Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 63045

subsequent marketing year, but must be 

made available to the handlers from 

whom collected within 5 months after 

the end of the year according to 

§ 984.69. 

A review of historical information and 

preliminary information pertaining to 

the current marketing year indicates that 

the grower price for 2004–05 could 

range between $0.50 and $0.70 per 

kernelweight pound of assessable 

walnuts. Therefore, the estimated 

assessment revenue for the 2004–05 

marketing year as a percentage of total 

grower revenue could range between 1.3 

and 1.9 percent. 

This action decreases the assessment 

obligation imposed on handlers. 

Assessments are applied uniformly on 

all handlers, and some of the costs may 

be passed on to producers. However, 

decreasing the assessment rate reduces 

the burden on handlers, and may reduce 

the burden on producers. In addition, 

the Board’s meeting was widely 

publicized throughout the walnut 

industry and all interested persons were 

invited to attend the meeting and 

participate in Board deliberations on all 

issues. Like all Board meetings, the 

September 10, 2004, meeting was a 

public meeting and all entities, both 

large and small, were able to express 

views on this issue. Finally, interested 

persons are invited to submit 

information on the regulatory and 

informational impacts of this action on 

small businesses. 

This action imposes no additional 

reporting or recordkeeping requirements 

on either small or large California 

walnut handlers. As with all Federal 

marketing order programs, reports and 

forms are periodically reviewed to 

reduce information requirements and 

duplication by industry and public 

sector agencies. 

USDA has not identified any relevant 

Federal rules that duplicate, overlap, or 

conflict with this rule. 

A small business guide on complying 

with fruit, vegetable, and specialty crop 

marketing agreements and orders may 

be viewed at: http://www.ams.usda.gov/

fv/moab.html. Any questions about the 

compliance guide should be sent to Jay 

Guerber at the previously mentioned 

address in the FOR FURTHER INFORMATION

CONTACT section. 

After consideration of all relevant 

material presented, including the 

information and recommendation 

submitted by the Board and other 

available information, it is hereby found 

that this rule, as hereinafter set forth, 

will tend to effectuate the declared 

policy of the Act. 

Pursuant to 5 U.S.C. 553, it is also 

found and determined upon good cause 

that it is impracticable, unnecessary, 

and contrary to the public interest to 

give preliminary notice prior to putting 

this rule into effect, and that good cause 

exists for not postponing the effective 

date of this rule until 30 days after 

publication in the Federal Register

because: (1) The 2004–05 marketing 

year began on August 1, 2004, and the 

order requires that the rate of 

assessment for each marketing year 

apply to all merchantable walnuts 

handled during the year; (2) this action 

decreases the assessment rate for 

merchantable California walnuts; (3) 

handlers are aware of this action which 

was unanimously recommended by the 

Board at a public meeting and is similar 

to other assessment rate actions issued 

in past years; and (4) this interim final 

rule provides a 60-day comment period, 

and all comments timely received will 

be considered prior to finalization of 

this rule.

List of Subjects in 7 CFR Part 984

Walnuts, Marketing agreements, Nuts, 

Reporting and recordkeeping 

requirements.

■ For the reasons set forth in the 

preamble, 7 CFR part 984 is amended as 

follows:

PART 984—WALNUTS GROWN IN 

CALIFORNIA

■ 1. The authority citation for 7 CFR part 

984 continues to read as follows:

Authority: 7 U.S.C. 601–674.

■ 2. Section 984.347 is revised to read as 

follows:

§ 984.347 Assessment rate. 

On and after August 1, 2004, an 

assessment rate of $0.0094 per 

kernelweight pound is established for 

California merchantable walnuts.

Dated: October 22, 2004. 

A.J. Yates, 

Administrator, Agricultural Marketing 

Service.

[FR Doc. 04–24160 Filed 10–28–04; 8:45 am] 

BILLING CODE 3410–02–P

DEPARTMENT OF AGRICULTURE

Rural Utilities Service 

7 CFR Part 1720

RIN 0572–AB83

Guarantees for Bonds and Notes 

Issued for Electrification or Telephone 

Purposes

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

SUMMARY: This rule establishes 

procedures for a guarantee program for 

cooperatives and other not-for-profit 

lenders that make loans eligible for 

assistance under the Rural 

Electrification Act of 1936 (the RE Act). 

Criteria for eligibility of lenders and 

transactions are set forth in the rule 

together with application procedures. 

