PART 1717 \-- POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND
GUARANTEED ELECTRIC LOANS

Subparts A \-- F \[Reserved\]

Subpart G \-- Federal Pre-emption in Rate Making in Connection With
Power Supply Borrowers

Sec.

1717.300 Purpose.

1717.301 Policy.

1717.302 Definitions and rules of construction.

1717.303 Requirements of RUS Documents.

1717.304 State Regulatory Authority Rate Jurisdiction.

1717.305 Pre-emption.

1717.306 RUS Required rates.

1717.307 Distribution members\' rates.

1717.308 RUS approval of nonconforming rates.

1717.309 Additional statutory pre-emption.

1717.310 \-- 1717.349 \[Reserved\]

Subpart H \-- Federal Pre-emption in Rate Making in Connection With RUS
Electric Borrowers in Bankruptcy

1717.350 Purpose.

1717.351 Policy.

1717.352 Definitions and rules of construction.

1717.353 Requirements of RUS documents.

1717.354 Pre-emption.

1717.355 RUS required rates.

1717.356 Additional statutory pre-emption.

Subparts I \-- L \[Reserved\]

Subpart M \-- Operational Controls

1717.600 General.

1717.601 Applicability.

1717.602 Definitions.

1717.603 RUS approval of extensions and additions.

1717.604 Long-range engineering plans and construction work plans.

1717.605 Design standards, plans and specifications, construction
standards, and RUS accepted materials.

1717.606 Standard forms of construction contracts, and engineering and
architectural services contracts.

1717.607 Contract bidding requirements.

1717.608 RUS approval of contracts.

1717.609 RUS approval of general manager.

1717.610 RUS approval of compensation of the board of directors.

1717.611 RUS approval of expenditures for legal, accounting,
engineering, and supervisory services.

1717.612 RUS approval of borrower\'s bank or other depository.

1717.613 RUS approval of data processing and system control equipment.

1717.614 Notification of rate changes.

1717.615 Consolidations and mergers.

1717.616 Sale, lease, or transfer of capital assets.

1717.617 Limitations on distributions.

Subpart N \-- Investments, Loans, and Guarantees by Electric Borrowers

1717.650 Purpose.

1717.651 General.

1717.652 Definitions.

1717.653 Borrowers in default.

1717.654 Transactions below the 15 percent level.

1717.655 Exclusion of certain investments, loans, and guarantees.

1717.656 Exemption of certain borrowers from controls.

1717.657 Investments above the 15 percent level by certain borrowers not
exempt under \_1717.656(a).

1717.658 Records, reports and audits.

1717.659 Effect of this subpart on RUS loan contract and mortgage.

Subpart O \-- \[Reserved\]

1717.700 \-- 1717.749 \[Reserved\]

Subpart P \-- \[Reserved\]

1717.750 \-- 1717.799 \[Reserved\]

Subpart Q \-- \[Reserved\]

1717.800 - 1717.849 \[Reserved\]

Subpart R \-- Lien Accommodations and Subordinations for 100 Percent
Private Financing

1717.850 General.

1717.851 Definitions.

1717.852 Financing purposes.

1717.853 Loan terms and conditions.

1717.854 Advance approval \-- 100 percent private financing of
distribution, subtransmission and headquarters facilities, and certain
other community infrastructure.

1717.855 Application contents: Advance approval \-- 100 percent private
financing of distribution, subtransmission and headquarters facilities,
and certain other community infrastructure.

1717.856 Application contents: Normal review \-- 100 percent private
financing.

1717.857 Refinancing of existing secured debt \-- distribution and power
supply borrowers.

1717.858 Lien subordination for rural development investments.

1717.859 Application process and timeframes.

1717.860 Lien accommodations and subordinations under section 306E of
the RE Act.

1717.861 \-- 1717.899 \[Reserved\]

Subpart S \-- Lien Accommodations for Supplemental Financing Required by
7 CFR 1710.110

1717.900 Qualification requirements.

1717.901 Early approval.

1717.902 Other RUS requirements.

1717.903 Liability.

1717.904 Exemptions pursuant to section 306E of the RE Act.

1717.905 \-- 1717.949 \[Reserved\]

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

Source: 55 FR 38646, Sept. 19, 1990, unless otherwise noted.

Subparts A \-- F \[Reserved\]

Subpart G \-- Federal Pre-emption in Rate Making in Connection With
Power Supply Borrowers

\_1717.300 Purpose.

This subpart contains regulations of the Rural Utilities Service (RUS)
implementing provisions of Section 4 of the RE Act (7 U.S.C. 904) which
authorize the Administrator to establish terms and conditions of loans
and implementing provisions of the RUS wholesale power contracts and
other RUS documents which provide for the establishment of rates to be
charged by power supply borrowers for the sale of electric power and
energy. This subpart contains the general regulations of RUS for the
pre-emption, under certain circumstances, which are not exclusive, of
the regulation of a power supply borrower\'s rates by a state regulatory
authority under state law and for the exercise of exclusive jurisdiction
over rates by RUS pursuant to the RUS documents.

\_1717.301 Policy.

\(a\) RUS makes and guarantees loans to borrowers to bring electric
service to persons in rural areas. RUS requires, as a condition to
making or guaranteeing any loans to power supply borrowers, that the
borrower enter into RUS wholesale power contracts with its several
members and assign and pledge such contracts as security for the
repayment of loans made or guaranteed by RUS and for other loans which,
pursuant to the RE Act, RUS has permitted to be secured pursuant to the
RUS mortgage. The RUS wholesale power contract requires, among other
matters, that the rates charged for power and energy sold thereunder
produce revenues sufficient to enable the power supply borrower to make
payments on account of all indebtedness of the power supply borrower.
The Administrator relies upon the RUS wholesale power contracts together
with other RUS documents to find and certify, as required in section 4
of the RE Act (7 U.S.C. 904), that the security for the loan is
reasonably adequate and the loan will be repaid within the time agreed.

\(b\) RUS requires power supply borrowers to take such actions as may be
necessary to charge rates for the sale of electric power and energy
which are sufficient to pay the principal and interest on loans made or
guaranteed by RUS in a timely manner and to meet the requirements of the
RUS wholesale power contract and other RUS documents.

\(c\) With respect to power supply borrowers which are not subject to
rate regulation by a state regulatory authority, RUS requires that such
borrowers establish rates and obtain RUS approval of such rates as
required by the terms of the RUS wholesale power contract and other RUS
documents.

\(d\) With respect to power supply borrowers which are subject to
regulation by a state regulatory authority, RUS does not make or
guarantee a loan for the construction, operation or enlargement of any
generating plant or transmission facility unless the consent of the
state regulatory authority having jurisdiction in the premises is first
obtained.

\(e\) Pursuant to applicable provisions of state law state regulatory
authorities regulate many aspects of a power supply borrowers business
activities, including such matters as the setting of wholesale electric
rates, the borrowing of money, and the mortgaging of property. A state
regulatory authority\'s jurisdiction over the rates charged by a power
supply borrower shall be pre-empted where the Administrator has
determined that such jurisdiction has compromised Federal interests,
including without limitation, the ability of the borrower to repay its
secured loans in accordance with the terms of the RUS documents.
Thereupon, RUS shall, pursuant to the RUS documents, exercise exclusive
jurisdiction over the rates charged by a power supply borrower.

\[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec. 26, 1990\]

\_1717.302 Definitions and rules of construction.

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

Administrator means the Administrator of RUS.

Borrower means any organization which has an outstanding loan made or
guaranteed by RUS for rural electrification. Unless otherwise stated in
the text, \`\`borrower\'\' shall mean power supply borrower.

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

Power supply borrower means any borrower engaged in the wholesale sale
of electric power and energy to distribution members either directly or
though other power supply borrowers pursuant to RUS wholesale power
contracts.

RE Act means 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.

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 documents means the loan contract, mortgage and RUS wholesale power
contract of a power supply borrower.

RUS mortgage means the mortgage and security agreement, as from time to
time supplemented, amended and restated, made by and among the borrower,
RUS, and, if a party thereto, third party lenders, or any other form of
mortgage or security instrument or indenture of mortgage and deed of
trust, securing the payment of outstanding loans made or guaranteed by
RUS and other lenders.

RUS wholesale power contract means the contract for the wholesale sale
of electric power and energy between a power supply borrower and its
member as approved by RUS.

Secured loans shall mean outstanding loans secured pursuant to the RUS
mortgage.

State regulatory authority means any state board or local governing body
having jurisdiction under state law to regulate, or in any way, approve
the electric rates charged by a power supply borrower or electric
distribution member of a power supply borrower.

\(b\) Rules of Construction. Unless the context shall otherwise
indicate, the terms defined in \_1717.302(a) hereof include the plural
as well as the singular, and the singular as well as the plural. The
words \`\`herein,\'\' and \`\`hereunder\'\', and words of similar
import, refer to this subpart as a whole. \`\`Includes\'\' and
\`\`including\'\' are not limiting and \`\`or\'\' is not exclusive.

\[55 FR 38646, Sept. 19, 1990, as amended at 59 FR 66440, Dec. 27,
1994\]

\_1717.303 Requirements of RUS documents.

\(a\) Pursuant to the terms of the RUS documents each power supply
borrower shall establish and adjust rates for the sale of electric power
and energy in such a manner as to assure that the borrower will be able
to make required payments on secured loans.

\(b\) Pursuant to the terms of the RUS wholesale power contract, the
Board of Directors or Board of Trustees of the power supply borrower
shall review rates not less frequently than once each calendar year and
revise its rates as therein set forth.\\1\\ (FOOTNOTE) The RUS wholesale
power contract further provides that the borrower shall notify the
Administrator not less than 30 nor more than 45 days prior to the
effective date of any adjustment and shall set forth the basis upon
which the rate is to be adjusted and established. The RUS wholesale
power contract provides that no final revision in rates shall be
effective unless approved in writing by the Administrator.

(FOOTNOTE) \\1\\The Wholesale Power Contract, with minor modifications
which are approved by RUS on a case by case basis, provides that the
rate charged for electric power and energy, shall produce revenues which
shall be sufficient, but only sufficient, with the revenues of the
Seller from all other sources, to meet the cost of the operation and
maintenance (including without limitation, replacements, insurance,
taxes and administrative and general overhead expenses) of the
generating plant transmission system and related facilities of the
Seller, the cost of any power and energy purchased for resale hereunder
by the Seller, the cost of transmission service, make payments on
account of principal and interest on all indebtedness of the Seller, and
to provide for the establishment and maintenance of reasonable reserves.
(Section 4. Rates (b), RUS Form 444, \`\`Wholesale Power Contract \--
Federated Cooperative\'\'; Rev. 6 - 60.)

\(c\) Pursuant to the terms of the RUS mortgage, each power supply
borrower must design its rates as therein set forth and must give 90
days prior notice to RUS of any proposed change in its general rate
structure.

(Approved by the Office of Management and Budget under control number
0572 - 0089)

\_1717.304 State regulatory authority rate jurisdiction.

\(a\) In the event that rate revisions required by the terms of the RUS
wholesale power contract or other RUS documents may be subject to the
approval of a state regulatory authority, the power supply borrower
shall seek such required approval in a timely manner.

\(b\) RUS recognizes the need of state regulatory authorities for
documents, information and records for use in connection with an
application for rate approval and will consider any reasonable request
by a borrower or a state regulatory authority for such documents,
information and records. The failure of RUS to provide requested
documents, information or records shall not limit any rights of RUS
including the right with respect to pre-emption of the state regulatory
authority as provided in this subpart.

\(c\) In the event that the state regulatory authority shall fail to act
favorably upon the borrower\'s application for rate increases required
by terms of the RUS wholesale power contract or other RUS documents, the
borrower shall pursue such legal and administrative appeals as may be
available to it, unless RUS shall approve otherwise in writing.

\_1717.305 Pre-emption.

\(a\) Inadequate rates. State regulatory authority jurisdiction over a
power supply borrower\'s rates shall be pre-empted by the RE Act if the
Administrator shall have determined that the borrower\'s rates approved
by the state regulatory authority are, after taking into account the
borrower\'s costs and expenses, inadequate to produce revenues
sufficient to permit the borrower to make required payments on its
secured loans and the borrower has failed to make required payments on
its secured loans.

\(b\) Public notice. The Administrator shall:

\(1\) Notify the borrower and the state regulatory authority in writing
of the determination, indicating the jurisdiction of the state
regulatory authority over the rates of the borrower has been pre-empted
pursuant to this part and the borrower shall henceforth establish its
rates in accordance with the term of the RUS documents.

\(2\) publish a notice in the Federal Register informing the public of
the action.

\[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec. 26, 1990\]

\_1717.306 RUS required rates.

\(a\) Upon the publication in the Federal Register of the notice of
pre-emption of state regulatory authority as provided in this subpart,
RUS will exercise exclusive jurisdiction over the rates of the borrower
pursuant to the terms of the RUS documents. The borrower shall
immediately establish rates with the approval of RUS that are sufficient
to satisfy the requirements of the RUS wholesale power contract and
other RUS documents described in \_1717.303 of this subpart. The
borrower shall establish such rates notwithstanding provisions of state
law, and rules, orders or other actions of state regulatory authorities,
and notwithstanding any provision of the RUS documents referring to such
laws, rules, orders or actions.

\(b\) So long as the state regulatory authority shall be pre-empted
hereunder, RUS shall be considered the governmental regulatory body with
jurisdiction over rates for the purposes of the RUS documents and for
the purposes of section 1129(a)(6) of the Bankruptcy Code of 1978, as
amended (11 U.S.C. 1129(a)(6)).

\(c\) If a borrower, which is subject to exclusive RUS rate
jurisdiction, shall fail to establish rates in accordance with terms of
the RUS wholesale power contract and other RUS documents in a timely
fashion, RUS may proceed to exercise any and all rights and remedies
available pursuant under the RUS documents or otherwise.

\(d\) The jurisdiction of the state regulatory authority over the rates
of the borrower shall continue to be pre-empted hereunder until the
Administrator shall in writing approve the resumption of jurisdiction by
the state regulatory authority and publish in the Federal Register a
notice to such effect. The Administrator shall approve resumption only
after determining that such jurisdiction shall be exercised in a manner
consistent with Federal interests.

\[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec. 26, 1990\]

\_1717.307 Distribution members\' rates.

A state regulatory authority which has been pre-empted as provided in
this subpart may continue to exercise jurisdiction, pursuant to
applicable provisions of state law, over all other business affairs of
the power supply borrower and over the rates of its distribution
members: Provided, however, that the state regulatory authority shall
treat any RUS approved rate for the power supply borrower as fair and
reasonable and shall not in any manner, directly or indirectly, prevent
or impede the distribution member from recovering the costs of paying
the RUS approved rates to the power supply borrower.

\_1717.308 RUS approval of nonconforming rates.

Borrowers may request and RUS may approve rates which do not conform
with the requirements of the RUS wholesale power contract and other RUS
documents if RUS determines, in its sole discretion, that such approval
is in the interests of RUS. If RUS approval is granted prior to
pre-emption hereunder, and if the state regulatory authority shall have
approved such rates, then, so long as RUS\'s approval of the
nonconforming rates remains in effect, the jurisdiction of the state
regulatory authority over the rates of the borrower shall not be
pre-empted hereunder.

\_1717.309 Additional statutory pre-emption.

This subpart addresses pre-emption of state law and state regulatory
authority in only those specific circumstances herein described. Nothing
in this subpart waives, limits, or otherwise affects the explicit
pre-emption or pre-emption, which is implicit and shall occur pursuant
to the RE Act as a matter of law, of state law or action of a state
regulatory authority where such state law or such action compromises
Federal interests, including the ability of any borrower, including
power supply borrowers, to repay loans made or guaranteed by RUS.

\_1717.310 \-- 1717.349 \[Reserved\] \_

Subpart H \-- Federal Pre-emption in Rate Making in Connection With RUS
Electric Borrowers in Bankruptcy

Source: 55 FR 38653, Sept. 19, 1990, unless otherwise noted.

\_1717.350 Purpose.

This subpart contains regulations of the Rural Utilities Service (RUS)
implementing provisions of section 4 of the RE Act (7 U.S.C. 904) which
authorizes the Administrator to establish terms and conditions of loans,
and provisions of the RUS documents which provide for the establishment
of rates for electric service to be charged by RUS electric borrowers.
This subpart contains the general regulations of RUS for the pre-emption
of the regulation by a State Regulatory Authority under State law of an
RUS borrower\'s rates and for the exercise by RUS, pursuant to the RUS
documents, of exclusive jurisdiction over rates of a borrower by or
against whom a case under the Bankruptcy Code of 1978, as amended, has
commenced.

\_1717.351 Policy.

\(a\) RUS makes and guarantees loans to borrowers to bring electric
service to persons in rural areas. To accomplish this objective, RUS
normally requires, as a condition to making or guaranteeing any loans to
an electric borrower, that the borrower execute and deliver the RUS
documents in the form prescribed by RUS. The RUS mortgage secures
repayment of the loans made or guaranteed by RUS and other loans which,
pursuant to the RE Act, RUS has permitted to be secured pursuant to the
RUS mortgage. The Administrator relies upon the RUS mortgage together
with other RUS documents to find and certify, as required by section 4
of the RE Act (7 U.S.C. 904), that the security for the loan is
reasonably adequate and the loan will be repaid within the time agreed.

