transfer (or any agreement therefor) of assets. The
power supply borrower will not withhold or condition such consent except
in cases where to do otherwise would result in rate increases for the
other members of the power supply borrower or impair the ability of the
power supply borrower to repay its secured loans in accordance with
their terms, or adversely affect system performance in a material way.
Notwithstanding the foregoing, the borrower may take or suffer to be
taken any steps for reorganization or dissolution or to consolidate with
or merge into any corporation or to sell, lease or transfer (or make any
agreement therefor) all or a substantial portion of its assets, whether
now owned or hereafter acquired without the power supply borrower\'s
consent, so long as the borrower shall pay such portion of the
outstanding indebtedness on the power supply borrower\'s notes or other
obligations as shall be determined by the power supply borrower with the
prior written consent of the Administrator and shall otherwise comply
with such reasonable terms and conditions as the Administrator and power
supply borrower may require either: (1) To eliminate any adverse effect
that such action seems likely to have on the rates of the other members
of the power supply borrower, or

\(2\) To assure that the power supply borrower\'s ability to repay the
secured loans and other obligations of the power supply borrower in
accordance with their terms is not impaired.

The Administrator may require, among other things, that any payment owed
under (2) of the preceding sentence that represents a portion of the
power supply borrower\'s indebtedness on Notes shall be paid by the
borrower in the manner necessary to accomplish a defeasance of those
obligations in accordance with the loan documents relating thereto, or
be paid directly to the holders of the Notes for application by them as
prepayments in accordance with the provisions of such documents, or be
paid to the power supply borrower and held and invested in a manner
satisfactory to the Administrator.

\[End of sample contract terms\]

\(b\) The Administrator may exempt a borrower from the requirement to
enter into a supplement to its outstanding wholesale power contract if
the Administrator determines that such requirement is burdensome and
unnecessary in light of the provisions of the existing wholesale power
contract, other security arrangements of the power supply borrower, and
any other relevant facts and circumstances. Normally such exemption will
be granted only with the concurrence of the power supply borrower.

**§1786.164 Loan fund audit.**

In the event that a borrower shall prepay all its outstanding electric
loans RUS shall have the right to audit within six (6) months of closing
transactions involving the RUS Construction Fund Account established and
maintained by the borrower pursuant to the terms of the RUS Loan
Contract and to inspect all books, records, accounts, and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to the RUS
Loan Contracts which do not comply with the requirements thereof, the
borrower shall be required to pay the RUS an amount equal to the
difference between the amount which the borrower prepaid under this
subpart with respect to such advances, and the amount which the borrower
would otherwise have been required to return to the RUS as a result of
noncompliance if the borrower had not prepaid such advances, plus
interest. (See 7 CFR part 1721, Post-Loan Policies and Procedures for
Insured Electric Loans.)

**§1786.165 Reporting.**

Borrowers that no longer have any loans made or guaranteed by RUS and
are considering applying for other financial assistance pursuant to the
RE Act are encouraged to file the end-of-year operating report, RUS Form
7.

**§1786.166 Approvals.**

The borrower shall be responsible for obtaining all approvals necessary
to consummate the transaction as required by the prepayment agreement,
including such approvals as may be required by regulatory bodies and
other lenders.

**§1786.167 Restrictions to additional RUS financing.**

\(a\) No borrower that prepays an electric loan at a discount as
provided under this subpart may apply for or receive direct or insured
loans during the 120 months from the most recent closing date, except at
the discretion of the Administrator. During the 120 month period the
Administrator may consider providing an insured loan if, among other
matters, it is necessary to assure repayment of, or protect the
Government\'s security for any outstanding loans or loan guarantees, or
the borrower\'s system has suffered severe physical plant related damage
due to conditions beyond its control and the borrower is unable to
obtain financing at reasonable terms to restore the system from non-RUS
sources, including the Federal Emergency Management Agency, and from
private sources. Upon expiration of the 120 months, such borrowers may
apply for direct or insured loans in the same manner as other borrowers
provided that such borrowers may not apply for direct or insured loans
for facilities, construction of which commenced prior to the expiration
of the 120 months.

\(b\) Borrowers that prepay their direct or insured RUS loans under this
subpart remain eligible for certain types of financial assistance under
the RE Act, including loan guarantees and rural development loans.