Program participants are required to pay 

an annual fee for the guarantee. The fee 

will be credited to the Rural 

Development Subaccount to provide 

funds for zero-interest loans and grants 

pursuant to section 313 of the RE Act. 

The Farm Security and Rural 

Investment Act of 2002 (Pub. L. 107–

171), amended the RE Act, by adding 

section 313A which establishes this 

program. In addition to providing funds 

to enhance rural development, this 

program will contribute to improving 

the technology and reliability of our 

rural electric transmission and 

distribution system.

DATES: This rule will become effective 

November 29, 2004.

FOR FURTHER INFORMATION CONTACT:

Doris Nolte, Chief, Policy Analysis and 

Loan Management Staff, Electric 

Program, Rural Utilities Service, U.S. 

Department of Agriculture, 1400 

Independence Avenue, SW., STOP 

1560, Room 5155, Washington, DC 

20250–1560. Telephone: (202) 720–

0424. Fax: (202) 690–0717. E-mail: 

Doris.Nolte@usda.gov.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

This rule has been determined to be 

significant for purposes of Executive 

Order 12866 and, therefore, has been 

reviewed by the Office of Management 

and Budget (OMB). 

Executive Order 12988

This rule has been reviewed under 

Executive Order 12988, Civil Justice 

Reform. RUS has determined that this 

rule meets the applicable standards 

provided in section 3 of that Executive 

Order. In addition, all State and local 

laws and regulations that are in conflict 

with this rule will be preempted. No 

retroactive effect will be given to the 

rule and, in accordance with section 

212(e) of the Department of Agriculture 

Reorganization Act of 1994 (7 U.S.C. 

6912(e)), administrative appeal 

procedures must be exhausted before an 

action against the Department or its 

agencies may be initiated. 

Regulatory Flexibility Act Certification 

In accordance with the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.), the 

Administrator of RUS certifies that this 

63046 Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 

rule will not have significant impact on 

a substantial number of small entities. 

No small entities meet the statutory 

criteria for participation in the program 

that is the subject of this rulemaking. 

Executive Order 13132

This regulation will not have 

substantial direct effects on the States, 

on the relationship between the national 

government and the States, or on 

distribution of power and 

responsibilities among the various 

levels of government. Under Executive 

Order 13132, this rule does not have 

sufficient federalism implications to 

require preparation of a Federalism 

Assessment. 

Information Collection and 

Recordkeeping Requirements 

Under the Paperwork Reduction Act 

(44 U.S.C. 3501 et seq.) (the ‘‘Act’’), 

OMB must approve all ‘‘collection of 

information’’ as a requirement for 

‘‘answers to * * * identical reporting or 

recordkeeping requirements imposed on 

ten or more persons * * *.’’ (44 U.S.C. 

3502(3)(A).) RUS has concluded that the 

reporting requirements contained in this 

rule will involve less than 10 persons 

and do not require approval under the 

provisions of the Act. 

Catalog of Federal Domestic Assistance 

The program described by this rule is 

listed in the Catalog of Federal Domestic 

Assistance Programs under No. 10.850, 

Rural Electrification Loans and Loan 

Guarantees. This catalog is available on 

a subscription basis from the 

Superintendent of Documents, the 

United States Government Printing 

Office, Washington, DC 20402. 

Telephone: (202) 512–1800. 

Executive Order 12372

This rule is excluded from the scope 

of Executive Order 12372, 

Intergovernmental Consultation, which 

may require consultation with State and 

local officials. See the final rule related 

notice entitled ‘‘Department Programs 

and Activities Excluded from Executive 

Order 12372,’’ (50 FR 47034). 

Unfunded Mandates 

This rule contains no Federal 

mandates (under the regulatory 

provision of title II of the Unfunded 

Mandates Reform Act of 1995) (Pub. L. 

104–4, 109—Stat. 48) for State, local, 

and tribal governments or the private 

sector. Thus, this rule is not subject to 

the requirements of sections 202 and 

205 of the Unfunded Mandates Reform 

Act of 1995. 

National Environmental Policy Act 

Certification 

RUS has determined that this rule 

will not significantly affect the quality 

of the human environment as defined by 

the National Environmental Policy Act 

of 1969 (42 U.S.C. 4321 et seq.) 

Therefore, this action does not require 

an environmental impact statement or 

assessment. 