\(b\) RUS requires borrowers to take such actions as may be necessary to
establish rates for electric service which are sufficient to pay the
principal of and interest on the loans made or guaranteed by RUS in a
timely manner and to meet the requirements of the RUS documents.

\(c\) With respect to borrowers whose rates are not regulated by a State
Regulatory Authority, RUS requires that such borrowers establish rates
and to obtain RUS approval of such rates as required by the RUS
documents.

\(d\) To protect Federal interests, including without limitation the
ability of the borrower to repay RUS loans, RUS\'s policy is to
exercise, pursuant to the RUS documents, exclusive jurisdiction over the
rates for electric service charged by a borrower by or against whom a
case under the Bankruptcy Code of 1978, as amended, has commenced.

\_1717.352 Definitions and rules of construction.

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

Administrator means the Administrator of RUS.

Bankruptcy code of 1978, as amended, means the Bankruptcy Reform Act of
1978, as amended (11 U.S.C. 101 et seq.).

Borrower means any organization which has an outstanding loan made or
guaranteed by RUS for rural electrification.

RE Act means 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.

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 documents means the RUS loan contract, RUS mortgage and, if the
Borrower is engaged in the wholesale sale of electric power and energy
to members pursuant to RUS Wholesale Power Contracts, the RUS Wholesale
Power Contract.

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

RUS mortgage means the mortgage and security agreement, as from time to
time supplemented, amended and restated, made by and among the borrower,
RUS, and, if a party thereto, third party lenders, or any other form of
mortgage or security instrument or indenture of mortgage and deed of
trust, securing the payment of outstanding loans made or guaranteed by
RUS and other lenders.

RUS wholesale power contract means the contract for the wholesale sale
of electric power and energy between a power supply borrower and its
member as approved by RUS.

Secured loans shall mean outstanding loans secured pursuant to the RUS
mortgage.

State regulatory authority means any state board or local governing body
having jurisdiction under state law to regulate, or in any way, approve
the electric rates charged by a borrower.

\(b\) Rules of construction.

Unless the context shall otherwise indicate, the terms defined in
\_1717.352(a) hereof include the plural as well as the singular, and the
singular as well as the plural. The words \`\`herein,\'\' and
\`\`hereunder\'\', and words of similar import, refer to this subpart as
a whole. \`\`Includes\'\' and \`\`including\'\' are not limiting and
\`\`or\'\' is not exclusive.

\[55 FR 38653, Sept. 19, 1990, as amended at 59 FR 66440, Dec. 27,
1994\]

\_1717.353 Requirements of RUS documents.

Each borrower shall establish and adjust rates for electric service as
set forth in the RUS documents to assure that the borrower will be able
to make required payments on secured loans and to otherwise meet the
terms of the RUS documents.

\_1717.354 Pre-emption.

State Regulatory Authority jurisdiction over an RUS borrower\'s rates
shall be pre-empted by the RE Act and RUS shall have exclusive
jurisdiction over the borrower\'s rates:

\(a\) On October 19, 1990, with respect to any borrower by or against
whom a case under the Bankruptcy Code of 1978, as amended, was commenced
prior to and remains outstanding on October 19, 1990; and

\(b\) With respect to all other borrowers, upon the filing of a petition
by or against the borrower commencing a case under the Bankruptcy Code
of 1978, as amended.

\_1717.355 RUS required rates.

\(a\) Upon the pre-emption of State Regulatory Authority as provided in
this subpart, RUS will exercise exclusive jurisdiction over the rates of
the borrower pursuant to the terms of the RUS documents.

\(b\) So long as the State Regulatory Authority shall be pre-empted
hereunder, RUS shall be considered the governmental regulatory body with
jurisdiction over rates for all purposes, including for the purposes of
the RUS documents and for the purposes of section 1129(a)(6) of the
Bankruptcy Code of 1978, as amended (11 U.S.C. 1129(a)(6)).

\(c\) RUS shall, pursuant to the terms of the RUS documents, exercise
exclusive jurisdiction over the rates of the borrower until the
Administrator shall in writing approve the resumption of jurisdiction by
the State Regulatory Authority. The Administrator shall approve
resumption only after determining that such jurisdiction shall be
exercised in a manner consistent with Federal interests.

\_1717.356 Additional statutory pre-emption.

This subpart addresses pre-emption of State law and State Regulatory
Authority upon the filing of a petition by or against the borrower
commencing a case under the Bankruptcy Code of 1978, as amended. Nothing
in this subpart waives, limits, or otherwise affects the explicit
pre-emption or pre-emption, which is implicit and shall occur pursuant
to the RE Act as a matter of law, of State law or action of a State
Regulatory Authority where such State law or such action compromises
Federal interests, including the ability of any borrower to repay loans
made or guaranteed by RUS.

Subparts I \-- L \[Reserved\]

Subpart M \-- Operational Controls

Source: 60 FR 67405, Dec. 29, 1995, unless otherwise noted.

Effective Date Note: At 60 FR 67405, Dec. 29, 1995, \_\_1717.600 \--
1717.617 (Subpart M) were added to Part 1717, effective January 29,
1996.

\_1717.600 General.

\(a\) General. The loan contract and mortgage between the Rural
Utilities Service (RUS) and electric borrowers imposes certain
restrictions and controls on the borrowers and gives RUS (and other
co-mortgagees in the case of the mortgage) the right to approve or
disapprove certain actions contemplated by the borrowers. Certain of
these controls and approval rights are referred to informally as
\`\`operational controls\'\' because they pertain to decisions or
actions with respect to the operation of the borrowers\' electric
systems. The approval authority granted to RUS by the loan contract or
mortgage regarding each decision or action subject to controls is often
stated in broad, unlimited terms. This subpart lists the main
operational controls affecting borrowers and establishes for each area
of control the circumstances under which RUS approval of a decision or
action by a borrower is either required or not required. In some cases,
only the general principles or general circumstances pertaining to RUS
approval or control are presented in this subpart, while the details
regarding the circumstances and requirements of RUS approval or control
are set forth in other RUS regulations. Since this subpart addresses
only the main operational controls, failure to address a control or
approval right in this subpart in no way invalidates such controls or
rights established by the loan contract, mortgage, other agreements
between a borrower and RUS, and RUS regulations.

\(b\) Case by case amendments. Upon written notice to a borrower, RUS
may amend or annul the approvals and exceptions to controls set forth in
this subpart or other RUS regulations if the borrower is in violation of
any provision of its loan documents or any other agreement with RUS, or
if RUS determines that loan security and/or repayment is threatened.
Such amendment or annulment will apply to decisions and actions of the
borrower after said written notice has been provided by RUS.

\(c\) Generic notices. By written notice to all borrowers or a group of
borrowers, RUS may grant or waive approval of decisions and actions by
the borrowers that are controlled under the loan documents and RUS
regulations. RUS may also by written notice withdraw or cut back its
grant or waiver of approval of said decisions and actions made by
previous written notice, but may not by such notice extend its authority
to approve decisions and actions by borrowers beyond the authority
granted by the loan documents and RUS regulations.

\_1717.601 Applicability.

\(a\) The approvals and exceptions to controls conveyed by this subpart
apply only to controls and approval rights normally included in RUS loan
documents dated prior to January 29, 1996. They do not apply to special
controls and approval requirements included in loan documents or other
agreements executed between a borrower and RUS that relate to individual
problems or circumstances specific to an individual borrower.

\(b\) The approvals and exceptions to controls granted by RUS in this
subpart shall not in any way affect the rights of other co-mortgagees
under the mortgage or their loan contracts.

\_1717.602 Definitions.

Terms used in this subpart that are not defined in this section have the
meanings set forth in 7 CFR part 1710. In addition, for the purposes of
this subpart:

Default means an event of default as defined in the borrower\'s loan
documents or other agreement with RUS, and furthermore includes any
event that has occurred and is continuing which, with notice or lapse of
time and notice, would become an event of default.

Equity means the borrower\'s total margins and equities computed
pursuant to RUS accounting requirements but excluding any regulatory
created assets.

Financed or funded by RUS means financed or funded wholly or in part by
a loan made or guaranteed by RUS, including concurrent supplemental
loans required by 7 CFR 1710.110, loans to reimburse funds already
expended by the borrower, and loans to replace interim financing.

Interchange agreement means a contractual arrangement that can include a
variety of services utilities provide each other to increase reliability
and efficiency, and to avoid duplicating expenses. Some examples are:
transmission service (the use of transmission lines to move power and
energy from one area to another); emergency service (an agreement by one
utility to furnish another with power and energy to protect it in times
of emergency, such as power plant outages); reserve sharing
(contributions to a common pool of generating plant reserves so that
each individual utility\'s reserves can be reduced); and economic
exchanges (swapping power and energy from different plants to avoid
running the most expensive units).

Interconnection agreement means a contract governing the terms for
establishing or using one or more electrical connections between two or
more electric systems permitting a flow of power and energy among the
systems.

Loan documents means the mortgage (or other security instrument
acceptable to RUS), the loan contract, and the promissory note entered
into between the borrower and RUS.

Net utility plant means the amount constituting the total utility plant
of the borrower, less depreciation, computed in accordance with RUS
accounting requirements.

Pooling agreement means a contract among two or more interconnected
electric systems to operate on a coordinated basis to achieve economies
and/or enhance reliability in supplying their respective loads.

Power supply contract means any contract entered into by a borrower for
the sale or purchase, at wholesale, of electric energy.

Regulatory created assets means the sum of any amounts properly
recordable as unrecovered plant and regulatory study costs or as other
regulatory assets, computed pursuant to RUS accounting requirements.

RUS accounting requirements means the system of accounts prescribed for
electric borrowers by RUS regulations as such RUS accounting
requirements exist at the date of applicability thereof.

RUS regulations mean regulations of general applicability published by
RUS from time to time as they exist at the date of applicability
thereof, and shall also include any regulations of other federal
entities which RUS is required by law to implement.

Total assets means an amount constituting the total assets of the
borrower as computed pursuant to RUS accounting requirements, but
excluding any regulatory created assets.

Wheeling agreement means a contract providing for the use of the
electric transmission facilities of one electric utility to transmit
power and energy of another electric utility or other entity to a third
party. Such transmission may be accomplished directly or by
displacement.

\_1717.603 RUS approval of extensions and additions.

\(a\) Distribution borrowers. Prior written approval by RUS is required
for a distribution borrower to extend or add to its electric system if
the extension or addition will be financed by RUS. For extensions and
additions that will not be financed by RUS, approval is hereby given to
distribution borrowers to make such extensions and additions to their
electric systems, including the use of (or commitment to use) general
funds of the borrower, except for the following:

\(1\) Construction, procurement, or leasing of generating facilities if
the combined capacity of the facilities to be built, procured, or
leased, including any future facilities included in the planned project,
will exceed the lesser of 5 megawatts or 30 percent of the borrower\'s
equity;

\(2\) Acquisition or leasing of existing electric facilities or systems
in service whose purchase price, or capitalized value in the case of a
lease, exceeds 10 percent of the borrower\'s net utility plant; and

\(3\) Construction, procurement, or leasing of electric facilities to
serve a customer whose annual kWh purchases or maximum annual kW demand
in the foreseeable future is projected to exceed 25 percent of the
borrower\'s total kWh sales or maximum kW demand in the year immediately
preceding the acquisition or start of construction.

\(b\) Power supply borrowers. Prior written approval by RUS is required
for a power supply borrower to extend or add to its electric system if
the extension or addition will be financed by RUS. Requirements for RUS
approval of extensions and additions that will not be financed by RUS
are set forth in other RUS regulations.

\(c\) Additional details. Additional details relating to RUS approval of
extensions and additions of a borrower\'s electric system financed by
RUS are set forth in other RUS regulations, e.g., in 7 CFR parts 1710
and 1726.

\_1717.604 Long-range engineering plans and construction work plans.

\(a\) All borrowers are required to maintain up-to-date long-range
engineering plans and construction work plans (CWPs) in form and
substance as set forth in 7 CFR part 1710, subpart F.

\(b\) Applications for financing from RUS must be supported by a
long-range engineering plan and CWP approved by RUS.

\(c\) RUS approval is not required for long-range engineering plans and
CWPs if the borrower does not intend to seek RUS financing for any of
the facilities, equipment or other purposes included in those plans.
However, if requested by RUS, a borrower must provide an informational
copy of such plans to RUS.

\_1717.605 Design standards, plans and specifications, construction
standards, and RUS accepted materials.

All borrowers, regardless of the source of funding, are required to
comply with applicable RUS requirements with respect to system design,
construction standards, and the use of RUS accepted materials. Borrowers
must comply with applicable RUS requirements with respect to plans and
specifications only if the construction or procurement will be financed
by RUS. These requirements are set forth in other RUS regulations,
especially in 7 CFR parts 1724 and 1728.

\_1717.606 Standard forms of construction contracts, and engineering and
architectural services contracts.

All borrowers are encouraged to use the standard forms of contracts
promulgated by RUS for construction, materials, equipment, engineering
services, and architectural services, regardless of the source of
funding for such construction and services. Borrowers are required to
use these standard forms of contracts only if the construction,
procurement or services are financed by RUS, and only to the extent
required by RUS regulations. RUS requirements with respect to such
standard forms of contract are set forth in 7 CFR part 1724 for
architectural and engineering services, and in 7 CFR part 1726 for
construction, materials, and equipment.

\_1717.607 Contract bidding requirements.

Borrowers must follow RUS requirements regarding bidding for contracts
for construction, materials, and equipment only if financing of the
construction or procurement will be provided by RUS. These requirements
are set forth in 7 CFR part 1726.

\_1717.608 RUS approval of contracts.

\(a\) Construction contracts and architectural and engineering
contracts. RUS approval of contracts for construction and procurement
and for architectural and engineering services is required only when
such construction, procurement or services are financed by RUS. Detailed
requirements regarding RUS approval of such contracts are set forth in 7
CFR part 1724 for architectural and engineering services, and in 7 CFR
part 1726 for construction and procurement.

\(b\) Large retail power contracts. RUS approval of contracts to sell
electric power to retail customers is required only if the contract is
for longer than 2 years and the kWh sales or kW demand for any year
covered by the contract exceeds 25 percent of the borrower\'s total kWh
sales or maximum kW demand for the year immediately preceding execution
of the contract. This requirement applies regardless of the source of
funding of any plant extensions, additions or improvements that may be
involved in connection with the contract.

\(c\) Power supply arrangements. (1) Power supply contracts (including
but not limited to economy energy sales and emergency power and energy
sales), interconnection agreements, interchange agreements, wheeling
agreements, pooling agreements, and any other similar power supply
arrangements subject to approval by RUS are deemed approved if they have
a term of 2 years or less. Amendments to said power supply arrangements
are also deemed approved provided that the amendment does not extend the
term of the arrangement for more than 2 years beyond the date of the
amendment.

\(2\) Any amendment to a schedule or exhibit contained in any power
supply arrangement subject to RUS approval, which merely has the effect
of either altering a list of interconnection or delivery points or
changing the value of a variable term (but not the formula itself)
contained in a formulary rate or charge is deemed approved.

\(3\) The provisions of this paragraph (c) apply regardless of whether
the borrower is a seller or purchaser of the services furnished by the
contracts or arrangements, and regardless of whether or not a Federal
power marketing agency is a party to any of them.

\(d\) System management and maintenance contracts. RUS approval of
contracts for the management and operation of a borrower\'s electric
system or for the maintenance of the electric system is required only if
such contracts cover all or substantially all of the electric system.

\(e\) Other contracts. \[Reserved\]

\_1717.609 RUS approval of general manager.

\(a\) If a borrower\'s mortgage or loan contract grants RUS the
unconditioned right to approve the employment and/or the employment
contract of the general manager of the borrower\'s system, such approval
is hereby granted provided that the borrower is in compliance with all
provisions of its loan documents and any other agreements with RUS.

\(b\) If a borrower is in default with respect to any provision of its
loan documents or any other agreement with RUS:

\(1\) Such borrower, if directed in writing by RUS, shall replace its
general manager within 30 days after the date of such written notice;
and

\(2\) Such borrower shall not hire a general manager without prior
written approval by RUS.

\_1717.610 RUS approval of compensation of the board of directors.

If a borrower\'s mortgage or loan contract requires the borrower to
obtain approval from RUS for compensation provided to members of the
borrower\'s board of directors, such requirement is hereby waived.

\_1717.611 RUS approval of expenditures for legal, accounting,
engineering, and supervisory services.

\(a\) If a borrower\'s mortgage or loan contract requires the borrower
to obtain approval from RUS before incurring expenses for legal,
accounting, supervisory (other than for the management and operation of
the borrower\'s electric system, see \_1717.608(d)), or other similar
services, such approval is hereby granted. However, while expenditures
for accounting do not require RUS approval, the selection of a certified
public accountant by the borrower to prepare audited reports required by
RUS remains subject to RUS approval.

\(b\) If a borrower\'s mortgage or loan contract requires the borrower
to obtain approval from RUS before incurring expenses for engineering
services, such approval is hereby granted if such services will not be
financed by RUS. Approval requirements with respect to engineering
services financed by RUS are set forth in other RUS regulations.

\_1717.612 RUS approval of borrower\'s bank or other depository.

If a borrower\'s mortgage or loan contract gives RUS the authority to
approve the bank or other depositories used by the borrower, such
approval is hereby granted. However, without the prior written approval
of RUS, a borrower shall not deposit funds from loans made or guaranteed
by RUS in any bank or other depository that is not insured by the
Federal Deposit Insurance Corporation or other Federal agency acceptable
to RUS, or in any account not so insured.