**§1786.168 Borrowers who prepaid under this part prior to October 21,
1992.**

\(a\) A borrower that had prepaid, prior to the date of enactment of
Public Law 102 - 428 (106 Stat. 2183) on October 21, 1992, at a discount
rate as provided at 7 CFR part 1786, subpart C:

\(1\) Shall not be eligible except at the discretion of the
Administrator as stated in paragraph §1786.167(a), to apply for or
receive direct or insured loans during the 180-month period beginning on
the date of the prepayment; and

\(2\) Shall not be eligible to apply for or receive direct or insured
loans from RUS until the borrower has repaid to the RUS the sum of:

\(i\) The amount (if any) by which the discount the borrower received by
reason of the prepayment exceeds the discount the borrower would have
received had the discount been based on the cost of funds to the
Department of the Treasury as calculated at §1786.153 at the time of the
prepayment; and

\(ii\) Interest on the amount described in paragraph (a)(2)(i) of this
section for the period beginning on the date of the prepayment and
ending on the date of the repayment, at a rate equal to the average
annual cost of borrowing by the Department of the Treasury. This rate
will be calculated first on the date of prepayment and at one year
intervals from that date based on the same U.S. Treasury issues
published in the Federal Reserve Statistical Release closest to that
date. The Treasury rate of interest to be applied for each year will be
the rate for the Treasury issue of comparable maturity to the number of
years from the prepayment date to the repayment date and at one year
intervals thereafter.

\(b\) If a borrower and the Administrator have entered into an agreement
with respect to a prepayment occurring before October 21, 1992, this
section shall supersede any provision in the agreement relating to the
restoration of eligibility for loans under the RE Act.

\(c\) Borrowers who prepaid prior to October 1, 1987, are eligible for
assistance under the RE Act in the same manner as other borrowers with
respect to loan guarantees and the rural development loans.

\(d\) During the 180 month period described in paragraph (a)(1) of this
section the Administrator may consider providing an insured loan, if the
conditions described in §1786.167(a) exist.

\(e\) Borrowers may not apply for direct or insured loans for
facilities, construction of which commenced prior to the expiration of
the 180 month period described in paragraph (a)(1) of this section.

**§1786.169 Liability.**

It is the intent of this subpart that any failure on the part of RUS to
comply with any provisions of this subpart, including without
limitation, those provisions setting forth specified timeframes for
action by RUS on applications for prepayments or closing requests, shall
not give rise to liability of any kind on the part of the Government or
any employees of the Government including, without limitation, liability
for damages, fees, expenses or costs incurred by or on behalf of a
borrower, private lender or any other party.

**§1786.170 Prepayment of loans approved after December 20, 1993.
\[Reserved\]**

**§§1786.171 \-- 1786.199 \[Reserved\] \_Page \_**

**Subpart G \-- Refinancing and Prepayment of RUS Guaranteed FFB Loans
Pursuant to Section 306(c) of the RE Act**

Authority: 7 U.S.C. 901 et seq.; Pub. L. 103 - 354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.); sec. 1201(b) of subtitle B of title 1 of Pub. L.
103 - 66, 107 Stat. 312.

Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted.

**§1786.200 Purpose.**

This subpart sets forth the policies and procedures of RUS through the
existing FFB program, whereby borrowers may prepay and refinance,
outstanding FFB Notes evidencing electric or telephone loans with FFB,
pursuant to the provisions of section 306(C) of the RE Act as added by
Public Law 103 - 66, 107 Stat. 312, enacted August 10, 1993.

**§1786.201 Definitions and rules of construction.**

\(a\) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities Service
(RUS).

Borrower means any organization which has an outstanding note(s)
evidencing electric or telephone loans guaranteed by RUS, from FFB.

Business day means any such day on which both the Federal Financing Bank
and Federal Reserve Bank \-- New York are open for business.

Electric loan means a loan made by FFB and guaranteed by RUS under
section 306 of the RE Act for electric service.

FFB means the Federal Financing Bank, an instrumentality and wholly
owned corporation of the United States.

Government means the United States of America, acting through the
Administrator of the Rural Utilities Service.

Loan guarantee means RUS\'s guarantee under section 306 of the RE Act of
a loan from FFB.

Payment date means the date that payment is due and is the last day in a
calendar quarter.