Background 

On December 30, 2003, at 68 FR 

75153, the Rural Utilities Service (RUS) 

published a proposed rule, 7 CFR Part 

1720, Guarantees for Bonds and Notes 

issued for Electrification and Telephone 

Purposes. This proposed rule 

establishes the agency’s policies and 

procedures for granting guarantees to 

eligible cooperatives and other not-forprofit lenders that make loans eligible 

for assistance under the Rural 

Electrification Act of 1936 (the RE Act). 

The Farm Security and Rural 

Investment Act of 2002 (Pub. L. 107–

171), amended the RE Act, by adding 

section 313A which establishes this 

program. 

A total of 231 letters were received 

commenting on the proposed rule. Two 

hundred and eighteen of these letters, 

which were received from electric 

cooperatives, electric cooperative 

associations, rural development 

organizations, and local governments, 

all requested that the rule be altered in 

a way that assures funding to the Rural 

Economic Development Loan and Grant 

Fund (REDLF). Many of the comments 

included the identification of successful 

economic development projects that 

benefited from REDLG funds. The 

majority of the 218 letters identified 

specific aspects of the proposed rule 

that should be altered to make the 

program work. Seventy percent (70%) of 

the letters said the patronage capital 

limitations discriminate against the 

cooperative lenders and should be 

removed. Seventy percent (70%) also 

reported that the Federal Institutions 

Reform, Recovery and Enforcement Act 

(FIRREA) requirements, as presented in 

the proposed rule would make 

cooperative lenders ineligible for this 

program. Sixty-five percent (65%) 

requested that the 15-year bond term 

limit be changed to the useful life of the 

asset. This change in term would serve 

to maximize funding available to 

REDLG. Fifteen percent (15%) of the 

letters suggested that the approval 

process that includes Office of 

Management and Budget and Treasury, 

is complicated and inefficient and 10 

percent or less critized using a 

bankruptcy trust fund, collateral 

provisions, and the requirement that 

bonds must be issued by Federal 

Financing Bank (FFB) only. 

Thirteen letters were received that did 

not take the form of the others and 

either addressed the specific questions 

posed in the proposed rule or provided 

additional information for the 

development of the final rule.

In their comment letters, the U.S. 

Chamber of Commerce and Edison 

Electric Institute (EEI) state that Federal 

guarantees made to private unregulated 

organizations is unprecedented and bad 

government policy. Their position is 

that because of the legislative 

requirement to establish this program, 

RUS must also establish appropriate 

safeguards that minimize risk to 

American taxpayers. Four trade 

organizations also supported 

strengthening the rule requirements and 

characterized the program as providing 

an unfair advantage to cooperatives. 

This unfair advantage would be 

realized, they argue, through lower rates 

received in borrowing from an eligible 

lender that received a guarantee or by 

receiving REDLG funds and establishing 

economic development projects that 

attract new loads into a cooperative 

territory. The comments received from 

these groups also identified specific 

aspects of the proposed rule that they 

thought should be strengthened in order 

to minimize taxpayer risk. 

The National Rural Electric 

Cooperative Association (NRECA), 

National Rural Utilities Cooperative 

Finance Corporation (CFC), National 

Rural Telecommunications Cooperative, 

an electric cooperative association, and 

an electric cooperative all identified 

aspects of the proposed rule that they 

said did not comport to the Farm 

Security and Rural Investment Act of 

2002 (Pub. L. 107–171) (Farm Bill) 

legislation establishing this program. 

The comments claim that the proposed 

rule does not address the intent of the 

Congress, which was to create a new 

funding mechanism for the REDLG 

program. These comments addressed 

specific restrictions in the proposed rule 

and requested that they be removed 

because they were not consistent with 

the statute and prevent the lender with 

the largest volume of concurrent loans 

from participating in the program. 

The two general positions taken in the 

letters of comment received are (1) the 

program does not provide enough 

safeguards for the American taxpayer 

and the provisions in the proposed rule 

should be strengthened and (2) the 

intent of Congress is not carried out 

with the proposed rule and changes 

should be made to assure that the 

REDLG program is funded. 

Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 63047

CFC also provided an alternative 

approach to the restrictions included in 

the proposed rule. The alternative 

approach is to establish such safeguards 

as contemplated in the proposed rule to 

minimize taxpayer risk by establishing a 

trigger that would impose them only if 

the lender that qualifies and is granted 

a guarantee becomes ineligible (i.e., no 

longer meets the eligibility criteria 

established in the legislation). CFC 

proposed the trigger mechanism to be 

when the lender’s non-guaranteed debt 

falls below investment grade. At that 

point, limitations on retiring patronage 

capital, establishing capital adequacy 

tests, requiring a bankruptcy remote 

trust and/or collateral requirements 

would go into effect. 