\_1717.613 RUS approval of data processing and system control equipment.

If a borrower\'s mortgage or loan contract requires the borrower to
obtain approval from RUS before purchasing data processing equipment or
system control equipment, such approval is hereby granted if the
equipment will not be financed by RUS.

\_1717.614 Notification of rate changes.

If a distribution borrower is required by its loan documents to notify
RUS in writing of proposed changes in electric rates more than 30 days
prior to the effective date of such rates, the required notification
period shall be 30 days. Moreover, such notification shall be required
only upon the request of RUS.

\_1717.615 Consolidations and mergers.

A distribution or power supply borrower may without the prior approval
of RUS, consolidate or merge with any other corporation or convey or
transfer the mortgaged property substantially as an entirety if the
following conditions are met:

\(a\) Such consolidation, merger, conveyance or transfer shall be on
such terms as shall fully preserve the lien and security of the RUS
mortgage and the rights and powers of the mortgagees;

\(b\) The entity formed by such consolidation or with which the borrower
is merged or the corporation which acquires by conveyance or transfer
the mortgaged property substantially as an entirety shall execute and
deliver to the mortgagees a mortgage supplemental in recordable form and
containing an assumption by such successor entity of the due and
punctual payment of the principal of and interest on all of the
outstanding notes and the performance and observance of every covenant
and condition of the mortgage;

\(c\) Immediately after giving effect to such transaction, no default
under the mortgage shall have occurred and be continuing;

\(d\) The borrower shall have delivered to the mortgagees a certificate
of its general manager or other officer, in form and substance
satisfactory to each of the mortgagees, which shall state that such
consolidation, merger, conveyance or transfer and such supplemental
mortgage comply with this section and that all conditions precedent
herein provided for relating to such transaction have been complied
with;

\(e\) The borrower shall have delivered to the mortgagees an opinion of
counsel in form and substance satisfactory to each of the mortgagees;
and

\(f\) The entity formed by such consolidation or with which the borrower
is merged or the corporation which acquires by conveyance or transfer
the mortgaged property substantially as an entirety shall be an entity
having:

\(1\) Equity equal to at least 27% of its total assets on a pro forma
basis after giving effect to such transaction;

\(2\) A pro forma TIER of not less than 1.50 and a pro forma DSC of not
less than 1.25 for each of the two preceding calendar years; and

\(3\) Net utility plant equal to or greater than 1.0 times its total
long-term debt on a pro forma basis.

\_1717.616 Sale, lease, or transfer of capital assets.

A distribution borrower may without the prior approval of RUS sell,
lease, or transfer any capital asset if the following conditions are
met:

\(a\) The borrower is not in default;

\(b\) In the most recent year for which data are available, the borrower
achieved a TIER of at least 1.5, DSC of at least 1.25, OTIER of at least
1.1, and ODSC of at least 1.1, in each case based on the average or the
best 2 out of the 3 most recent years;

\(c\) The sale, lease, or transfer of assets will not reduce the
borrower\'s existing or future requirements for energy or capacity being
furnished to the borrower under any wholesale power contract which has
been pledged as security to the government;

\(d\) Fair market value is obtained for the assets;

\(e\) The aggregate value of assets sold, leased, or transferred in any
12-month period is less than 10 percent of the borrower\'s net utility
plant prior to the transaction;

\(f\) The proceeds of such sale, lease, or transfer, less ordinary and
reasonable expenses incident to such transaction, are immediately:

\(1\) Applied as a prepayment of all notes secured under the mortgage
equally and ratably;

\(2\) In the case of dispositions of equipment, materials or scrap,
applied to the purchase of other property useful in the borrower\'s
utility business; or

\(3\) Applied to the acquisition of construction of utility plant.

\_1717.617 Limitations on distributions.

If a distribution or power supply borrower is required by its loan
documents to obtain prior approval from RUS before declaring or paying
any dividends, paying or determining to pay any patronage refunds, or
retiring any patronage capital, or making any other cash distributions,
such approval is hereby given if the following conditions are met:

\(a\) After giving effect to the distribution, the borrower\'s equity
will be greater than or equal to 30 percent of its total assets;

\(b\) The borrower is current on all payments due on all notes secured
under the mortgage;

\(c\) The borrower is not otherwise in default under its loan documents;
and

\(d\) After giving effect to the distribution, the borrower\'s current
and accrued assets will be not less than its current and accrued
liabilities.

Subpart N \-- Investments, Loans, and Guarantees by Electric Borrowers

Authority: 7 U.S.C. 901 - 950b; Pub.L. 103 - 354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.); Title I, Subtitle D, Pub.L. 100 - 203, 101 Stat.
1330.

Source: 60 FR 48877, Sept. 21, 1995, unless otherwise noted.

Editorial Note: Nomenclature changes to part 1717 appear at 55 FR 39397,
Sept. 27, 1990.

\_1717.650 Purpose.

This subpart sets forth general regulations for implementing and
interpreting provisions of the RUS mortgage and loan contract regarding
investments, loans, and guarantees made by electric borrowers, as well
as the provisions of the Rural Electrification Act of 1936, as amended,
including section 312 (7 U.S.C. 901 et seq.) (RE Act), permitting, in
certain circumstances, that electric borrowers under the RE Act may,
without restriction or prior approval of the Administrator of the Rural
Utilities Service (RUS), invest their own funds and make loans or
guarantees.

\_1717.651 General.

\(a\) Policy. RUS electric borrowers are encouraged to utilize their own
funds to participate in the economic development of rural areas,
provided that such activity does not in any way put government funds at
risk or impair a borrower\'s ability to repay its indebtedness to RUS
and other lenders. In considering whether to make loans, investments, or
guarantees, borrowers are expected to act in accordance with prudent
business practices and in conformity with the laws of the jurisdictions
in which they serve. RUS assumes that borrowers will use the latitude
afforded them by section 312 of the RE Act primarily to make needed
investments in rural community infrastructure projects (such as water
and waste systems, garbage collection services, etc.) and in job
creation activities (such as providing technical, financial, and
managerial assistance) and other activities to promote business
development and economic diversification in rural communities.
Nonetheless, RUS believes that borrowers should continue to give primary
consideration to safety and liquidity in the management of their funds.

\(b\) Applicability of this subpart. This subpart applies to all
distribution and power supply borrowers regardless of when their loan
contract or mortgage was executed.

\_1717.652 Definitions.

As used in this subpart:

Borrower means any organization that has an outstanding loan made or
guaranteed by RUS for rural electrification.

Cash-construction fund-trustee account means the account described in
the Uniform System of Accounts as one to which funds are deposited for
financing the construction or purchase of electric facilities.

Distribution borrower means a Distribution Borrower as defined in 7 CFR
1710.2.

Electric system means all of the borrower\'s interests in all electric
production, transmission, distribution, conservation, load management,
general plant and other related facilities, equipment or property and in
any mine, well, pipeline, plant, structure or other facility for the
development, production, manufacture, storage, fabrication or processing
of fossil, nuclear, or other fuel or in any facility or rights with
respect to the supply of water, in each case for use, in whole or in
major part, in any of the borrower\'s generating plants, including any
interest or participation of the borrower in any such facilities or any
rights to the output or capacity thereof, together with all lands,
easements, rights-of-way, other works, property, structures, contract
rights and other tangible and intangible assets of the borrower in each
case used or useful in such electric system.

Equity means the Margins and Equities of the borrower as defined in the
Uniform System of Accounts, less regulatory created assets.

Guarantee means to undertake collaterally to answer for the payment of
another\'s debt or the performance of another\'s duty, liability, or
obligation, including, without limitation, the obligations of
subsidiaries. Some examples of such guarantees include guarantees of
payment or collection on a note or other debt instrument (assuring
returns on investments); issuing performance bonds or completion bonds;
or cosigning leases or other obligations of third parties.

Invest means to commit money in order to earn a financial return on
assets, including, without limitation, all investments properly recorded
on the borrower\'s books and records in investment accounts as those
accounts are used in the Uniform System of Accounts for RUS Borrowers.
Borrowers may submit any proposed transaction to RUS for an
interpretation of whether the action is an investment for the purposes
of this definition.

Make loans means to lend out money for temporary use on condition of
repayment, usually with interest.

Mortgaged property means any asset of the borrower which is pledged in
the RUS mortgage.

Natural gas distribution system means any system of community
infrastructure that distributes natural gas and whose services are
available by design to all or a substantial portion of the members of
the community.

Operating DSC means Operating Debt Service Coverage (ODSC) of the
borrower\'s electric system calculated as:

E:\\GRAPHICS\\ER21SE95.001

where:

All amounts are for the same year and are based on the RUS system of
accounts;

A=Depreciation and Amortization Expense of the electric system;

B=Interest on Long-term Debt of the electric system, except that
Interest on Long-term Debt shall be increased by \\1/3\\ of the amount,
if any, by which the rentals of Restricted Property of the electric
system exceed 2 percent of Total Margins and Equities;

C=Patronage Capital & Operating Margins of the electric system
(distribution borrowers) or Operating Margins of the electric system
(power supply borrowers); and

D=Debt Service Billed (RUS + other) which equals all interest and
principal billed or billable during the calendar year for long-term debt
of the electric system plus \\1/3\\ of the amount, if any, by which the
rentals of Restricted Property of the electric system exceed 2 percent
of Total Margins and Equities. Unless otherwise indicated, all terms
used in defining ODSC and OTIER are as defined in RUS Bulletin 1717B - 2
Instructions for the Preparation of the Financial and Statistical Report
for Electric Distribution Borrowers, and RUS Bulletin 1717B - 3
Instructions for the Preparation of the Operating Report for Power
Supply Borrowers and for Distribution Borrowers with Generating
Facilities, or the successors to these bulletins.

Operating TIER means Operating Times Interest Earned Ratio (OTIER) of
the borrower\'s electric system calculated as:

E:\\GRAPHICS\\ER21SE95.002

where:

All amounts are for the same year and are based on the RUS system of
accounts;

A=Interest on Long-term Debt of the electric system, except that
Interest on Long-term Debt shall be increased by 1/3 of the amount, if
any, by which the rentals of Restricted Property of the electric system
exceed 2 percent of Total Margins and Equities; and

B=Patronage Capital & Operating Margins of the electric system
(distribution borrowers) or Operating Margins of the electric system
(power supply borrowers).

Own funds means money belonging to the borrower other than funds on
deposit in the cash-construction fund-trustee account.

Power supply borrower means a Power Supply Borrower as defined in 7 CFR
1710.2.

Regulatory created assets means the sum of the amounts properly
recordable in Account 182.2 Unrecovered Plant and Regulatory Study
Costs, and Account 182.3 Other Regulatory Assets of the Uniform System
of Accounts.

RUS means the Rural Utilities Service, an agency of the U.S. 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, 7 U.S.C. 6941 et seq.) and, for
purposes of this subpart, includes its predecessor, the Rural
Electrification Administration.

RUS loan contract means the loan contract between the borrower and RUS.

RUS mortgage means any and all instruments creating a lien on or
security interest in the borrower\'s assets in connection with loans or
guarantees under the RE Act.

Solid waste disposal system means any system of community infrastructure
that provides collection and/or disposal of solid waste and whose
services are available by design to all or a substantial portion of the
members of the community.

Subsidiary means a company which is controlled by the borrower through
ownership of voting stock, and is further defined in 7 CFR 1767.10.

Supplemental lender means a lender that has provided a supplemental
source of financing that is secured by the RUS mortgage.

Telecommunication and other electronic communication system means any
community infrastructure that provides telecommunication or other
electronic communication services and whose services are available by
design to all or a substantial portion of the members of the community.

Total assets means the total assets of the borrower as calculated
according to the Uniform System of Accounts, less regulatory created
assets.

Total utility plant means the sum of the borrower\'s Electric Plant
Accounts and Construction Work in Progress \-- Electric Accounts, as
such terms are used in the Uniform System of Accounts.

Uniform System of Accounts means the system of accounts prescribed for
RUS borrowers in 7 CFR part 1767.

Water and waste disposal system means any system of community
infrastructure that supplies water and/or collects and treats waste
water and whose services are available by design to all or a substantial
portion of the members of the community.

\_1717.653 Borrowers in default.

Any borrower not in compliance with all provisions of its mortgage, loan
contract, or any other agreements with RUS must, unless the borrower\'s
mortgage, loan contract, or other agreement with RUS specifically
provides otherwise with respect to such a borrower:

\(a\) Obtain prior written approval from the Administrator to invest its
own funds or to make loans or guarantees regardless of the aggregate
amount of such investments, loans, or guarantees; and

\(b\) If requested by the Administrator, restructure or reduce the
amount of its investments, loans, and guarantees to a level determined
by the Administrator, in his or her sole discretion, to be in the
financial interest of the government with respect to loan security
and/or repayment. If the borrower does not so restructure or reduce its
portfolio within a reasonable period of time determined by the
Administrator, which shall not exceed 12 months from the date the
borrower was notified of the required action, then, upon written notice
from RUS, the borrower shall be in default of its RUS loan contract and
mortgage.

\_1717.654 Transactions below the 15 percent level.

\(a\) A borrower in compliance with all provisions of its RUS mortgage,
RUS loan contract, and any other agreements with RUS may, without prior
written approval of the Administrator, invest its own funds or make
loans or guarantees not in excess of 15 percent of its total utility
plant without regard to any provision contained in any RUS mortgage or
RUS loan contract to the effect that the borrower must obtain prior
approval from RUS, provided, however, that the borrower may not, without
the prior written approval of the Administrator, make such investments,
loans, and guarantees to extend, add to, or modify its electric system.
Moreover, funds necessary to make timely payments of principal and
interest on loans secured by the RUS mortgage remain subject to RUS
controls on borrower investments, loans and guarantees.

\(b\) RUS will not consider requests from borrowers to exclude
investments, loans, or guarantees made below the 15 percent level.
(Categorical exclusions are set forth in \_1717.655.)

\_1717.655 Exclusion of certain investments, loans, and guarantees.

\(a\) In calculating the amount of investments, loans and guarantees
permitted under this subpart, there is excluded from the computation any
investment, loan or guarantee of the type which by the terms of the
borrower\'s RUS mortgage or RUS loan contract the borrower may make in
unlimited amounts without RUS approval.

\(b\) Furthermore, the borrower may make unlimited investments, without
prior approval of the Administrator, in:

\(1\) Securities or deposits issued, guaranteed or fully insured as to
payment by the United States Government or any agency thereof;

\(2\) Capital term certificates, bank stock, or other similar securities
of the supplemental lender which have been purchased as a condition of
membership in the supplemental lender, or as a condition of receiving
financial assistance from such lender, as well as any other investment
made in, or loans made to, the National Rural Utilities Cooperative
Finance Corporation, the Saint Paul Bank for Cooperatives, and CoBank,
ACB;

\(3\) Patronage capital allocated from an electric power supply
cooperative of which the borrower is a member; and

\(4\) Patronage capital allocated from an electric distribution
cooperative to a power supply borrower.

\(c\) Without prior approval of the Administrator, the borrower may
also:

\(1\) Invest or lend funds derived directly from:

\(i\) Grants which the borrower in not obligated to repay, regardless of
the source or purpose of the grant; and

\(ii\) Loans received from or guaranteed by any Federal, State or local
government program designed to promote rural economic development,
provided that the borrower uses the loan proceeds for such purpose;

\(2\) Make loans guaranteed by an agency of USDA, up to the amount of
principal whose repayment, with interest, is fully guaranteed; and

\(3\) (i) Make unlimited investments in and unlimited loans to finance
the following community infrastructure that serves primarily consumers
located in rural areas as defined in 7 CFR 1710.2, and guarantee debt
issued for the construction or acquisition of such infrastructure, up to
an aggregate amount of such guarantees not to exceed 20 percent of the
borrower\'s equity:

\(A\) Water and waste disposal systems;

\(B\) Solid waste disposal systems;

\(C\) Telecommunication and other electronic communication systems; and

\(D\) Natural gas distribution systems.

\(ii\) In each of the four cases in paragraph (c)(3)(i) of this section,
if the system is a component of a larger organization other than the
borrower itself (e.g., if it is a component of a subsidiary of the
borrower or a corporation independent of the borrower), to be eligible
for the exemption the borrower must certify annually that a majority of
the gross revenues of the larger organization during the most recent
fiscal year came from customers of said system who were located in a
rural area.

\(d\) Also excluded from the calculation of investments, loans and
guarantees made by the borrower are:

\(1\) Amounts properly recordable in Account 142 Customer Accounts
Receivable, and Account 143 Other Accounts Receivable;

\(2\) Any investment, loan, or guarantee that the borrower is required
to make by an agency of USDA, for example, as a condition of obtaining
financial assistance for itself or any other person or organization;

\(3\) Investments included in an irrevocable trust for the purpose of
funding post-retirement benefits of the borrower\'s employees;

\(4\) Reserves required by a reserve bond agreement or other agreement
legally binding on the borrower, that are dedicated to making required
payments on debt secured under the RUS mortgage, not to exceed the
amount of reserves specifically required by such agreements; and

\(5\) Investments included in an irrevocable trust approved by RUS and
dedicated to the payment of decommissioning costs of nuclear facilities
of the borrower.