Prepayment penalty means the same as prepayment premium.

Prepayment premium shall have the meaning set forth at §1786.207.

RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).

REA means the Rural Electrification Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to
RUS with respect to administering certain electric and telephone loan
programs.

Refinancing note shall have the meaning set forth at §1786.206.

RUS means the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the
Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103 - 354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telephone programs. See 7 CFR 1700.1.

RUS loan contract means the agreement, as amended, supplemented, or
restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.

RUS mortgage means collectively those mortgages and security agreements
made by and between the borrower and the Government, securing
indebtedness evidencing electric and telephone loans or loan guarantees
made pursuant to RE Act. The term includes such mortgages regardless
whether third parties are mortgagees with RUS.

Supplemental lender means a private lender whose loan to the borrower is
secured under an RUS mortgage.

Telephone loan means a loan made by FFB and guaranteed by RUS under
section 306 of the RE Act for telephone service.

\(b\) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the plural.
The words \`\`herein,\'\' \`\`hereof\'\' and \`\`hereunder\'\', and
words of similar import, refer to this subpart as a whole.

\[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27,
1994\]

**§1786.202 Prepayment and refinancing of RUS guaranteed FFB loans.**

The borrower of an electric or telephone loan made by the FFB and
guaranteed by RUS under section 306 of the RE Act may, at the option of
the borrower, refinance or prepay a loan or an advance on the loan, or
any portion of the loan or advance in accordance with section 306C of
the RE Act, after meeting certain conditions using the procedures
prescribed in the note. After refinancing existing notes under this
section, additional prepayments or refinancings will be governed by the
terms of the refinancing note(s).

**§1786.203 Special considerations.**

Generally all FFB borrowers with loans guaranteed by RUS whose FFB notes
have not been accelerated are eligible to prepay or refinance under this
part. All requests for prepayment or refinancing will be processed in
accordance with this subpart except that some requests for refinancing
and prepayments are more complicated and thus will involve special
considerations. These requests will have to be handled on a case by case
basis and include:

\(a\) Telephone borrowers who are required to meet certain terms of
their indenture;

\(b\) Borrowers who have amended their old form note or have already
repriced prior to September 30, 1993;

\(c\) Borrowers that have been involved in a merger or consolidation;

\(d\) Borrowers whose obligations to RUS, FFB notes, or security
instruments differ from those normally used;

\(e\) A request to prepay or refinance an amount of less than \$100,000
or an amount of less than the full amount of an advance outstanding; or

\(f\) A request to prepay or refinance a note that includes unadvanced
loan funds.

**§1786.204 Limitations.**

\(a\) No more than three refinancing notes will be executed for any
borrower per calendar year.

\(b\) The borrower may not select a term for the refinanced advance that
ends after the maturity date set for that advance.

**§1786.205 Application procedure.**

\(a\) Any borrower seeking to prepay or refinance an advance from the
FFB under this subpart should apply by letter to the appropriate RUS
Regional Director or, in the case of power supply borrowers, to the
Director of the Power Supply Division. The borrower will be required to
submit applications and elections in a digital format to be supplied by
RUS. The application letter shall provide the following:

\(1\) Borrower\'s RUS designation;

\(2\) Borrower\'s name and address;

\(3\) Listing of each note to be prepaid by loan designation, RUS note
number, RUS account number, advance date, maturity date, original
amount, outstanding balance, and date(s) of any substitute FFB note(s)
amending the original FFB Note;

\(4\) A statement of the borrower\'s intention to finance the premium by
an addition to principal balance or to pay the premium in cash or with
unsecured debt;

\(5\) A statement of the maturity options that the borrower wishes to
select;

\(6\) Such additional information as the Administrator may request.

\(b\) Requests for refinancing or prepayment will ordinarily be
processed in the order that they are received. Borrower\'s may withdraw
an application by notifying the appropriate RUS office in which they
filed the application.

\(c\) When the request for prepayment or refinancing is approved for
processing the borrower will be provided with appropriate instructions,
documents and forms which may include but are not limited to the
following:

\(1\) An FFB refinancing note;

\(2\) Resolution of Board of Directors;

\(3\) Legal Opinion;

\(4\) Certificate of Secretary;

\(5\) Waiver of Notice;

\(6\) Notice to borrower electing an effective date other than a
scheduled quarterly payment date (if applicable);

\(7\) Documentation of obligations secured pursuant to section 1786.208
if any; and

\(8\) Security instrument.