Changes Made to the Final Rule 

A review of the limited legislative 

history that exists for this provision of 

the 2002 Farm Bill indicates that the 

intent of Congress was to establish an 

additional private funding mechanism 

for the Rural Economic Development 

Loan and Grant program. This flow of 

funds is the cost to qualified lenders for 

receiving a federal guarantee of bonds 

and notes according to the statutory 

criteria established in section 6101 of 

the Farm Bill. 

RUS also agrees that appropriate 

safeguards must be implemented to 

assure risk is minimized for the 

American taxpayers as this program 

establishes a new relationship between 

eligible lenders and the Federal 

government. Furthermore, Congress has 

established this program by amending 

the RE Act, and fully expects RUS to 

continue its prudent guarantee and 

lending practices. For these reasons, 

RUS will provide additional 

requirements of the lender beyond the 

provisions established in section 6101 

of the Farm Bill. Based upon the 

comments received and additional 

research into the requirements 

proposed, the final rule has been 

modified to maintain the safeguards 

envisioned in the proposed rule while 

establishing a program according to the 

provisions of section 6101 of the Farm 

Bill. 

The statute provides some criteria for 

establishing lender and guarantee 

eligibility. The statute, however, does 

not address requirements to ensure the 

security of a government guarantee, and 

there is no indication that RUS should 

not take prudent steps to address 

declining credit quality. For these 

reasons, RUS will establish 

requirements of the guaranteed lender to 

ensure the security of the government’s 

guarantee throughout the term of the 

guarantee. 

Patronage Capital limitations. The 

proposed rule requires that the 

guaranteed lender not issue cash 

patronage refunds in excess of five 

percent of the total patronage refund 

eligible. Additionally, stock issued as 

part of the patronage refund shall not be 

redeemable in cash during the term of 

the guarantee, and the lender is not 

allowed to issue dividends on any class 

of stock during the term of the 

guarantee. Comments were received in 

favor of this restriction and some 

recommended lowering the limitation to 

two percent of the total patronage 

refund eligible. Comments were also 

received reporting that this limitation 

was not contemplated by the statute, 

and there is no rationale provided for 

this restriction. Furthermore, it is 

pointed out that capping patronage 

distributions reduces the cash flow of 

any RUS borrower that is also a 

borrower of the guaranteed lender and 

this reduction in cash flow may result 

in an increase in RUS loan security risk. 

One hundred and forty eight comments 

were received reporting that 

cooperatives depend upon the patronage 

capital distributions to keep electric 

rates low and to further invest in rural 

communities. One comment received 

expressed a belief that this restriction is 

unnecessary as capital markets already 

require financial targets for earnings 

retention. 

RUS will maintain a patronage capital 

limitation when a guaranteed lender’s 

credit rating on its senior secured debt, 

without regard to the guarantee, falls 

below ‘‘A¥’’. Under such a scenario, 

the guaranteed lender will be required 

to limit the patronage capital refunds in 

excess of five percent of the patronage 

capital. RUS believes this requirement 

represents a sound approach to ensuring 

capital adequacy and in minimizing the 

risk of default. 

FIRREA. The proposed rule requires 

each applicant to submit a review and 

certification of the lender’s capital 

adequacy utilizing the capital adequacy 

standards of the Financial Institutions 

Reform, Recovery, and Enforcement Act 

of 1989 (FIRREA). The proposed rule 

also requires that during the term of the 

guarantee, a FIRREA review be 

conducted annually. Comments were 

received requesting that the full 

requirements of FIRREA be imposed. 

Other comments claim the FIRREA 

requirements as presented in the 

proposed rule make cooperative lenders 

ineligible based upon their financial 

structure. Cooperative lenders have 

forms of equity not recognized by the 

formulas utilized under FIRREA. One 

hundred and fifty comment letters were 

received expressing a concern that the 

FIRREA standards do not apply to the 

cooperative structure and that such a 

requirement would make cooperatives 

ineligible for the guarantee program. 