\(e\) Grandfathered exclusions. All amounts of individual investments,
loans, and guarantees excluded by RUS as of February 16, 1995 shall
remain excluded. Such exclusions must have been based on the RUS
mortgage, RUS loan contract, regulations, bulletins, memoranda, or other
written notice from RUS. Profits, interest, and other returns earned
(regardless of whether or not they are reinvested) on such investments,
loans and guarantees after February 16, 1995 shall be excluded only if
they are eligible for exclusion under paragraphs (a) through (d) of this
section. Any new commitments of money to such investments, loans and
guarantees shall likewise be excluded only if they are eligible under
paragraphs (a) through (d) of this section.

\(f\) Any investment, loan or guarantee made by a borrower that is not
excluded under this section or under \_1717.657(d) shall be included in
the aggregate amount of investments, loans and guarantees made by the
borrower, regardless of whether RUS has specifically approved the
investment, loan or guarantee under \_1717.657(c), or has approved a
related transaction (e.g., a lien accommodation).

\_1717.656 Exemption of certain borrowers from controls.

\(a\) Any distribution or power supply borrower that meets all of the
following criteria is exempted from the provisions of the RUS mortgage
and loan contract that require RUS approval of investments, loans, and
guarantees, except investments, loans, and guarantees made to extend,
add to, or modify the borrower\'s electric system:

\(1\) The borrower is in compliance with all provisions of its RUS
mortgage, RUS loan contract, and any other agreements with RUS;

\(2\) The average revenue per kWh for residential service received by
the borrower during the two most recent calendar years does not exceed
130 percent of the average revenue per kWh for residential service
during the same period for all residential consumers located in the
state or states served by the borrower. This criterion applies only to
distribution borrowers and does not apply to power supply borrowers. If
a borrower serves customers in more than one state, the state average
revenue per kWh will be based on a weighted average using the kWh sales
by the borrower in each state as the weight. The calculation will be
based on the two most recent calendar years for which both borrower and
state-wide data are available. If a borrower fails to qualify for an
exemption based solely on its failure to meet this criterion on rate
disparity, at the borrower\'s request the Administrator may, at his or
her sole discretion, exempt the borrower if he or she finds that the
borrower\'s strengths with respect to the other criteria are sufficient
to offset any weakness due to rate disparity;

\(3\) In the most recent calendar year for which data are available, the
borrower achieved an operating TIER of at least 1.0 and an operating DSC
of at least 1.0, in each case based on the average of the two highest
ratios achieved in the three most recent calendar years;

\(4\) The borrower\'s ratio of net utility plant to long-term debt is at
least 1.1, based on year-end data for the most recent calendar year for
which data are available; and

\(5\) The borrower\'s equity is equal to at least 27 percent of its
total assets, based on year-end data for the most recent calendar year
for which data are available.

\(b\) While borrowers meeting the criteria in paragraph (a) of this
section are exempt from RUS approval of investments, loans and
guarantees, they are nevertheless subject to the record-keeping,
reporting, and other requirements of \_1717.658.

\(c\) Any borrower exempt under paragraph (a) of this section that
ceases to meet the criteria for exemption shall, upon written notice
from RUS, no longer be exempt and shall be subject to the provisions of
this subpart applicable to non-exempt borrowers. A borrower may regain
its exemption if it subsequently meets the criteria in paragraph (a) of
this section, and is so notified in writing by RUS.

(d)(1) A borrower that loses its exemption and is not in compliance with
all provisions of its mortgage, loan contract, or any other agreement
with RUS may be required to restructure or reduce its portfolio of
investments, loans and guarantees as provided in \_1717.653(b). If the
borrower\'s portfolio exceeds the 15 percent level, the borrower will be
required to restructure or reduce its portfolio to the 15 percent level
or below. For example, if the borrower\'s mortgage or loan contract has
an approval threshold, the borrower may be required to reduce its
portfolio to that level, which in many cases is 3 percent of total
utility plant.

\(2\) A borrower that loses its exemption but is in compliance with all
provisions of its mortgage, loan contract, and any other agreements with
RUS will be required, if its investments, loans and guarantees exceed
the 15 percent level, to restructure or reduce its portfolio to the 15
percent level, unless the Administrator, in his or her sole discretion,
determines that such action would not be in the financial interest of
the government with respect to loan security and/or repayment. (Such
borrower is eligible to ask RUS to exclude a portion of its investments
under the conditions set forth in \_1717.657(d).)

\(3\) If a borrower required to reduce or restructure its portfolio does
not fully comply within a reasonable period of time determined by the
Administrator, which shall not exceed 12 months from the date the
borrower was notified of its loss of exemption, then, upon written
notice from RUS, the borrower shall be in default of its RUS loan
contract and/or RUS mortgage.

\(e\) By no later than July 1 of each year, RUS will provide written
notice to any borrowers whose exemption status has changed as a result
of more recent data being available for the qualification criteria set
forth in paragraph (a) of this section, or as a result of other reasons,
such as corrections in the available data. An explanation of the reasons
for any changes in exemption status will also be provided to the
borrowers affected.

\_1717.657 Investments above the 15 percent level by certain borrowers
not exempt under \_1717.656(a).

\(a\) General. (1) This section applies only to borrowers that are in
compliance with all provisions of their mortgage, loan contract, and any
other agreements with RUS and that do not qualify for an exemption from
RUS investment controls under \_1717.656(a).

\(2\) Nothing in this section shall in any way affect the
Administrator\'s authority to exercise approval rights over investments,
loans, and guarantees made by a borrower that is not in compliance with
all provisions of its mortgage, loan contract and any other agreements
with RUS.

\(b\) Distribution borrowers. Distribution borrowers not exempt from RUS
investment controls under \_1717.656(a) may not make investments, loans
and guarantees in an aggregate amount in excess of 15 percent of total
utility plant. Above the 15 percent level, such borrowers will be
restricted to excluded investments, loans and guarantees as defined in
\_1717.655. (However, they are eligible to ask RUS to exclude a portion
of their investments under the conditions set forth in paragraph (d) of
this section.)

\(c\) Power supply borrowers. (1) Power supply borrowers not exempt from
RUS investment controls under \_1717.656(a) may request approval to
exceed the 15 percent level if all of the following criteria are met:

\(i\) Satisfactory evidence has been provided that the borrower is in
compliance with all provisions of its RUS mortgage, RUS loan contract,
and any other agreements with RUS;

\(ii\) The borrower is not in financial workout and has not had its
government debt restructured;

\(iii\) The borrower has equity equal to at least 5 percent of its total
assets; and

\(iv\) After approval of the investment, loan or guarantee, the
aggregate of the borrower\'s investments, loans and guarantees will not
exceed 20 percent of the borrower\'s total utility plant.

\(2\) Borrower requests for approval to exceed the 15 percent level will
be considered on a case by case basis. The requests must be made in
writing.

\(3\) In considering borrower requests, the Administrator will take the
following factors into consideration:

\(i\) The repayment of all loans secured under the RUS mortgage will
continue to be assured, and loan security must continue to be reasonably
adequate, even if the entire investment or loan is lost or the borrower
is required to perform for the entire amount of the guarantee. These
risks will be considered along with all other risks facing the borrower,
whether or not related to the investment, loan or guarantee;

\(ii\) In the case of investments, the investment must be made in an
entity separate from the borrower, such as a subsidiary, whereby the
borrower is protected from any liabilities incurred by the separate
entity, unless the borrower demonstrates to the satisfaction of the
Administrator that making the investment directly rather than through a
separate entity will present no substantial risk to the borrower in
addition to the possibility of losing all or part of the original
investment;

\(iii\) The borrower must be economically and financially sound as
indicated by its costs of operation, competitiveness, operating TIER and
operating DSC, physical condition of the plant, ratio of equity to total
assets, ratio of net utility plant to long-term debt, and other factors;
and

\(iv\) Other factors affecting the security and repayment of government
debt, as determined by the Administrator on a case by case basis.

\(4\) If the Administrator approves an investment, loan or guarantee,
such investment, loan or guarantee will continue to be included when
calculating the borrower\'s ratio of aggregate investments, loans and
guarantees to total utility plant.

\(d\) Distribution and power supply borrowers. If the aggregate of the
investments, loans and guarantees of a distribution or power supply
borrower exceeds 15 percent of the borrower\'s total utility plant as a
result of the cumulative profits or margins, net of losses, earned on
said transactions over the past 10 calendar years (i.e., the sum of all
profits earned during the 10 years on all transactions \-- including
interest earned on cash accounts, loans, and similar transactions \--
less the sum of all losses experienced on all transactions during the 10
years) then:

\(1\) The borrower will not be in default of the RUS loan contract or
RUS mortgage with respect to required approval of investments, loans and
guarantees, provided that the borrower had not made additional net
investments, loans or guarantees without approval after reaching the 15
percent level; and

\(2\) At the request of the borrower, the Administrator in his or her
sole discretion may decide to exclude up to the amount of net profits or
margins earned on the borrower\'s investments, loans and guarantees
during the past 10 calendar years, if the Administrator determines that
such exclusion will not increase loan security risks. The borrower must
provide documentation satisfactory to the Administrator as to the
current status of its investments, loans and guarantees and the net
profits earned during the past 10 years. Any exclusion approved by the
Administrator may or may not reduce the level of investments, loans and
guarantees to or below the 15 percent level. If such exclusion does not
reduce the level to or below the 15 percent level, RUS will notify the
borrower in writing that it must reduce or restructure its investments,
loans and guarantees to a level of not more than 15 percent of total
utility plant. If the borrower does not come within the 15 percent level
within a reasonable period of time determined by the Administrator,
which shall not exceed 12 months from the date the borrower was notified
of the required action, then, upon written notice from RUS, the borrower
shall be in default of its RUS loan contract and mortgage.

\_1717.658 Records, reports and audits.

\(a\) Every borrower shall maintain accurate records concerning all
investments, loans and guarantees made by it. Such records shall be kept
in a manner that will enable RUS to readily determine:

\(1\) The nature and source of all income, expenses and losses generated
from the borrower\'s loans, guarantees and investments;

\(2\) The location, identity and lien priority of any loan collateral
resulting from activities permitted by this subpart; and

\(3\) The effects, if any, which such activities may have on the
feasibility of loans made, guaranteed or lien accommodated by RUS.

\(b\) In determining the aggregate amount of investments, loans and
guarantees made by a borrower, the borrower shall use the recorded value
of each investment, loan or guarantee as reflected on its books and
records for the next preceding end-of-month, except for the end-of-year
report which shall be based on December 31 information. Every borrower
shall also report annually to RUS, in the manner and on the form
specified by the Administrator, the current status of each investment,
outstanding loan and outstanding guarantee which it has made pursuant to
this subpart.

\(c\) The records of borrowers shall be subject to the auditing
procedures prescribed in part 1773 of this chapter. RUS reserves the
right to review the financial records of any subsidiaries of the
borrower to determine if the borrower is in compliance with this
subpart, and to ascertain if the debts, guarantees (as defined in this
subpart), or other obligations of the subsidiaries could adversely
affect the ability of the borrower to repay its debts to the Government.

\(d\) RUS will monitor borrower compliance with this subpart based
primarily on the annual financial and statistical report submitted by
the borrower to RUS and the annual auditor\'s report on the borrower\'s
operations. However, RUS may inspect the borrower\'s records at any time
during the year to determine borrower compliance. If a borrower\'s most
recent annual financial and statistical report shows the aggregate of
the borrower\'s investments, loans and guarantees to be below the 15
percent level, that in no way relieves the borrower of its obligation to
comply with its RUS mortgage, RUS loan contract, and this subpart with
respect to Administrator approval of any additional investment, loan or
guarantee that would cause the aggregate to exceed the 15 percent level.

\_1717.659 Effect of this subpart on RUS loan contract and mortgage.

\(a\) Nothing in this subpart shall affect any provision, covenant, or
requirement in the RUS mortgage, RUS loan contract, or any other
agreement between a borrower and RUS with respect to any matter other
than the prior approval by RUS of investments, loans, and guarantees by
the borrower, such matters including, without limitation, extensions,
additions, and modifications of the borrower\'s electric system. Also,
nothing in this subpart shall affect any rights which supplemental
lenders have under the RUS mortgage, or under their loan contracts or
other agreements with their borrowers, to limit investments, loans and
guarantees by their borrowers to levels below 15 percent of total
utility plant.

\(b\) RUS will require that any electric loan made or guaranteed by RUS
after October 23, 1995 shall be subject to a provision in the loan
contract or mortgage restricting investments, loans and guarantees by
the borrower substantially as follows: The borrower shall not make any
loan or advance to, or make any investment in, or purchase or make any
commitment to purchase any stock, bonds, notes or other securities of,
or guaranty, assume or otherwise become obligated or liable with respect
to the obligations of, any other person, firm or corporation, except as
permitted by the RE Act and RUS regulations.

\(c\) RUS reserves the right to change the provisions of the RUS
mortgage and loan contract relating to RUS approval of investments,
loans and guarantees made by the borrower, on a case-by-case basis, in
connection with providing additional financial assistance to a borrower
after October 23, 1995. \_

Subpart O \-- \[Reserved\]

\_1717.700 \-- 1717.749 \[Reserved\]

Subpart P \-- \[Reserved\]

\_\_1717.750 \-- 1717.799 \[Reserved\]

Subpart Q \-- \[Reserved\]

\_\_1717.800 \-- 1717.849 \[Reserved\]

Subpart R \-- Lien Accommodations and Subordinations for 100 Percent
Private Financing

Source: 58 FR 53843, Oct. 19, 1993, unless otherwise noted.

\_1717.850 General.

\(a\) Scope and applicability. (1) This subpart R establishes policies
and procedures for the accommodation, subordination or release of the
Government\'s lien on borrower assets, including approvals of supporting
documents and related loan security documents, in connection with 100
percent private sector financing of facilities and other purposes.
Policies and procedures regarding lien accommodations for concurrent
supplemental financing required in connection with an RUS insured loan
are set forth in subpart S of this part.

\(2\) This subpart and subpart S of this part apply only to debt to be
secured under the mortgage, the issuance of which is subject to the
approval of the Rural Utilities Service (RUS) by the terms of the
borrower\'s mortgage with respect to the issuance of additional debt or
the refinancing or refunding of debt. If RUS approval is not required
under such terms of the mortgage itself, a lien accommodation is not
required. If the loan contract or other agreement between the borrower
and RUS requires RUS approval with respect to the issuance of debt or
making additions to or extensions of the borrower\'s system, such
required approvals do not by themselves result in the need for a lien
accommodation.

\(b\) Overall policy. (1) Consistent with prudent lending practices, the
maintenance of adequate security for RUS\'s loans, and the objectives of
the Rural Electrification Act (RE Act), it is the policy of RUS to
provide effective and timely assistance to borrowers in obtaining
financing from other lenders by sharing RUS\'s lien on a borrower\'s
assets in order to finance electric facilities, equipment and systems,
and certain other types of community infrastructure. In certain
circumstances, RUS may facilitate the financing of such assets by
subordinating its lien on specific assets financed by other lenders.

\(2\) It is also the policy of RUS to provide effective and timely
assistance to borrowers in promoting rural development by subordinating
RUS\'s lien for financially sound rural development investments under
the conditions set forth in \_1717.858.

\(c\) Decision factors. In determining whether to accommodate,
subordinate, or release its lien on property pledged by the borrower
under the RUS mortgage, RUS will consider the effects of such action on
the achievement of the purposes of the RE Act, the repayment and
security of RUS loans secured by the mortgage, and other factors set
forth in this subpart. The following factors will be considered in
assessing the effects on the repayment and security of RUS loans:

\(1\) The value of the added assets compared with the amount of new debt
to be secured;

\(2\) The value of the assets already pledged under the mortgage, and
any effects of the proposed transaction on the value of those assets;

\(3\) The ratio of the total outstanding debt secured under the mortgage
to the value of all assets pledged as security under the mortgage;

\(4\) The borrower\'s ability to repay debt owed to the Government, as
indicated by the following factors:

\(i\) Revenues, costs (including interest, lease payments and other debt
service costs), margins, Times Interest Earned Ratio (TIER), Debt
Service Coverage (DSC), and other case-specific economic and financial
factors;

\(ii\) The variability and uncertainty of future revenues, costs,
margins, TIER, DSC, and other case-specific economic and financial
factors;

\(iii\) Future capital needs and the ability of the borrower to meet
those needs at reasonable cost;

\(iv\) The ability of the borrower\'s management to manage and control
its system effectively and plan for future needs; and

\(5\) Other factors that may be relevant in individual cases, as
determined by RUS.

\(d\) Environmental considerations. Under certain circumstances, such as
when the project does not qualify for a categorical exclusion, the
environmental requirements of 7 CFR part 1794 may apply to applications
for lien accommodations, subordinations, and releases.

\(e\) Co-mortgagees. Other mortgagees under existing mortgages shared
with RUS may have the right to approve requests for lien accommodations,
subordinations and releases. In those cases, borrowers would have to
obtain the approval of such mortgagees in order for the lien of the
mortgage to be accommodated, subordinated or released. Any reference in
this subpart to waiving by RUS of any of its rights under the mortgage
shall apply only to the rights of RUS and shall not apply to the rights
of any other co-mortgagee.

\(f\) Safety and performance standards. (1) To be eligible for a lien
accommodation or subordination from RUS, a borrower must comply with RUS
standards regarding facility and system planning and design,
construction, procurement, and the use of materials accepted by RUS, as
required by the borrower\'s mortgage, loan contract, or other agreement
with RUS, and as further specified in RUS regulations.