(Approved by the Office of Management and Budget under control number
0572 - 0032)

**§1786.206 Refinancing note.**

\(a\) RUS will issue a replacement guaranty for refinancing notes
delivered to FFB to replace and substitute for existing FFB notes in
connection with any refinancing by FFB pursuant to section 306C of the
RE Act.

\(b\) Generally, refinancing notes will, to the extent practicable,
consolidate all of a borrower\'s existing FFB notes which have been
guaranteed by RUS and containing terms and conditions as FFB may require
and RUS and the borrower may accept.

\(c\) Notwithstanding any contrary provision contained in this subpart,
RUS will give preference to processing refinancings that utilize a
generic form of refinancing note in the event that FFB prescribes one.

\[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993\]

**§1786.207 Prepayment premium.**

\(a\) A premium shall be assessed against a borrower that refinances or
prepays a loan or loan advance, or any portion of a loan or advance,
under this section. RUS will collect the prepayment premium as
calculated by FFB. FFB will calculate this premium as described in this
section. Except as provided in paragraph (b) of this section, the
premium shall be equal to the lesser of:

\(1\) The difference between the outstanding principal balance of the
loan being refinanced and the present value of the loan discounted at a
rate equal to the then current cost of funds to the Department of the
Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid;

\(2\) 100 percent of the amount of interest for 1 year on the
outstanding principal balance of the loan or loan advance, or any
portion of the loan or advance, being refinanced, multiplied by the
ratio that:

\(i\) The number of quarterly payment dates between the date of the
refinancing or prepayment and the maturity date for the loan advance;
bears to

\(ii\) The number of quarterly payment dates between the first quarterly
payment date that occurs 12 years after the end of the year in which the
amount being refinanced was advanced and the maturity date of the loan
advance; and

(3)(i) The present value of 100 percent of the amount of interest for 1
year on the outstanding principal balance of the loan or loan advance,
or any portion of the loan or advance, being refinanced or prepaid; plus

\(ii\) For the interval between the date of the refinancing or
prepayment and the first quarterly payment date that occurs 12 years
after the end of the year in which the amount being refinanced or
prepaid was advanced, the present value of the difference between:

\(A\) Each payment scheduled for the interval on the loan amount being
refinanced or prepaid; and

\(B\) The payment amounts that would be required during the interval on
the amounts being refinanced or prepaid if the interest rate on the loan
were equal to the then current cost of funds to the Department of the
Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid.

(b)(1) Except as provided in paragraph (b)(2) of this section, the
premium provided by paragraph (a)(1) of this section shall be required
for refinancing or prepayment under this section.

\(2\) In the case of a loan advanced under an agreement that permits the
refinancing or prepayment of the loan advance based on the payment of 1
year of interest on the outstanding principal balance of the loan
advance, a borrower may, in lieu of the premium required by paragraph
(a)(1) of this section, pay a premium as provided by:

\(i\) Paragraph (a)(2) of this section, if the loan advance has reached
the 12-year maturity required under the loan agreement for the
refinancing or prepayment; or

\(ii\) Paragraph (a)(3) of this section, if the loan advance has not
reached the 12-year maturity required under the loan agreement for the
refinancing or prepayment.

**§1786.208 Increased principal.**

A borrower can meet the premium requirements by increasing the
outstanding principal balance of the loan advance that is being
refinanced. If it does so the borrower shall make a payment at the time
of the refinancing equal to 2.5 percent of the amount of the premium
that is added to the outstanding principal balance of the loan.

**§1786.209 Outstanding loan documents.**

\(a\) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS loan contract, its outstanding
notes issued to RUS, and the RUS mortgage.

\(b\) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS mortgage or the rights of any other creditors of
the borrower.

\(c\) Nothing in this subpart shall prohibit a borrower from making
prepayments on any loans pursuant to the RE Act in accordance with the
terms thereof or as may be otherwise permitted by law.

**§1786.210 Approvals.**

The borrower shall be responsible for obtaining all approvals necessary
to consummate the transaction as required by the refinancing note,
including such approvals as may be required by regulatory bodies and
other lenders.\_