RUS agrees that the FIRREA 

requirement would limit participation 

in the guarantee program. Upon further 

review of the FIRREA requirements, and 

public comment, it has become clear 

that definitions of liabilities, capital, 

and risk-based assets under FIRREA do 

not match the financial structures and 

business model used by cooperative 

lenders and cannot directly apply. The 

majority of the savings institutions 

subject to the requirements of FIRREA 

do not have publicly traded debt 

outstanding, and have had no formal 

bond ratings assigned. Accordingly, the 

focus of the credit review for such 

entities is upon the regulatory 

accounting standards under which those 

lenders obtain deposit insurance.

The statutory requirements of this 

guarantee program rely upon credit 

evaluations by the rating agencies. Their 

ratings reflect the ability of the lender to 

meet its long-term payment obligations 

based upon the lender’s financial 

positions, managerial skills and other 

factors. RUS has considered alternative 

methods of establishing capital 

adequacy of a guaranteed lender under 

this program and has evaluated the 

benefits of establishing financial 

indicator ratio requirements to 

accomplish that goal. Based upon the 

comments received and further review, 

RUS will rely upon the credit rating 

agencies and the ongoing review of a 

lender’s financial position as required in 

other sections of the rule to evaluate 

adequacy and monitor the financial 

condition of the program participants. 

In addition, RUS will independently 

monitor publicly available information 

on a program participant as it becomes 

available. RUS will use this information 

to monitor and evaluate the adequacy of 

the financial condition of program 

participants. 

Bankruptcy Remote Trust. The 

proposed rule requires the lender, 

during the term of the guarantee, to 

establish a bankruptcy remote trust fund 

capitalized at five percent of the 

guaranteed amount outstanding. 

Comments received in favor of 

additional restrictions favor this 

requirement and a few suggested 

increasing the capitalized percentage. 

Comments were also received with 

claims that a lender whose securities are 

investment grade rated is already 

viewed by the capital markets as 

adequately capitalized, with sufficient 

reserves and capital market liquidity. 

Twenty-two comment letters were 

received reporting that this requirement 

63048 Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 

was not contemplated in the Farm Bill 

and should not be implemented. CFC 

asserts that in capital markets, 

bankruptcy-remote trusts are used in 

non-recourse financing and that all CFC 

bonds are not non-recourse—any 

investor in CFC has the right to make a 

claim against CFC as a corporation. 

Although a bankruptcy remote trust 

fund is a sound risk management tool in 

many situations, RUS believes that other 

requirements of this rule are sufficient 

to ensure the security of the government 

guarantee, and therefore this particular 

requirement has been removed. 

Collateral Requirements. The 

proposed rule requires the applicant to 

provide a description of the specific and 

identifiable loans comprising the 

collateral or other pledge securing the 

guaranteed bonds. While comments 

were received in support for this idea 

claiming that this would aid in 

minimizing taxpayer risk, other 

comments were received requesting that 

no such requirement be imposed as it is 

outside of the statutory criteria. CFC 

asserts that a collateral requirement is 

duplicative of the bankruptcy-remote 

trust requirement. 

RUS will maintain this requirement 

when the guaranteed lender’s credit 

rating on its senior secured debt, 

without regard to the guarantee, falls 

below ‘‘A¥’’. In such cases, collateral 

shall be in the form of specific and 

identifiable unpledged securities equal 

to 100% of the value of the guarantee. 

This requirement is viewed as an 

important safeguard for protecting 

against a call on the Federal guarantee 

when the lender’s creditworthiness has 

declined. 

15-year bond term. The proposed rule 

requires a final maturity of guaranteed 

bonds not to exceed 15 years. Some 

comment letters received claim this 

restriction will aid in minimizing 

taxpayer risk. Other comments urged 

RUS to continue its practice of matching 

terms to the useful life of an asset. One 

hundred and thirty-nine comment 

letters received urged the restriction to 

be lifted recognizing the normal RUS 

lending practice of 30–35 year terms 

and also stating that the longer terms 

would extend the funding to REDLG 

and maximize economic development 

benefits to rural America. CFC claims 

that the limitation on maturity of bonds 

is inconsistent with the intent of the 

statute. The limitation exposes the 

government to additional risks (bond 

term/borrowers loan maturity mismatch 

can create both interest rate and 

liquidity risk). 

Based upon comment letters received 

and the desire to establish a bond or 

note guarantee term consistent with 

RUS lending practices, RUS will 

establish a term of 20 years which is the 

estimated average outstanding balance 

of concurrent loans currently eligible 

under this program. 