\(2\) RUS \`\`Buy American\'\' requirements shall not apply.

\(g\) Advance of funds. (1) The advance of funds from 100 percent
private loans lien accommodated or subordinated by RUS will not be
subject to RUS approval. It is the private lender\'s responsibility to
adopt reasonable measures to ensure that such loan funds are used for
the purposes for which the loan was made and the lien accommodation or
subordination granted. RUS encourages lenders to adopt the following
measures:

\(i\) Remit loan advances to a separate subaccount of the
Cash-Construction Fund-Trustee Account;

\(ii\) Obtain a certification from a registered professional engineer,
for each year during which funds from the separate subaccount are
utilized by the borrower, that all materials and equipment purchased and
facilities constructed during the year from said funds comply with RUS
safety and performance standards, as required by paragraph (f) of this
section, and are included in an CWP or CWP amendment approved by the
borrower\'s board of directors;

\(iii\) Obtain an auditor\'s certification from a Certified Public
Accountant, for each year during which funds are advanced to or remitted
from the separate subaccount, certifying:

\(A\) The amount of loan funds advanced to and remitted from the
separate subaccount during the period of review;

\(B\) That based on the auditor\'s review of construction work orders
and other records, all moneys disbursed from the separate subaccount
during the period of review were used for purposes contemplated in the
loan agreement and the lien accommodation; and

\(iv\) Immediately notify RUS in writing if the lender is unable to
obtain the certifications cited in paragraphs (g)(1)(ii) and (g)(1)(iii)
of this section.

\(2\) The measures listed in paragraph (g)(1) of this section will
normally be sufficient to meet the lender\'s responsibility provided
that additional measures are not reasonably required based on the
particular circumstances of an individual case. Should a lender fail to
carry out its responsibility in the manner described in this paragraph
(g) or in another manner acceptable to RUS, RUS may disqualify such
lender from participation in advance approval under \_\_1717.854 and
1717.857 and condition the lender\'s receipt of a lien accommodation or
subordination upon the lender providing satisfactory evidence that it
will fulfill its responsibility under this paragraph (g).

\(h\) Contracting and procurement procedures. (1) Facilities financed
with debt obtained entirely from non-RUS sources, without an RUS loan
guarantee, are not subject to RUS post-loan requirements regarding
contracting, procurement and bidding procedures; contract close-out
procedures pertaining to project completion, final payment of
contractor, and related matters; and standard forms of construction and
procurement contracts listed in 7 CFR 1726.300.

\(2\) To the extent that provisions in a borrower\'s loan contract or
mortgage in favor of RUS may be inconsistent with paragraphs (g)(1) and
(h)(1) of this section, paragraphs (g)(1) and (h)(1) of this section are
intended to constitute an approval or waiver under the terms of such
instruments, and in any regulations implementing such instruments, with
respect to facilities financed with debt obtained entirely from non-RUS
sources without an RUS guarantee.

\(i\) Access of handicapped to buildings and seismic safety. A borrower
must meet the following requirements to be eligible for a lien
accommodation or subordination for 100 percent private financing of the
construction of buildings:

\(1\) The borrower must provide RUS with a certification by the project
architect that the buildings will be designed and constructed in
compliance with Section 504 of the Rehabilitation Act of 1973 as amended
(29 U.S.C. 794), as applicable under that Act, and that the facilities
will be readily accessible to and usable by persons with handicaps in
accordance with the Uniform Federal Accessibility Standards (UFAS),
(Appendix A to 41 CFR part 101.19, subpart 101 - 19.6). The
certification must be included in the borrower\'s application for a lien
accommodation or subordination. In addition to these requirements,
building construction may also be subject to requirements of The
Americans with Disabilities Act (42 U.S.C. 12101 et seq.); and

\(2\) The borrower must comply with RUS\'s seismic safety requirements
set forth in 7 CFR part 1792, subpart C.

\(j\) Breach of warranty. Any breach of any warranty or agreement or any
material inaccuracy in any representation, warranty, certificate,
document, or opinion submitted pursuant to this subpart, including,
without limitation, any agreement or representation regarding the use of
funds from loans lien accommodated or subordinated pursuant to this
subpart, shall constitute a default by the borrower under the terms of
its loan agreement with RUS.

\(k\) Guaranteed loans. The provisions of this subpart do not apply to
lien accommodations or subordinations sought for loans guaranteed by
RUS. Such lien accommodations and subordinations are governed by RUS
regulations on guaranteed loans.

\(l\) Release of lien. To avoid repetition, release of lien is not
mentioned in every instance where it may be an acceptable alternative to
subordination of RUS\'s lien. Generally, lien subordination is favored
over release of lien, and any decision to release RUS\'s lien is at the
sole discretion of RUS.

\(m\) Waiver authority. Consistent with the RE Act and other applicable
laws, any requirement, condition, or restriction imposed by this
subpart, or subpart S of this part, on a borrower, private lender, or
application for a lien accommodation or subordination may be waived or
reduced by the Administrator, if the Administrator determines that said
action is in the Government\'s financial interest with respect to
ensuring repayment and reasonably adequate security for loans made or
guaranteed by RUS.

\(n\) Liability. It is the intent of this subpart that any failure on
the part of RUS to comply with any provisions hereof, including without
limitation, those provisions setting forth specified timeframes for
action by RUS on applications for lien accommodations or lien
subordinations, 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.

\[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67408, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67408, Dec. 29, 1995, \_1717.850 was
amended by revising paragraphs (a), (b), (f), (g)(1)(ii), (h)(2), and
(m), effective January 29, 1996. For the convenience of the reader, the
superseded text is set forth below.

\_1717.850 General.

\(a\) Scope. This subpart R establishes policies and procedures for the
accommodation, subordination or release of the Government\'s lien on
borrower assets, including approvals of supporting documents and related
loan security documents, in connection with 100 percent private sector
financing of facilities and other purposes. Policies and procedures
regarding lien accommodations for concurrent supplemental financing
required in connection with an RUS insured loan are set forth in subpart
S of this part.

\(b\) Overall policy. Consistent with prudent lending practices, the
maintenance of adequate security for RUS\'s loans, and the objectives of
the Rural Electrification Act (RE Act), it is the policy of RUS to
provide effective and timely assistance to borrowers in obtaining
financing from other lenders for electric facilities, equipment and
systems by sharing RUS\'s lien on a borrower\'s assets, and in certain
circumstances by subordinating RUS\'s lien on specific assets financed
by other lenders. It is also the policy of RUS to provide effective and
timely assistance to borrowers in promoting rural development by
subordinating RUS\'s lien for financially sound rural development
investments under the conditions set forth in \_ 1717.858.

\* \* \* \* \*

\(f\) Safety and performance standards. (1) In the case of distribution
and transmission facilities financed by a loan that is lien accommodated
or subordinated under this subpart, the borrower, through an authorized
official, must provide RUS with a written agreement that it will:

\(i\) Comply with the National Electrical Safety Code, in accordance
with 7 CFR 1724.41;

\(ii\) Use only materials for distribution and transmission facilities
that have been determined by RUS to be acceptable, as required by 7 CFR
1728.70(a) and (b), or if such materials are not available, use
materials approved by a registered professional engineer;

\(iii\) Comply with standards for construction established by RUS, such
as those in 7 CFR 1728.97, except as otherwise provided in 7 CFR
1724.45;

\(iv\) Follow the RUS-approved Construction Work Plan (CWP) applicable
to the loan and obtain prior written approval from RUS for any
amendments to the CWP; and

\(v\) Within 90 days of completion of construction, provide to RUS a
certification from a registered professional engineer that the
facilities have been constructed pursuant to an RUS-approved CWP or
RUS-approved CWP amendment and in conformance with RUS construction and
materials standards, as required by paragraphs (f)(1)(i), (ii) and (iii)
of this section. If all of the construction financed by the loan is
covered by certifications provided to the private lender under paragraph
(g)(1)(ii) of this section, a borrower may meet the requirements of this
paragraph (f)(1)(v) by providing to RUS a copy of all such
certifications.

\(2\) RUS \`\`Buy American\'\' requirements shall not apply.

\* \* \* \* \*

\(g\) \* \* \*

\(1\) \* \* \*

\(ii\) Obtain a certification from a registered professional engineer,
for each year during which funds from the separate subaccount are
utilized by the borrower, that all materials and equipment purchased and
facilities constructed during the year from said funds comply with RUS
safety and performance standards, as required by paragraph (f) of this
section, and are included in an RUS-approved CWP or RUS-approved CWP
amendment;

\* \* \* \* \*

\(h\) \* \* \*

\(2\) To the extent that provisions in a borrower\'s loan contract or
mortgage in favor of RUS may be inconsistent with paragraphs (g)(1) and
(h)(1) of this section, paragraphs (g)(1) and (h)(1) of this section are
intended to constitute an approval or waiver under the terms of such
instruments, and in any regulations implementing such instruments, with
respect to facilities financed with debt obtained entirely from non-RUS
sources without an RUS guarantee. Specifically, the following
requirements customarily found in typical RUS loan instruments and in
implementing regulations are deemed satisfied or not applicable:

\(i\) All provisions in Loan Contract Article II, entitled \`\`Advances
and Disposition of Funds\'\';

\(ii\) Those provisions in Loan Contract Article III, entitled
\`\`Construction,\'\' found in sections 1, 2 or 3 and respectively
concerning limitations on the use of force account construction,
requirements to use RUS approved construction contracts, or requirements
to use competitive bidding;

\(iii\) Those provisions in Loan Contract Article IV, entitled
\`\`Particular Covenants,\'\' found in sections 1, 2, 3, 9, 10, 14 or 16
and concerning the following matters: approval of depositories and
engineers, plans and specifications, construction contracts, materials,
and equipment and supplies contracts; delivery of contractor\'s and
subcontractor\'s bonds; procedures for energizing the system; clauses
for inclusion in contracts for federally assisted construction; or
requirements for approval of evidence of the Borrower\'s right, title or
interest in real property being acquired or improved by the Borrower;
and

\(iv\) Those provisions in Mortgage Article II, entitled \`\`Particular
Covenants of the Mortgagor,\'\' found in Section 10 thereof and
concerning approval of extensions and improvements to the system, other
than extensions or improvements related to serving any consumer having
an anticipated demand in excess of 1,000 kilowatts, and provisions
concerning approval of expenses for legal, engineering, supervisory,
accounting or other similar expenses.

\* \* \* \* \*

\(m\) Waiver authority. Consistent with the RE Act and other applicable
laws, any requirement or restriction imposed by this subpart, or subpart
S of this part, on a borrower or private lender may be waived or reduced
by the Administrator, if the Administrator determines that said action
is in the Government\'s financial interest.

\* \* \* \* \*

\_1717.851 Definitions.

Terms used in this subpart have the meanings set forth in 7 CFR 1710.2.
References to specific RUS forms and other RUS documents, and to
specific sections or lines of such forms and documents, shall include
the corresponding forms, documents, sections and lines in any subsequent
revisions of these forms and documents. In addition to the terms defined
in 7 CFR 1710.2, the following terms have the following meanings for the
purposes of this subpart:

Borrower\'s financial and statistical report means RUS Form 7, Parts A
through D, for distribution borrowers, and RUS Form 12a for power supply
borrowers.

Calendar day means any day of the year, except a Federal holiday that
falls on a work day.

Capital investment. For the purposes of \_1717.860, capital investment
means an original investment in an asset that is intended for long-term
continued use or possession and, for accounting purposes, is normally
depreciated or depleted as it is used. For example, such assets may
include land, facilities, equipment, buildings, mineral deposits,
patents, trademarks, and franchises. Original investments do not include
refinancings or refundings.

Current refunding means any refunding of debt where the proceeds of the
new debt are applied to refund the old debt within 90 days of the
issuance of the new debt.

Default under the RUS mortgage, loan contract, restructuring agreement,
or any other agreement between the borrower and RUS means any event of
default or any event which, with the giving of notice or lapse of time
or both, would become an event of default.

Equity, less deferred expenses, means Line 33 of Part C of RUS Form 7
less assets properly recordable in Account 182.2, Unrecovered Plant and
Regulatory Study Costs, and Account 182.3, Other Regulatory Assets.

Front-end costs means the reasonable cost of engineering, architectural,
environmental and other studies and plans needed to support the
construction of facilities and other investments eligible for a lien
accommodation or subordination under this subpart.

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.

Lien subordination means allowing another lender to take a first
mortgage lien on certain property covered by the lien of the RUS
mortgage, and the Government (RUS) taking a second lien on such
property.

Natural gas distribution system means any system of community
infrastructure whose primary function is the distribution of natural gas
and whose services are available by design to all or a substantial
portion of the members of the community.

Net utility plant means Part C, Line 5 of RUS Form 7 (distribution
borrowers) or Section B, Line 5 of RUS Form 12a (power supply
borrowers).

(TABLE START)

ODSC means Operating Debt Service Coverage calculated as:

\@h1ODSC=

\@h1A+B+C@h2D

\....

(TABLE END)

where:

A=Depreciation and Amortization Expense, which equals Part A, Line 12 of
RUS Form 7;

B=Interest on Long-term Debt, which equals Part A, Line 15 of RUS Form
7, except that Interest on Long-term debt shall be increased by 1/3 of
the amount, if any, by which the rentals of Restricted Property (Part M,
Line 3 of RUS Form 7) exceeds 2 percent of Total Margins and Equities
(Part C, Line 33 of RUS Form 7);

C=Patronage Capital & Operating Margins, which equals Part A, Line 20 of
RUS Form 7; and

D=Debt Service Billed (RUS + other) which equals all interest and
principal billed during the calendar year plus 1/3 of the amount, if
any, by which the rentals of Restricted Property (Part M, Line 3 of RUS
Form 7) exceeds 2 percent of Total Margins and Equities (Part C, Line 33
of RUS Form 7).

OTIER means Operating Times Interest Earned Ratio calculated

(TABLE START)as:

\@h1OTIER =

\@h1A+B@h2A

\....

(TABLE END)

where:

A=Interest on Long-term Debt, which equals Part A, Line 15 of RUS Form
7, except that Interest on Long-term debt shall be increased by 1/3 of
the amount, if any, by which the rentals of Restricted Property (Part M,
Line 3 of RUS Form 7) exceeds 2 percent of Total Margins and Equities
(Part C, Line 33 of RUS Form 7); and

B=Patronage Capital and Operating Margins, which equals Part A, Line 20
of RUS Form 7.

Power cost study means the study defined in 7 CFR 1710.303.

Solid waste disposal system means any system of community infrastructure
whose primary function is the collection and/or disposal of solid waste
and whose services are available by design to all or a substantial
portion of the members of the community.

Telecommunication and other electronic communication system means any
system of community infrastructure whose primary function is the
provision of telecommunication or other electronic communication
services and whose services are available by design to all or a
substantial portion of the members of the community.

Total assets, less deferred expenses means Line 26 of Part C of RUS Form
7 less assets properly recordable in Account 182.2, Unrecovered Plant
and Regulatory Study Costs, and Account 182.3, Other Regulatory Assets.

Total outstanding long-term debt means Part C, Line 38 of RUS Form 7.

Transaction costs means the reasonable cost of legal advice, accounting
fees, filing fees, recording fees, call premiums and prepayment
penalties, financing costs (including, for example, underwriting
commissions, letter of credit fees and bond insurance), and printing
associated with borrower financing.

Water and waste disposal system means any system of community
infrastructure whose primary function is the supplying of water and/or
the collection and treatment of waste water and whose services are
available by design to all or a substantial portion of the members of
the community.

Weighted average life of the loan means the average life of the loan
based on the proportion of original loan principal paid during each year
of the loan. It shall be determined by calculating the sum of all loan
principal payments, expressed as a fraction of the original loan
principal amount, times the number of years and fractions of years
elapsed at the time of each payment since issuance of the loan. For
example, given a \$5 million loan, with a maturity of 5 years and equal
principal payments of \$1 million due on the anniversary date of the
loan, the weighted average life would be: (.2)(1 year) + (.2)(2 years) +
(.2)(3 years) + (.2)(4 years) + (.2)(5 years) = .2 years + .4 years + .6
years + .8 years + 1.0 years = 3.0 years. If instead the loan had a
balloon payment of \$5 million at the end of 5 years, the weighted
average life would be: (\$5 million/\$5 million)(5 years) = 5 years.

\[58 FR 53843, Oct. 19, 1993, as amended at 59 FR 3986, Jan. 28, 1994;
60 FR 67409, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67409, Dec. 29, 1995, \_1717.851 was
amended by removing the definitions for \`\`ODSC\'\' and \`\`OTIER\'\'
and by adding definitions for \`\`Natural gas distribution system\'\',
\`\`Solid waste disposal system\'\', \`\`Telecommunication and other
electronic communication system\'\', and \`\`Waste and waste disposal
system\'\', effective January 29, 1996.

\_1717.852 Financing purposes.

\(a\) Purposes eligible. The following financing purposes, except as
excluded in paragraph (b) of this section, are eligible for a lien
accommodation from RUS, or in certain circumstances a subordination of
RUS\'s lien on specific assets, provided that all applicable provisions
of this subpart are met:

\(1\) The acquisition, construction, improvement, modification, and
replacement (less salvage value) of systems, equipment, and facilities,
including real property, used to supply electric and/or steam power to:

\(i\) RE Act beneficiaries; and/or

\(ii\) End-user customers of the borrower who are not beneficiaries of
the RE Act. Such systems, equipment, and facilities include those listed
in 7 CFR 1710.251(c) and 1710.252(c), as well as others that are
determined by RUS to be an integral component of the borrower\'s system
of supplying electric and/or steam power to consumers, such as, for
example, coal mines, coal handling facilities, railroads and other
transportation systems that supply fuel for generation, programs of
demand side management and energy conservation, and on-grid and off-grid
renewable energy systems;

\(2\) The purchase, rehabilitation and integration of existing
distribution facilities, equipment and systems, and associated service
territory;

\(3\) The following types of community infrastructure substantially
located within the electric service territory of the borrower: water and
waste disposal systems, solid waste disposal systems, telecommunication
and other electronic communications systems, and natural gas
distribution systems;

\(4\) Front-end costs, when and as the borrower has obtained a binding
commitment from the non-RUS lender for the financing required to
complete the procurement or construction of the facilities;

\(5\) Transaction costs included as part of the cost of financing assets
or refinancing existing debt, provided, however, that the amount of
transaction costs eligible for lien accommodation or subordination
normally shall not exceed 5 percent of the principal amount of financing
or refinancing provided, net of all transaction costs;

\(6\) The refinancing of existing debt secured under the mortgage;

\(7\) Interest during construction of generation and transmission
facilities if approved by RUS, case by case, depending on the financial
condition of the borrower, the terms of the financing, the nature of the
construction, the treatment of these costs by regulatory authorities
having jurisdiction, and such other factors deemed appropriate by RUS;
and

\(8\) Lien subordinations for certain rural development investments, as
provided in \_1717.858.

\(b\) Purposes ineligible. The following financing purposes are not
eligible for a lien accommodation or subordination from RUS:

\(1\) Working capital, including operating funds, unless in the judgment
of RUS the working capital is required to ensure the repayment of RUS
loans and/or other loans secured under the mortgage;

\(2\) Facilities, equipment, appliances, or wiring located inside the
premises of the consumer, except:

\(i\) Certain load-management equipment (see 7 CFR 1710.251(c));

\(ii\) Renewable energy systems and RUS-approved programs of demand side
management and energy conservation; and

\(iii\) As determined by RUS on a case by case basis, facilities
included as part of certain cogeneration projects to furnish electric
and/or steam power to end-user customers of the borrower;

\(3\) Investments in a lender required of the borrower as a condition
for obtaining financing; and

\(4\) Debt incurred by a distribution or power supply borrower to
finance facilities, equipment or other assets that are not part of the
borrower\'s electric system or one of the four community infrastructure
systems cited in paragraph (a)(3) of this section, except for certain
rural development investments eligible for a lien subordination under
\_1717.858.

\(c\) Lien subordination for electric utility investments. RUS will
consider subordinating its lien on specific electric utility assets
financed by the lender, when the assets can be split off without
materially reducing the stability, safety, reliability, operational
efficiency, or liquidation value of the rest of the system.

\[58 FR 53843, Oct. 19, 1993, as amended at 59 FR 3986, Jan. 28, 1994;
60 FR 67409, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67409, Dec. 29, 1995, in \_1717.852,
paragraphs (a)(1) introductory text and (a)(1)(ii) were amended by
adding the words \`\`and/or steam\'\' before the word \`\`power\'\',
paragraphs (a)(3) through (a)(7) and paragraph (b) were revised, and
paragraph (a)(8) was added, effective January 29, 1996. For the
convenience of the reader, the superseded text is set forth below.

\_1717.852 Financing purposes.

\(a\) \* \* \*

\(3\) Front-end costs, when and as the borrower has obtained a binding
commitment from the non-RUS lender for the financing required to
complete the procurement or construction of the facilities;

\(4\) Transaction costs included as part of the cost of financing assets
or refinancing existing debt, provided, however, that the amount of
transaction costs eligible for lien accommodation or subordination
normally shall not exceed 3.5 percent of the principal amount of
financing or refinancing provided, net of all transaction costs;

\(5\) The refinancing of existing debt secured under the mortgage;

\(6\) Interest during construction of generation and transmission
facilities if approved by RUS, case by case, depending on the financial
condition of the borrower, the terms of the financing, the nature of the
construction, the treatment of these costs by regulatory authorities
having jurisdiction, and such other factors deemed appropriate by RUS;
and

\(7\) Lien subordinations for certain rural development investments, as
provided in \_1717.858.

\(b\) Purposes ineligible. (1) Except as provided in paragraph (b)(2) of
this section, the following financing purposes are not eligible for a
lien accommodation or subordination from RUS:

\(i\) Working capital, including operating funds, unless in RUS\'s
judgment the working capital is required to ensure the repayment of RUS
loans and/or other loans secured under the mortgage;

\(ii\) Electric facilities, equipment, appliances, or wiring located
inside the premises of the consumer, except:

\(A\) Renewable energy systems and RUS-approved programs of demand side
management and energy conservation; and

\(B\) As determined by RUS on a case by case basis, electric facilities
included as part of certain cogeneration projects to furnish electric
power to end-user customers of the borrower;

\(iii\) Investments in a lender required of the borrower as a condition
for obtaining financing; and

\(iv\) Debt incurred by a distribution or power supply borrower for
investment in projects other than the borrower\'s primary business of
supplying electric power to its members and consumers, except for
certain rural development investments eligible for a lien subordination
under \_1717.858.

\(2\) RUS may, at its sole discretion, grant an exception to any of the
restrictions on accommodating or subordinating its lien on a borrower\'s
property set forth in paragraphs (a) and (b)(1) of this section, if RUS
determines that the accommodation or subordination will enhance the
repayment and/or security of loans made by RUS to the borrower, or is
otherwise in the financial interest of the Government.

\* \* \* \* \*

\_1717.853 Loan terms and conditions.

\(a\) Terms and conditions. A loan, bond or other financing instrument,
for which a lien accommodation or subordination is requested from RUS,
must comply with the following terms and conditions:

\(1\) The maturity of the loan or bond used to finance facilities or
other capital assets must not exceed the weighted average of the
expected remaining useful lives of the assets being financed;

\(2\) The loan or bond must have a maturity of not less than 5 years,
except for loans or bonds used to refinance debt that has a remaining
maturity of less than 5 years;

\(3\) The principal of the loan or bond must be amortized at a rate that
will yield a weighted average life not greater than the weighted average
life that would result from level payments of principal and interest;
and

\(4\) The loan, or any portion of the loan, may bear either a variable
(set annually or more frequently) or a fixed interest rate.

\(b\) RUS approval. Loan terms and conditions and the loan agreement
between the borrower and the lender are subject to RUS approval.
However, RUS will usually waive its right of approval for distribution
borrowers that meet the conditions for advance approval of a lien
accommodation or subordination set forth in \_1717.854. RUS may also
waive its right of approval in other cases. RUS\'s decision to waive its
right of approval will depend on the adequacy of security for RUS\'s
loans, the current and projected financial strength of the borrower and
its ability to meet its financial obligations, RUS\'s familiarity with
the lender and its lending practices, whether the transaction is
ordinary or unusual, and the uncertainty and credit risks involved in
the transaction.

\_1717.854 Advance approval \-- 100 percent private financing of
distribution, subtransmission and headquarters facilities, and certain
other community infrastructure.

\(a\) Policy. Requests for a lien accommodation or subordination from
distribution borrowers for 100 percent private financing of
distribution, subtransmission and headquarters facilities, and for
community infrastructure listed in \_1717.852(a)(3), qualify for advance
approval by RUS if they meet the conditions of this section and all
other applicable provisions of this subpart. Advance approval means RUS
will approve these requests once RUS is satisfied that the conditions of
this section and all other applicable provisions of this subpart have
been met.

\(b\) Eligible purposes. Lien accommodations or subordinations for the
financing of distribution, subtransmission, and headquarters facilities
and community infrastructure listed in \_1717.852(a)(3) are eligible for
advance approval, except those that involve the purchase of existing
facilities and associated service territory.

\(c\) Qualification criteria. To qualify for advance approval, the
following requirements, as well as all other applicable requirements of
this subpart, must be met:

\(1\) The borrower has achieved a TIER of at least 1.5 and a DSC of at
least 1.25 for each of 2 calendar years immediately preceding, or any 2
consecutive 12 month periods ending within 180 days immediately
preceding, the issuance of the debt;

\(2\) The ratio of the borrower\'s equity, less deferred expenses, to
total assets, less deferred expenses, is not less than 27 percent, after
adding the principal amount of the proposed loan to the total assets of
the borrower;

\(3\) The borrower\'s net utility plant as a ratio to its total
outstanding long-term debt is not less than 1.0, after adding the
principal amount of the proposed loan to the existing outstanding
long-term debt of the borrower;

\(4\) There are no actions or proceedings against the borrower, pending
or overtly threatened in writing before any court, governmental agency,
or arbitrator that would materially adversely affect the borrower\'s
operations and/or financial condition;

\(5\) The borrower is current on all debt payments and all other
financial obligations, and is not in default under the RUS mortgage, the
RUS loan contract, the borrower\'s wholesale power contract, any debt
restructuring agreement, or any other agreement with RUS;

\(6\) The borrower has:

\(i\) Submitted the annual auditor\'s report, report on compliance,
report on internal controls, and management letter in accordance with 7
CFR part 1773;

\(ii\) Received an unqualified opinion in the most recent auditor\'s
report;

\(iii\) Resolved all material findings and recommendations made in the
most recent Loan Fund and Accounting Review;

\(iv\) Resolved all material findings and recommendations made in the
most recent financial statement audit, including those material findings
and recommendations made in the report on internal control, report on
compliance, and management letter;

\(v\) Resolved all outstanding material accounting issues with RUS; and

\(vi\) Resolved any significant irregularities to RUS\'s satisfaction;
and

\(7\) If the borrower has a power supply contract with a power supply
borrower, the power supply borrower is current on all debt payments and
all other financial obligations, and is not in default under the RUS
mortgage, the loan contract, any debt restructuring agreement, or any
other agreement with RUS.

\(d\) Right of normal review reserved. RUS reserves the right to review
any request for lien accommodation or subordination under its normal
review process rather than under advance approval procedures if RUS, in
its sole discretion, determines there is reasonable doubt as to whether
the requirements of paragraphs (b) and (c) of this section have been or
will be met, or whether the borrower will be able to meet all of its
present and future financial obligations.

\[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67410, Dec. 29, 1995, \_1717.854 was
amended by revising the section heading and paragraphs (a), (b), (c)(1)
and (c)(2), removing paragraph (c)(7), redesignating paragraphs (c)(3)
through (c)(6) as paragraphs (c)(4) through (c)(7), adding a new
paragraph (c)(3), adding \`\`and\'\' at the end of newly designated
paragraph (c)(6)(vi) and removing \`\`;and\'\' at the end of newly
designated paragraph (c)(7) and adding a period in its place, effective
January 29, 1996. For the convenience of the reader, the superseded text
is set forth below.

\_1717.854 Advance approval \-- 100 percent private financing of
distribution, subtransmission, and headquarters facilities.

\* \* \* \* \*

\(a\) Policy. All requests for a lien accommodation or subordination
from distribution borrowers for 100 percent private financing of
distribution, subtransmission, and headquarters facilities that meet the
conditions of this section and all other applicable provisions of this
subpart, qualify for advance approval by RUS. Advance approval means RUS
will approve these requests once RUS is satisfied that the conditions of
this section and all other applicable provisions of this subpart have
been met.

\(b\) Eligible purposes. Lien accommodations or subordinations for the
financing of distribution, subtransmission, and headquarters facilities,
except the purchase of existing facilities and associated service
territory, are eligible for advance approval.

\(c\) \* \* \*

\(1\) The borrower meets at least one of the following two criteria:

\(i\) The ratio of the borrower\'s equity, less deferred expenses, to
total assets, less deferred expenses, is at least 40 percent at the time
of the lien accommodation request, and is not less than 37 percent after
taking into account the effect of the proposed loan, and the borrower
has achieved a TIER of at least 1.5 and a DSC of at least 1.25 for each
of the 2 calendar years immediately preceding, or any 2 consecutive 12
month periods ending within 180 days immediately preceding, the issuance
of the debt; or

\(ii\) The ratio of the borrower\'s equity, less deferred expenses, to
total assets, less deferred expenses, is at least 35 percent at the time
of the lien accommodation request, and is not less than 32 percent after
taking into account the effect of the proposed loan, and the borrower
has achieved an operating TIER (OTIER) of at least 1.5 and an operating
DSC (ODSC) of at least 1.25 for each of the 2 calendar years immediately
preceding, or any 2 consecutive 12 month periods ending within 180 days
immediately preceding, the issuance of the debt;

\(2\) The borrower\'s net utility plant as a ratio to total outstanding
long-term debt, after taking into consideration the effect of the
proposed loan and associated plant additions, is not less than 1.1;

\* \* \* \* \*

\(7\) The amount of outstanding debt having an effective variable
interest rate (set annually or more frequently), taking into
consideration the debt covered by the application for a lien
accommodation or subordination, does not exceed 15 percent of all
outstanding debt of the borrower.

\* \* \* \* \*

\_1717.855 Application contents: Advance approval \-- 100 percent
private financing of distribution, subtransmission and headquarters
facilities, and certain other community infrastructure.

Applications for a lien accommodation or subordination that meet the
requirements of \_1717.854 must include the following information and
documents:

\(a\) A certification by an authorized official of the borrower that the
borrower and, as applicable, the loan are in compliance with all
conditions set forth in \_1717.854(c) and all applicable provisions of
\_1717.852 and 1717.853;

\(b\) A resolution of the borrower\'s board of directors requesting the
lien accommodation or subordination and including the amount and
maturity of the proposed loan, a general description of the facilities
or other purposes to be financed, the name and address of the lender,
and an attached term sheet summarizing the terms and conditions of the
proposed loan;

\(c\) The borrower\'s financial and statistical report, the data in
which shall not be more than 60 days old when the complete application
is received by RUS;

\(d\) Draft copy of any new mortgage or mortgage amendment (supplement)
required by RUS or the lender, unless RUS has notified the borrower that
it wishes to prepare these documents itself;

\(e\) A copy of the loan agreement, loan note, bond or other financing
instrument, unless RUS has notified the borrower that these documents
need not be submitted;

\(f\) Borrower\'s environmental report and/or other environmental
documentation, if required by 7 CFR part 1794;

\(g\) RUS Form 740c, Cost Estimates and Loan Budget for Electric
Borrowers, and RUS Form 740g, Application for Headquarters Buildings;

\(h\) A CWP or CWP amendment covering the proposed project, in
accordance with 7 CFR part 1710, subpart F, and subject to RUS approval,
and a resolution of the borrower\'s board of directors adopting the CWP;

\(i\) The certification by the project architect for any buildings to be
constructed, as required by \_1717.850(i);

\(j\) A certification by an authorized official of the borrower that
flood hazard insurance will be obtained for the full value of any
buildings, or other facilities susceptible to damage if flooded, that
will be located in a flood hazard area;

\(k\) Form AD-1047, Certification Regarding Debarment, Suspension, and
Other Responsibility Matters \-- Primary Covered Transactions, as
required by 7 CFR part 3017;

\(l\) A report by the borrower stating whether or not it is delinquent
on any Federal debt, and if delinquent, the amount and age of the
delinquency and the reasons therefor; and a certification, if not
previously provided, that the borrower has been informed of the
Government\'s collection options;

\(m\) The written acknowledgement from a registered engineer or
architect regarding compliance with seismic provisions of applicable
model codes for any buildings to be constructed, as required by 7 CFR
1792.104; and

\(n\) Other information that RUS may require to determine whether all of
the applicable provisions of this subpart have been met.

\[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67410, Dec. 29, 1995, \_1717.855 was
amended by revising the section heading and paragraph (a), effective
January 29, 1996. For the convenience of the reader, the superseded text
is set forth below.

\_1717.855 Application contents: Advance approval \-- 100 percent
private financing of distribution, subtransmission, and headquarters
facilities.

\* \* \* \* \*

\(a\) The agreement regarding safety and performance standards and
adherence to an RUS-approved CWP required by \_1717.850(f), combined
with a certification by an authorized official of the borrower that the
borrower and, as applicable, the loan are in compliance with all
conditions set forth in \_1717.854(c) and all applicable provisions of
\_\_1717.852 and 1717.853;

\* \* \* \* \*

\_1717.856 Application contents: Normal review \-- 100 percent private
financing.