FFB only funding source. The 

proposed rule requires that the 

guaranteed bonds must be issued to the 

FFB on terms and conditions consistent 

with the FFB lending policy. Nineteen 

comment letters were received 

expressing concern with this limitation. 

CFC argues that this is inconsistent with 

a provision in the statute providing that 

the guarantees ‘‘shall be fully assignable 

and transferable’’ indicating that they 

could be issued in the capital markets. 

The rule also does not require FFB to 

purchase the offering and it does not 

discuss the rates, terms, or options for 

the transaction between the lender and 

FFB. CFC requests that flexibility be 

provided to issue the bonds to FFB or 

in the capital market to maximize the 

benefit. 

RUS understands the CFC argument 

that the ‘‘best deal’’ should be obtained 

in issuing a bond or not for a guarantee. 

Therefore, the final rule requires that 

the guaranteed bond or note be issued 

to FFB on terms and conditions 

consistent with comparable 

government-guaranteed bonds and 

satisfactory to the Secretary. 

Approval requirements to include 

Office of Management and Budget 

(OMB) and U.S. Department of 

Treasury. The proposed rule requires an 

independent assessment of the 

application by OMB and FFB prior to a 

decision on the guarantee being made 

by the Secretary. Thirty-five (35) 

comments were received claiming that 

this is neither needed nor efficient. 

Other comments suggest that there is no 

statutory requirement for this process. 

RUS is eliminating the requirement 

that FFB and OMB review the 

application. Instead, RUS is required to 

request that FFB review the credit rating 

of the bond or note to be issued. The 

expertise that FFB possesses will help to 

ensure the security of the government 

guarantee. 

Regulatory Procedures Issues 

Comments received from the U.S. 

Chamber of Commerce and one 

individual suggest that the United States 

Department of Agriculture did not 

follow the appropriate procedures in 

promulgated the proposed rule. RUS has 

considered these comments and 

believes they are without merit. For 

example, RUS has complied with the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.) by determining that because the 

procedures contained in the proposed 

rule apply to only two entities, neither 

of whom are small, the rule will have 

no significant impact on small 

businesses or other small entities. The 

use of the word ‘‘determine’’ in context 

in which it was used in the published 

notice that was signed by the head of 

the agency is synonymous with the 

word ‘‘certify’’ within means ‘‘to 

confirm formally as true.’’ Since RUS 

certifies that there is no substantial 

impact on a significant number of small 

entities, the balance of the comments 

received on the Regulatory Flexibility 

Act are inapposite and in any event 

have more to do with the effects of 

programs which section 313A funds and 

which were not the subject of the 

proposed rulemaking.

Commenters have not correctly 

applied National Environmental 

Protection Act (NEPA) implementation 

regulations of RUS. As authority for 

their proposition that the proposed rule 

was subject to a full environmental 

review involving the public, 

commenters cited 7 CFR 1794.3. That 

provision provides merely that the 

provisions of 7 CFR part 1794 apply to, 

inter alia, the issuance of new or revised 

rules. However, Title 7 part 1794 does 

not require environmental reviews or 

public participation in such reviews in 

all cases. The provisions of 7 CFR part 

1794 identify and establish categories of 

actions for environmental review 

purposes. These categories range from 

actions that are categorically exempt to 

those normally requiring the 

development of an environmental 

impact statement. RUS regulations do 

not require the agency to publish a 

Finding of No Significant Impact 

(FONSI) each time RUS determines that 

an action will not have a significant 

environmental impact. RUS regulations 

require the publication of a FONSI only 

when its determination has been made 

on the basis of an Environmental 

Assessment (EA). Generally speaking, 

publications of regulations do not 

require an EA. It is only the issuance or 

modification of RUS regulations 

concerning environmental matters that 

are listed in 7 CFR part 1794 as 

normally requiring an EA (7 CFR 

1794.23(a)). Accordingly, the discussion 

of NEPA in the proposed rule complied 

with NEPA and RUS regulations 

implementing NEPA. 

RUS was not, as some commenters 

wrote, required to prepare a Statement 

of Energy Effects to comply with 

Executive Order (E.O. 13211, ‘‘Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use’’. However, E.O. 

13211 does not require the preparation 

of such statements in connection with 

every proposed rulemaking that is a 

Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 63049

significant regulatory action under E.O. 