Applications for a lien accommodation or subordination for 100 percent
private financing for eligible purposes that do not meet the
requirements of \_1717.854 must include the following information and
documents:

\(a\) A certification by an authorized official of the borrower that:

\(1\) The borrower and, as applicable, the loan are in compliance with
all applicable provisions of \_\_1717.852 and 1717.853; and

\(2\) There are no actions or proceedings against the borrower, pending
or overtly threatened in writing before any court, governmental agency,
or arbitrator that would materially adversely affect the borrower\'s
operations and/or financial condition. If this certification cannot be
made, the application must include:

\(i\) An opinion of borrower\'s counsel regarding any actions or
proceedings against the borrower, pending or overtly threatened in
writing before any court, governmental agency, or arbitrator that would
materially adversely affect the borrower\'s operations and/or financial
condition. The opinion shall address the merits of the claims asserted
in the actions or proceedings, and include, if appropriate, an estimate
of the amount or range of any potential loss; and

\(ii\) A certification by an authorized official of the borrower as to
the amount of any insurance coverage applicable to any loss that may
result from the actions and proceedings addressed in the opinion of
borrower\'s counsel;

\(b\) The information and documents set forth in \_1717.855 (b) through
(n);

\(c\) A long-range financial forecast providing financial projections
for at least 10 years, which demonstrates that the borrower\'s system is
economically viable and that the proposed loan is financially feasible,
and a resolution of the borrower\'s board of directors adopting the
long-range financial forecast. The financial forecast must comply with
the requirements of 7 CFR part 1710 subpart G. RUS may, in its sole
discretion, waive the requirement of this paragraph that a long range
financial forecast be provided, if:

\(1\) The borrower is current on all of its financial obligations and is
in compliance with all requirements of its mortgage and loan agreement
with RUS;

\(2\) In RUS\'s judgment, granting a lien accommodation or subordination
for the proposed loan will not adversely affect the repayment and
security of outstanding debt of the borrower owed to or guaranteed by
RUS;

\(3\) The borrower has achieved the TIER and DSC and any other coverage
ratios required by its mortgage or loan contract in each of the two most
recent calendar years; and

\(4\) The amount of the proposed loan does not exceed the lesser of \$10
million or 10 percent of the borrower\'s current net utility plant;

\(d\) \[Reserved\]

\(e\) As applicable to the type of facilities being financed, a CWP,
related engineering and cost studies, a power cost study, and a
resolution of the borrower\'s board of directors adopting these
documents. These documents must meet the requirements of 7 CFR part
1710, subpart F and, as applicable, subpart G;

\(f\) Unless the requirement has been waived in writing by RUS, a
current, RUS-approved power requirements study, which must meet the
requirements of 7 CFR part 1710, subpart E, to the same extent as if the
loan were being made by RUS, and a resolution of the borrower\'s board
of directors adopting the study; and

\(g\) A discussion of the borrower\'s compliance with RUS requirements
on accounting, financial reporting, record keeping, and irregularities
(see \_1717.854(c)(5)). RUS will review the case and determine the
effect of any noncompliance on the feasibility and security of RUS\'s
loans, and whether the requested lien accommodation or subordination can
be approved.

\[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 3735, Jan. 19, 1995;
60 FR 67410, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67410, Dec. 29, 1995, \_1717.856 was
amended by revising the section heading, the introductory text, the
introductory text of paragraph (a), and paragraph (c)(3), effective
January 29, 1996. For the convenience of the reader, the superseded text
is set forth below.

\_1717.856 Application contents: Normal review \-- 100 percent private
financing of distribution, transmission and/or generation facilities.

Applications for a lien accommodation or subordination for 100 percent
financing of distribution, transmission, and/or generation facilities
(including other eligible electric utility purposes) that do not meet
the requirements of \_1717.854, must include the following information
and documents:

\(a\) The certification regarding safety and performance standards
required by \_1717.850(f) (if the financing is for distribution or
transmission facilities), combined with a certification by an authorized
official of the borrower that:

\* \* \* \* \*

\(c\) \* \* \*

\(3\) The borrower has achieved the TIER and DSC levels required by its
mortgage in each of the two most recent calendar years; and

\* \* \* \* \*

\_1717.857 Refinancing of existing secured debt \-- distribution and
power supply borrowers.

\(a\) Advance approval. All applications for a lien accommodation or
subordination for the refinancing of existing secured debt that meet the
qualification criteria of this paragraph, except applications from
borrowers in default under their mortgage or loan contract with RUS, are
eligible for advance approval. Such lien accommodations and
subordinations are deemed to be in the Government\'s interest, and RUS
will approve them once RUS is satisfied that the requirements of this
paragraph and paragraph (c) of this section have been met. The
qualification criteria are as follows:

\(1\) The refinancing is a current refunding and does not involve
interest rate swaps, forward delivery contracts, or similar features;

\(2\) The principal amount of the refinancing loan does not exceed the
sum of the outstanding principal amount of the debt being refinanced
plus the amount of transactions costs included in the refinancing loan
that are eligible for lien accommodation or subordination under
\_1717.852(a)(4);

\(3\) The weighted average life of the refinancing loan is not greater
than the weighted average remaining life of the loan being refinanced;
and

\(4\) The present value of the cost of the refinancing loan, including
all transaction costs and any required investments in the lender, is
less than the present value of the cost of the loan being refinanced, as
determined by a method acceptable to RUS. The discount rate used in the
present value analysis shall be equal to either:

\(i\) The current rate on Treasury securities having a maturity equal to
the weighted average life of the refunding loan, plus one-eighth
percent, or

\(ii\) A rate approved by RUS based on documentation provided by the
borrower as to its marginal long-term borrowing cost.

\(5\) The amount of outstanding debt having an effective variable
interest rate (set annually or more frequently), taking into
consideration the debt covered by the application for a lien
accommodation or subordination, does not exceed 15 percent of all
outstanding debt of the borrower.

\(b\) Other applications. Applications for a lien accommodation or
subordination for refinancing that do not meet the requirements of
paragraph (a) of this section will be reviewed by RUS under normal
review procedures for these applications. In the case of either advance
approval or normal review, a lien subordination would be authorized only
if the lien of the mortgage was subordinated with respect to the assets
securing the loan being refinanced.

\(c\) Application contents \-- advance approval of refinancing.
Applications for a lien accommodation or subordination for refinancing
of existing secured debt that meet the qualification criteria for
advance approval set forth in paragraph (a) of this section, must
include the following information and documents:

\(1\) A certification by an authorized official of the borrower that the
application meets the requirements of paragraph (a) of this section and
all applicable provisions of \_\_1717.852 and 1717.853;

\(2\) Documentation and analysis demonstrating that the application
meets the qualification criteria set forth in paragraph (a) of this
section;

\(3\) A resolution of the borrower\'s board of directors requesting the
lien accommodation or subordination and including the amount and
maturity of the proposed loan, a general description of the debt to be
refinanced, the name and address of the lender, and an attached term
sheet summarizing the terms and conditions of the proposed loan;

\(4\) The borrower\'s financial and statistical report, the data in
which shall not be more than 60 days old when the complete application
is received by RUS;

\(5\) Draft copy of any new mortgage or mortgage amendment (supplement)
required by RUS or the lender, unless RUS has notified the borrower that
it wishes to prepare these documents itself;

\(6\) A copy of the loan agreement, loan note, bond or other financing
instrument, unless RUS has notified the borrower that these documents
need not be submitted;

\(7\) Form AD-1047, Certification Regarding Debarment, Suspension, and
Other Responsibility Matters \-- Primary Covered Transactions, as
required by 7 CFR part 3017;

\(8\) A report by the borrower stating whether or not it is delinquent
on any Federal debt, and if delinquent, the amount and age of the
delinquency and the reasons therefor; and a certification, if not
previously provided, that the borrower has been informed of the
Government\'s collection options; and

\(9\) Other information, documents and opinions that RUS may require to
determine whether all of the applicable provisions of this subpart have
been met.

\(d\) Application contents \-- normal review of refinancing.
Applications for a lien accommodation or subordination for refinancing
of existing secured debt that do not meet the requirements for advance
approval set forth in paragraph (a) of this section, must include the
following information and documents:

\(1\) The information and documents set forth in paragraphs (c)(3)
through (9) of this section;

\(2\) A complete description of the refinancing loan and the outstanding
debt to be refinanced;

\(3\) An analysis comparing the refinancing loan with the loan being
refinanced as to the weighted average life and the net present value of
the costs of the two loans; and

\(4\) If the present value of the cost of the refinancing loan is
greater than the present value of the cost of the debt being refinanced,
financial forecasts for at least 5 years comparing the borrower\'s debt
service and other costs, revenues, margins, cash flows, TIER, and DSC,
with and without the proposed refinancing.

\(e\) Application process and timeframes. The application process and
timeframes for RUS review and action for refinancings are set forth in
\_1717.859(d).

\(f\) Prepayments of concurrent RUS insured loans. If the loan being
refinanced was made concurrently as supplemental financing required by
RUS in connection with an RUS insured loan, the refinancing will not be
considered a prepayment under the RUS mortgage, and no proportional
prepayment of the concurrent RUS insured loan will be required, provided
that the principal amount of the refinancing loan is not less than the
amount of loan principal being refinanced, and the weighted average life
of the refinancing loan is materially equal to the weighted average
remaining life of the loan being refinanced. The refinancing loan shall
be considered a concurrent loan.

\[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67410, Dec. 29, 1995, \_1717.857 was
amended by removing paragraph (a)(5), by adding \`\`and\'\' at the end
of paragraph (a)(3), and by removing \`\`;and\'\' at the end of
paragraph (a)(4)(ii), effective January 29, 1996.

\_1717.858 Lien subordination for rural development investments.

\(a\) Policy. RUS encourages borrowers to consider investing in
financially sound projects that are likely to have a positive effect on
economic development and employment in rural areas. In addition to the
guidance set forth in \_1717.651, RUS recommends that such investments
be made through a subsidiary of the borrower in order to clearly
separate the financial risks and the revenues and costs of the rural
development enterprise from those of the borrower\'s electric utility
business. This should reduce credit risks to the borrower\'s primary
business, and minimize the possibility of undisclosed cross
subsidization of the rural development enterprise by electric rate
payers.

\(b\) Lien subordination. RUS will consider subordinating or releasing
its lien on the stock held by a borrower in a subsidiary whose primary
business directly contributes to or supports economic development and
employment in rural areas, as defined in section 13 of the RE Act, when
requested by a lender to the subsidiary, other than the borrower. To be
eligible for said lien subordination or release:

\(1\) The borrower must be current on all of its financial obligations
and be in compliance with all provisions of its mortgage and loan
agreement with RUS; and

\(2\) In the judgment of RUS, the borrower must be able to repay all of
its outstanding debt, and the security forall outstanding loans made to
the borrower by RUS, including loans guaranteed by RUS, must be
adequate, after taking into account the proposed subordination or
release of lien.

\(c\) Application contents. Applications for a lien subordination or
release of lien for rural development investments must include the
following information and documents:

\(1\) A resolution of the borrower\'s board of directors requesting the
lien subordination or release of lien;

\(2\) A certification by an authorized official of the borrower that the
borrower is current on all of its financial obligations and is in
compliance with all provisions of its mortgage and loan agreement with
RUS;

\(3\) A description of the facilities or other purposes to be financed
and the projected effects on economic development and employment in
rural areas;

\(4\) The borrower\'s financial and statistical report, the data in
which shall not be more than 60 days old when the complete application
is received by RUS;

\(5\) If requested by RUS, a long-range financial forecast providing
financial projections for at least 10 years, in form and substance
satisfactory to RUS, which demonstrates that the borrower\'s system is
economically viable and that the borrower will be able to repay all of
its outstanding debt and meet all other financial obligations;

\(6\) A discussion of the borrower\'s compliance with RUS requirements
on accounting, financial reporting, record keeping, and irregularities
(see \_1717.854(c)(5)). RUS will review the case and determine the
effect of any noncompliance on the feasibility and security of RUS\'s
loans, and whether the requested lien subordination or release of lien
can be approved;

\(7\) If any buildings are to be constructed with the proceeds of the
loan to be made to the subsidiary:

\(i\) A certification by the project architect that the buildings will
be designed and constructed in compliance with Section 504 of the
Rehabilitation Act of 1973 as amended (29 U.S.C. 794), as applicable
under that Act, and that the facilities will be readily accessible to
and usable by persons with handicaps in accordance with the Uniform
Federal Accessibility Standards; and

\(ii\) A written acknowledgement from a registered engineer or architect
regarding compliance with seismic provisions of applicable model codes,
as required by 7 CFR 1792.104;

\(8\) A certification by an authorized official of the borrower that
flood hazard insurance will be obtained for the full value of any
buildings, or other facilities susceptible to damage if flooded, that
will be located in a flood hazard area;

\(9\) Form AD-1047, Certification Regarding Debarment, Suspension, and
Other Responsibility Matters \-- Primary Covered Transactions, as
required by 7 CFR part 3017;

\(10\) A report by the borrower stating whether or not it is delinquent
on any Federal debt, and if delinquent, the amount and age of the
delinquency and the reasons therefor; and a certification, if not
previously provided, that the borrower has been informed of the
Government\'s collection options; and

\(11\) Other information that RUS may require to determine whether all
of the applicable provisions of this subpart have been met.

\_1717.859 Application process and timeframes.

\(a\) General. (1) Borrowers are responsible for ensuring that their
applications for a lien accommodation or subordination are complete and
sound as to substance and form before they are submitted to RUS. RUS
will not accept any application that, on its face, is incomplete or
inadequate as to the substantive information required by this subpart.
RUS will notify borrowers in writing when their applications are
complete and in form and substance satisfactory to RUS. A copy of all
notifications of borrowers cited in this section will also be sent to
the private lender.

\(2\) It is recommended that borrowers consult with RUS staff before
submitting their applications to determine whether they will likely
qualify for advance approval or normal review, and to obtain answers to
any questions about the information and documents required for the
application.

\(3\) A borrower shall, after submitting an application, promptly notify
RUS of any changes that materially affect the information contained in
its application.

\(4\) After submitting an application and having been notified by RUS of
additional information and documents and other changes needed to
complete the application, if the required information and documents are
not supplied to RUS within 30 calendar days of the borrower\'s receipt
of the notice, RUS may return the application to the borrower. The
borrower may resubmit the application when the required additional
information and documents are available.

\(5\) Timeframes. The timeframes for review of applications set forth in
this section are based on the following conditions:

\(i\) The types of lien accommodations or subordinations requested are
of the \`\`standard\'\' types that RUS has approved previously, i.e.,
the so-called Type I, II and III lien accommodations. Future revisions
of the RUS mortgage may result in other \`\`standard\'\' types of lien
accommodations and lien subordinations acceptable to RUS. Requests for
lien accommodations or subordinations that are substantially different
than the \`\`standard\'\' types previously approved by RUS may require
additional time for review and action;

\(ii\) The requested lien accommodation or subordination does not
require the preparation of an environmental assessment or an
Environmental Impact Statement. Preparation of these documents often
will require additional time beyond the timeframes cited in this
section; and

\(iii\) The timeframes set forth in this section, except for paragraph
(b)(4) of this section, which deals only with approval of a new mortgage
or mortgage amendment, include RUS review and/or approval of a loan
contract, if required as part of the application, and required
supporting documents, such as a CWP.

\(b\) Advance approval \-- 100 percent private financing of
distribution, subtransmission, and headquarters facilities. (1)
Applications that qualify under \_1717.854 for advance approval of a
lien accommodation or subordination for 100 percent private financing of
distribution, subtransmission, and headquarters facilities are submitted
to the general field representative (GFR). The GFR will work with the
borrower to ensure that all components of the application are assembled.
Once the application is satisfactory to the GFR, it will be sent
promptly to the Washington office for further review and action. If a
new mortgage or mortgage amendment is required, a draft of these
documents must be included in the application, unless the borrower has
been notified that RUS wishes to prepare the documents itself.

\(2\) If no additional or amended information is needed for RUS to
complete its review of the application once it is received in the
Washington Office, RUS will, within 45 calendar days of receiving the
application in the Washington Office, either:

\(i\) Approve the lien accommodation or subordination if the borrower
has demonstrated satisfactorily to RUS that all requirements of this
subpart applicable to advance approval have been met, and send written
notice to the borrower. RUS\'s approval, in this case and all other
cases, will be conditioned upon execution and delivery by the borrower
of a satisfactory security instrument, if required, and such additional
information, documents, and opinions of counsel as RUS may require;

\(ii\) If all requirements have not been met, so notify the borrower in
writing. The application will be returned to the borrower unless the
borrower requests that it be reconsidered under the requirements and
procedures for normal review set forth in paragraph (c) of this section
and in \_1717.856; or

\(iii\) Send written notice to the borrower explaining why a decision
cannot be made at that time and giving the estimated date when a
decision is expected.

\(3\) If additional or amended information is needed after the
application is received in the Washington Office, RUS will so notify the
borrower in writing within 15 calendar days of receiving the application
in the Washington Office. If RUS subsequently becomes aware of other
deficiencies in the application, additional written notice will be sent
to the borrower. Within 30 calendar days of receiving all of the
information required by RUS to complete its review, RUS will act on the
application as described in paragraphs (b)(2)(i) through (b)(2)(iii) of
this section.

\(4\) If a new mortgage or mortgage amendment is required, within 30
days of receiving such documents satisfactory to RUS, including required
execution counterparts, RUS will execute the documents and send them to
the borrower, along with instructions pertaining to recording of the
mortgage, an opinion of borrower\'s counsel, and other matters. RUS will
promptly notify the borrower upon receiving satisfactory evidence that
the borrower has complied with said instructions.

\(c\) Normal review \-- 100 percent private financing of distribution,
transmission, and/or generation facilities \-- (1) Distribution
borrowers. (i) Applications from distribution borrowers for a lien
accommodation or subordination for 100 percent private financing of
distribution, transmission, and/or generation facilities (including
other eligible electric utility purposes) that do not meet the criteria
for advance approval, are also submitted to the GFR. Procedures at this
stage are the same as in paragraph (b)(1) of this section.

\(ii\) If no additional or amended information is needed for RUS to
complete its review of the application once it is received in the
Washington office, RUS will, within 90 calendar days of receiving the
application in the Washington office, send written notice to the
borrower either approving the request, disapproving the request, or
explaining why a decision cannot be made at that time and giving the
estimated date when a decision is expected.