12866 as the commenters seem to imply. 

while it is correct that in order for a 

proposed rule to be a ‘‘significant energy 

action’’ under E.O. 13211, the proposal 

must be a ‘‘significant regulatory action’’

under Executive Order 12866, at least 

one of two other requirements must be 

met before the obligation to prepare a 

statement of energy effects exists. The 

propose rule must either be ‘‘likely to 

have significant adverse effect on the 

supply, distribution, or use of energy’’

or it must be so ‘‘designated by the 

Administrator of the Office of 

Information and Regulatory Affairs as a 

significant energy action.’’ E.O. 13211 

sections 2(a) and 4(b). Neither of these 

two factors are present here. Since E.O. 

13211 does not apply to the proposed 

rule, there is no need to address 

comments about what such an analysis 

should provide. 

Some commenters wrote that the 

proposed rule did not meet the 

requirement under Executive Order 

12866, ‘‘Regulatory Planning and 

Review’’, requiring all ‘‘significant 

regulatory actions’’ by Federal agencies 

to undergo cost-benefit assessment by 

the agency and centralized review by 

the Office of Information and Regulatory 

Affairs (OIRA), an organizational 

subunit of the OMB. RUS did conduct 

the appropriate regulatory analysis 

required for issuing the proposed rule to 

establish this Guarantee of Bonds and 

Notes program. RUS has provided the 

appropriate studies and justifications to 

OIRA for centralized review and the 

necessary OMB clearances were 

obtained before publishing the proposed 

rule and this final rule in the Federal 

Register.

RUS received a few comments to the 

effect that RUS did not provide 

adequate opportunity for public 

participation during the development of 

the proposed rule and suggesting that 

the comment period for the proposed 

rule be extended. RUS believes that 

there has been ample opportunity for 

public participation and that any further 

delays in implementing the program 

cannot be justified. Section 313A 

amending the rural Electrification Act of 

1936 (7 U.S.C. 940c–1) was signed into 

law on May 13, 2002. Pub. L. 107–171, 

Title VI, sec. 6101(a). There are 

directives in sec. 6101(b) of Pub. L. 107–

171 requiring the promulgation of 

regulations within 180 days of 

enactment and to implement the 

program within 240 days. Accordingly, 

enactment of Section 313A gave notice 

that rules covering this subject matter 

would soon be forthcoming. Section 

313A itself established many of the 

program requirements contained in the 

proposed rule and clearly signaled the 

principal areas that would be addressed 

by the program. RUS provided 60 days 

for comments on the proposed 

regulations. Perhaps the best evidence 

demonstrating the adequacy of the 

public’s opportunity for participation in 

the proposed rulemaking is the fact that 

RUS received 231 written comments in 

response to the notice.

List of Subjects in 7 CFR Part 1720

Electric power, Electric utilities, Loan 

program—energy, reporting and 

recordkeeping requirements, Rural 

areas.

■ For reasons set out in the preamble, 

RUS amends chapter XVII of title 7 of the 

Code of Federal Regulations by adding a 

new part 1720 to read as follows:

PART 1720—GUARANTEES FOR 

BONDS AND NOTES ISSUED FOR 

ELECTRIFICATION OR TELEPHONE 

PURPOSES

Sec. 

1720.1 Purpose. 

1720.2 Background. 

1720.3 Definitions. 

1720.4 General standards. 

1720.5 Eligibility criteria. 

1720.6 Application process. 

1720.7 Application evaluation. 

1720.8 Issuance of the guarantee. 

1720.9 Guarantee Agreement. 

1720.10 Fees. 

1720.11 Servicing. 

1720.12 Reporting requirement. 

1720.13 Limitations on guarantees. 

1720.14 Nature of guarantee; acceleration of 

guaranteed bonds. 

1720.15 Equal opportunity requirements.

Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 

940C.

§ 1720.1 Purpose. 

This part prescribes regulations 

implementing a guarantee program for 

bonds and notes issued for 

electrification on telephone purposes 

authorized by section 313A of the Rural 

Electrification Act of 1936 (7 U.S.C. 

940c–1).

§ 1720.2 Background. 