\(iii\) If additional or amended information is needed after the
application is received in the Washington Office, RUS will so notify the
borrower in writing within 15 calendar days of receiving the application
in the Washington Office. If RUS subsequently becomes aware of other
deficiencies in the application, additional written notice will be sent
to the borrower. Within 90 calendar days of receiving all of the
information required by RUS to complete its review, RUS will act on the
application as described in paragraph (c)(1)(ii) of this section.

\(iv\) If a new mortgage or mortgage amendment is required, the
procedures and timeframes of paragraph (b)(4) of this section will
apply.

\(2\) Power supply borrowers. (i) Applications from power supply
borrowers for a lien accommodation or subordination for 100 percent
private financing of distribution, transmission, and/or generation
facilities, and other eligible electric utility purposes, are submitted
to the RUS Power Supply Division, or its successor, in Washington, DC.

\(ii\) Within 30 calendar days of receiving the borrower\'s application
containing the information and documents required by \_1717.856, RUS
will send written notice to the borrower of any deficiencies in its
application as to completeness and acceptable form and substance.
Additional written notices may be sent to the borrower if RUS
subsequently becomes aware of other deficiencies in the borrower\'s
application.

\(iii\) Within 90 calendar days of receiving all of the information
required by RUS to complete its review, RUS will act on the application
as described in paragraph (c)(1)(ii) of this section.

\(iv\) If a new mortgage or mortgage amendment is required, these
documents will be reviewed and executed pursuant to the procedures and
timeframes of paragraph (b)(4) of this section.

\(d\) Refinancing of existing debt. All requests for a lien
accommodation or subordination for refinancing are sent directly to the
Washington office.

\(1\) Advance approval. (i) Within 15 calendar days of receiving the
borrower\'s application containing the information and documents
required by \_1717.857(c), RUS will send written notice to the borrower
of any deficiencies in its application as to completeness and acceptable
form and substance. Additional written notices may be sent to the
borrower if RUS subsequently becomes aware of other deficiencies in the
borrower\'s application.

\(ii\) Within 15 calendar days of receiving all of the required
information and documents, in form and substance satisfactory to RUS,
RUS will either:

\(A\) Approve the lien accommodation or subordination if the borrower
has demonstrated satisfactorily to RUS that all requirements of
\_1717.857(a) and (c) have been met, and send written notice to the
borrower;

\(B\) If all requirements have not been met, so notify the borrower in
writing. The application will be returned to the borrower unless the
borrower requests that it be reconsidered under the requirements and
procedures for normal review set forth in paragraph (d)(2) of this
section and in \_1717.857; or

\(C\) Send written notice to the borrower explaining why a decision
cannot be made at that time and giving the estimated date when a
decision is expected.

\(iii\) If a new mortgage or mortgage amendment is required, these
documents will be reviewed and executed pursuant to the procedures and
timeframes of paragraph (b)(4) of this section.

\(2\) Normal review. (i) Within 20 calendar days of receiving the
borrower\'s application containing the information and documents
required by \_1717.857(d), RUS will send written notice to the borrower
of any deficiencies in its application as to completeness and acceptable
form and substance. Additional written notices may be sent to the
borrower if RUS subsequently becomes aware of other deficiencies in the
borrower\'s application.

\(ii\) Within 30 calendar days of receiving all of the required
information and documents, in form and substance satisfactory to RUS,
RUS will notify the borrower in writing either approving the request,
disapproving the request, or explaining why a decision cannot be made at
that time and giving the estimated date when a decision is expected. If
the proposed refinancing involves complicated transactions such as
interest rate swaps or forward delivery contracts, additional time may
be required for RUS review and final action.

\(iii\) If a new mortgage or mortgage amendment is required, these
documents will be reviewed and executed pursuant to the procedures and
timeframes of paragraph (b)(4) of this section.

\(e\) Rural development investments. (1) Applications for a lien
subordination for rural development investments are submitted by
distribution borrowers to the GFR and by power supply borrowers to the
RUS Power Supply Division, or its successor, in Washington, DC.

\(2\) The GFR will work with the borrower to ensure that all components
of the application are assembled. Once the application is satisfactory
to the GFR, it will be sent promptly to the Washington Office for
further review and action. After the application is received in the
Washington Office, if additional or amended information is needed for
RUS to complete its review, RUS will so notify the borrower in writing
within 15 calendar days of receiving the application.

\(3\) Applications from power supply borrowers containing the
information and documents required by \_1717.858(c) will be reviewed in
the Washington office and the borrower given written notice within 30
calendar days of receiving the application of any deficiencies as to
completeness and acceptable form and substance. Additional written
notices may be sent to the borrower if RUS subsequently becomes aware of
other deficiencies in the borrower\'s application.

\(4\) Within 60 calendar days of receiving in the Washington office all
of the required information and documents, in form and substance
satisfactory to RUS, RUS will give written notice to the borrower either
approving the request, disapproving the request, or explaining why a
decision cannot be made at that time and giving the estimated date when
a decision is expected.

\(5\) If a new mortgage or mortgage amendment is required, these
documents will be reviewed and executed pursuant to the procedures and
timeframes of paragraph (b)(4) of this section.

\_1717.860 Lien accommodations and subordinations under section 306E of
the RE Act.

\(a\) General. Under section 306E of the RE Act, when requested by a
private lender providing financing for capital investments by a borrower
whose net worth exceeds 110 percent of the outstanding principal balance
of all loans made or guaranteed to the borrower by RUS, the
Administrator will, without delay, offer to share the government\'s lien
on the borrower\'s system or subordinate the government\'s lien on the
property financed by the private lender, provided that the security,
including the assurance of repayment, for loans made or guaranteed by
RUS will remain reasonably adequate. To qualify for a lien accommodation
or subordination under this section, the investment must be an original
capital investment, i.e., not a refinancing or refunding. (See
\_1717.851 for the definition of capital investment.)

\(b\) Determination of net worth to RUS debt ratio. (1) In the case of
applications for a lien accommodation, a borrower\'s net worth will be
based on the borrower\'s most recent financial and statistical report,
the data in which shall not be more than 60 days old at the time the
application is received by RUS, and the outstanding debt owed to or
guaranteed by RUS will be based on latest RUS records available. The
financial and statistical reports (Form 7 for distribution borrowers and
Form 12a for power supply borrowers) are subject to RUS review and
revision, and they must comply with RUS\'s system of accounts and
accounting principles set forth in 7 CFR part 1767. Since sinking fund
depreciation is not approved under part 1767, net worth for borrowers
using sinking fund depreciation will be calculated as if the borrower
had been using straight line depreciation.

\(2\) Net worth shall be calculated by taking total margins and equities
(Line 33 of Part C of RUS Form 7 for distribution borrowers, or Line 34
of Section B of RUS Form 12a for power supply borrowers) and subtracting
assets properly recordable in account 182.2, Unrecovered Plant and
Regulatory Study Costs, and account 182.3, Other Regulatory Assets, as
defined in 7 CFR part 1767.

\(c\) Application requirements and process. (1) If a borrower\'s net
worth to RUS debt ratio exceeds 110 percent, as determined by RUS, and
the borrower is in compliance with all requirements of its mortgage,
loan agreement with RUS, and any other agreement with RUS that have not
been exempted in writing by RUS, if requested RUS will expeditiously
approve a lien accommodation or subordination for 100 percent private
financing of capital investments, provided that the security, including
the assurance of repayment, for loans made or guaranteed by RUS will
remain reasonably adequate. RUS\'s approval will be conditioned upon
execution and delivery by the borrower of a security instrument
satisfactory to RUS, if required, and such additional information,
documents, and opinions of counsel as RUS may require.

\(2\) The application must include the following:

\(i\) A resolution of the borrower\'s board of directors requesting the
lien accommodation and including the amount and maturity of the proposed
loan, a general description of the facilities or other purposes to be
financed, the name and address of the lender, and an attached term sheet
summarizing the terms and conditions of the proposed loan;

\(ii\) A certification by an authorized official of the borrower that
the borrower is in compliance with all requirements of its mortgage,
loan agreement with RUS, and any other agreement with RUS that have not
been exempted in writing by RUS;

\(iii\) The borrower\'s financial and statistical report, the data in
which shall not be more than 60 days old when the complete application
is received by RUS;

\(iv\) Draft copy of any new mortgage or mortgage amendment (supplement)
required by RUS or the lender, unless RUS has notified the borrower that
it wishes to prepare these documents itself;

\(v\) A copy of the loan agreement, loan note, bond or other financing
instrument, unless RUS has notified the borrower that these documents
need not be submitted. These documents will not be subject to RUS
approval, but may be reviewed to determine whether they contain any
provisions that would result in the security, including assurance of
repayment, for loans made or guaranteed by RUS no longer being
reasonably adequate;

\(vi\) The following certifications and reports required by law:

\(A\) The certification by the project architect for any buildings to be
constructed, as required by 7 CFR 1717.850(i);

\(B\) A certification by an authorized official of the borrower that
flood hazard insurance will be obtained for the full value of any
buildings, or other facilities susceptible to damage if flooded, that
will be located in a flood hazard area;

\(C\) Form AD - 1047, Certification Regarding Debarment, Suspension, and
Other Responsibility Matters \-- Primary Covered Transactions, as
required by 7 CFR part 3017;

\(D\) A report by the borrower stating whether or not it is delinquent
on any Federal debt, and if delinquent, the amount and age of the
delinquency and the reasons therefor; and a certification, if not
previously provided, that the borrower has been informed of the
Government\'s collection options; and

\(E\) The written acknowledgement from a registered engineer or
architect regarding compliance with seismic provisions of applicable
model codes for any buildings to be constructed, as required by 7 CFR
1792.104. All other elements of an application listed in \_1717.855,
\_1717.856, and \_1717.858(c) not listed in this paragraph (c) are
exempted.

\(3\) Applications from distribution borrowers are submitted to the
general field representative (GFR), while applications from power supply
borrowers are submitted to the RUS Power Supply Division, or its
successor, in Washington, DC. When an application is satisfactory to the
GFR, it will be sent promptly to the Washington office. If Washington
office staff determine that an application is incomplete, the borrower
will be promptly notified in writing about the deficiencies. When the
application is complete, and if the security, including assurance of
repayment, of loans made or guaranteed by RUS will remain reasonably
adequate after granting the lien accommodation or subordination, the
borrower and the lender will be promptly notified in writing that the
lien accommodation or subornation has been approved, subject to the
conditions cited in paragraph (c)(1) of this section.

\(d\) Rural development and other non-electric utility investments.
Although RUS recommends the use of separate subsidiaries as set forth in
\_1717.858, if requested by a borrower that meets the 110 percent equity
test and all other applicable requirements of this section, RUS will
provide a lien subordination on the specific assets financed in the case
of loans made directly to the borrower for rural development and other
non-electric utility purposes, provided that the outstanding balance of
all such loans lien subordinated under this paragraph (d), after taking
into consideration the effect of the new loan, does not exceed 15
percent of the borrower\'s net worth and the security, including
assurance of repayment, of loans made or guaranteed by RUS will remain
reasonably adequate after granting the lien subordination. Investments
lien subordinated under this paragraph shall be included among those
investments subject to the 15 percent of total utility plant limitation
set forth in 7 CFR 1717.654(b)(1), and granting of the lien
subordination will not constitute approval of the investment under 7 CFR
part 1717, subpart N.

\(e\) Requirements and controls not exempted. All requirements and
limitations imposed with respect to lien accommodations and
subordinations by this subpart R that are not specifically exempted by
this section are not exempted and shall continue to apply according to
their terms.

\[59 FR 3986, Jan. 28, 1994, as amended at 60 FR 3735, Jan. 19, 1995; 60
FR 67410, Dec. 29, 1995\]

Effective Date Note: At 60 FR 67410, Dec. 29, 1995, \_1717.860 was
amended by redesignating paragraph (f) as paragraph (e), effective
January 29, 1996.

\_1717.861 \-- 1717.899 \[Reserved\]\_

Subpart S \-- Lien Accommodations for Supplemental Financing Required by
7 CFR 1710.110

Source: 58 FR 53851, Oct. 19, 1993, unless otherwise noted.

\_1717.900 Qualification requirements.

Applications for a lien accommodation for supplemental financing
required by 7 CFR 1710.110 must meet the same requirements as an RUS
insured loan. The justification and documentation materials submitted as
part of the borrower\'s application for an insured loan also serve as
the justification and documentation of the request for a lien
accommodation for the required supplemental loan. Unless early approval
under \_1717.901 is requested by a borrower, these applications will be
processed during the same time as RUS\'s review of the borrower\'s
application for the concurrent insured loan.

\_1717.901 Early approval.

\(a\) Conditions. If requested by a borrower in writing, RUS will review
the application for a lien accommodation for required supplemental
financing early in the process, before funding is available for the
concurrent RUS insured loan, and approve the lien accommodation if the
following conditions are met:

\(1\) The required supplemental loan meets the requirements for an
insured loan, as set forth in 7 CFR part 1710, subparts A through G, and
other RUS regulations pertaining to required supplemental loans;

\(2\) The borrower has demonstrated the ability to obtain the funds that
would be needed to complete other portions of the project, if the
portion to be constructed with private loan funds could not be used
productively without completion of such other portions, in the event
concurrent RUS insured loan funds are not forthcoming. Such evidence may
include financial records demonstrating the availability of general
funds, and/or a written commitment from the private lender to provide a
loan for the remaining amount of financing required, with such
commitment being conditioned upon the availability of a lien
accommodation from RUS; and

\(3\) An authorized official of the borrower has requested early
approval of the lien accommodation and explained the reasons therefor,
and has certified that the funds are needed and will be drawn down
before funds from the concurrent insured loan are expected to be
available, assuming that the insured loan is approved.

\(b\) Timeframe for RUS action. (1) RUS will either approve or
disapprove the lien accommodation within 90 days of receiving the
borrower\'s request for early approval and the complete application for
the concurrent RUS loan and required supplemental financing, in form and
substance satisfactory to RUS, or notify the borrower in writing of the
estimated date when a decision is expected. If an environmental
assessment or an Environmental Impact Statement is required, additional
time beyond the 90 days may be required to prepare these documents.
RUS\'s approval of the lien accommodation will be conditioned upon
execution and delivery by the borrower of a satisfactory security
instrument, if required, and such additional information, documents, and
opinions of counsel as RUS may require.

\(2\) If a mortgage or mortgage amendment is required, RUS will consult
with the other mortgagees as to who will prepare the documents. Within
30 days of obtaining the documents satisfactory to RUS, including
required execution counterparts, RUS will execute the documents and send
them to the borrower, along with instructions pertaining to recording of
the mortgage, an opinion of borrower\'s counsel, and other matters. RUS
will promptly notify the borrower upon receiving satisfactory evidence
that the borrower has complied with said instructions.

\(c\) Approval of concurrent insured loan. Early approval of a lien
accommodation for a required supplemental loan does not ensure that the
concurrent RUS insured loan will be approved. The request for the
concurrent insured loan will be reviewed when funds are available to
make the loan. The borrower may be requested to update certain
supporting information in the loan application if substantial time has
elapsed since the lien accommodation or subordination was approved.

\_1717.902 Other RUS requirements.

Supplemental loans required by 7 CFR 1710.110 are subject to the same
post-loan requirements as insured RUS loans regarding accepted
materials, construction standards, contracting and procurement
procedures, standard forms of contracts, RUS approval of the advance of
loan funds, and other matters.

\_1717.903 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 lien accommodations or lien
subordinations, 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.

\_1717.904 Exemptions pursuant to section 306E of the RE Act.

\(a\) General policy. If a borrower\'s net worth to RUS debt ratio
exceeds 110 percent, as determined by RUS, and the borrower is in
compliance with all requirements of its mortgage, loan agreement with
RUS, and any other agreement with RUS that have not been exempted in
writing by RUS, RUS will expeditiously approve a lien accommodation for
a concurrent supplemental loan if requested in writing by the borrower,
provided that the security, including assurance of repayment, of loans
made or guaranteed by RUS will remain reasonably adequate. RUS\'s
approval will be conditioned upon execution and delivery by the borrower
of a security instrument satisfactory to RUS, if required, and such
additional information, documents, and opinions of counsel as RUS may
require.

\(b\) Determination of net worth to RUS debt ratio. A borrower\'s ratio
of net worth to RUS debt will be determined as set forth in
\_1717.860(b).

\(c\) Requirements and controls exempted. The applicable requirements
and controls exempted by 7 CFR 1710.7(c) are also exempted with respect
to concurrent supplemental loans.

\(d\) Requirements and controls not exempted. All requirements and
controls applicable to concurrent supplemental financing set forth in
this subpart and other RUS regulations that are not specifically
exempted by 7 CFR 1710.7(c) are not exempted and shall continue to apply
according to their terms. These include, but are not limited to:

\(1\) The applicable requirements listed in 7 CFR 1710.7(d); and

\(2\) The requirements set forth in \_1717.901(a) when a borrower
requests early approval of a lien accommodation.

\(e\) Procedures. If a borrower meets the requirements of this section,
upon receipt of a complete application RUS will promptly notify the
borrower and lender in writing that the lien accommodation has been
approved subject to the conditions set forth in paragraph (a) of this
section.

\[59 FR 3987, Jan. 28, 1994\]

\_1717.905 \-- 1717.949 \[Reserved\]\_