The Rural Electrification Act of 1936 

(the ‘‘RE Act’’) (7 U.S.C. 901 et seq.) 

authorizes the Secretary to guarantee 

and make loans to persons, 

corporations, states, territories, 

municipalities, and cooperative, nonprofit, or limited-dividend associations 

for the purpose of furnishing or 

improving electric and telephone 

service in rural areas. Responsibility for 

administering electrification and 

telecommunications loan and guarantee 

programs along with other functions the 

Secretary deemed appropriate have been 

assigned to RUS under the Department 

of Agriculture Reorganization Act of 

1994 (7 U.S.C. 6941 et seq.). The 

Administrator of RUS has been 

delegated responsibility for 

administering the programs and 

activities of RUS, see 7 CFR 1700.25. 

Section 6101 of the Farm Security and 

Rural Investment Act of 2002 (Pub. L. 

107–171) (FSRIA) amended the RE Act 

to include a new program under section 

313A entitled Guarantees for Bonds and 

Notes Issued for Electrification or 

Telephone Purposes. This measure 

became law on May 13, 2002, and 

directs the Secretary of Agriculture to 

promulgate regulations that carry out 

the Program.

§ 1720.3 Definitions. 

For the purpose of this part: 

Administrator means the 

Administrator of RUS. 

Applicant means a bank or other 

lending institution organized as a 

private, not-for-profit cooperative 

association, or otherwise on a non-profit 

basis, that is applying for RUS to 

guarantee a bond or note under this 

part. 

Bond Documents means the trust 

indenture, bond resolution, guarantee, 

guarantee agreement and all other 

instruments and documentation 

pertaining to the issuance of the 

guaranteed bonds. 

Borrower means any organization that 

has an outstanding loan made or 

guaranteed by RUS for rural 

electrification or rural telephone under 

the RE Act, or that is seeking such 

financing. 

Concurrent Loan means a loan that a 

guaranteed lender extends to a borrower 

for up to 30 percent of the cost of an 

eligible electrification or telephone 

purpose under the RE Act, concurrently 

with an insured loan made by the 

Secretary pursuant to section 307 of the 

RE Act.

Federal Financing Bank (FFB) means 

a government corporation and 

instrumentality of the United States of 

America under the general supervision 

of the Secretary of the Treasury. 

Guarantee means the written 

agreement between the Secretary and a 

guaranteed bondholder, pursuant to 

which the Secretary guarantees full 

repayment of the principal, interest, and 

call premium, if any, on the guaranteed 

lender’s guaranteed bond. 

Guarantee Agreement means the 

written agreement between the 

Secretary and the guaranteed lender 

which sets forth the terms and 

conditions of the guarantee. 

Guaranteed Bond means any bond, 

note, debenture, or other debt obligation 

issued by a guaranteed lender on a fixed 

63050 Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 

or variable rate basis, and approved by 

the Secretary for a guarantee under this 

part. 

Guaranteed Bondholder means any 

investor in a guaranteed bond. 

Guaranteed Lender means an 

applicant that has been approved for a 

guarantee under this part. 

Loan means any credit instrument 

that the guaranteed lender extends to a 

borrower for any electrification or 

telephone purpose eligible under the RE 

Act, including loans as set forth in 

section 4 of the RE Act for electricity 

transmission lines and distribution 

systems (excluding generating facilities) 

and as set forth in section 201 of the RE 

Act for telephone lines, facilities and 

systems. 

Loan documents means the loan 

agreement and all other instruments and 

documentation between the guaranteed 

lender and the borrower evidencing the 

making, disbursing, securing, collecting, 

or otherwise administering of a loan. 

Program means the guarantee program 

for bonds and notes issued for 

electrification or telephone purposes 

authorized by section 313A of the RE 

Act as amended. 

Rating Agency means a bond rating 

agency identified by the Securities and 

Exchange Commission as a nationally 

recognized statistical rating 

organization. 

RE Act means the Rural Electrification 

Act of 1936 (7 U.S.C. 901 et seq.) as 

amended. 

RUS means the Rural Utilities 

Service, a Rural Development agency of 

the U.S. Department of Agriculture. 

Secretary means the Secretary of 

Agriculture acting through the 

Administrator of RUS. 

Subsidy Amount means the amount of 

budget authority sufficient to cover the 

estimated long-term cost to the Federal 

government of a guarantee, calculated 

on a net present value basis, excluding 

administrative costs and any incidental 

effects on government receipts or 

outlays, in accordance with the 

provisions of the Federal Credit Reform 

Act of 1990 (2 U.S.C. 661 et. seq.)

§ 1720.4 General standards. 

(a) In accordance with section 313A of 

the RE Act, a guarantee will be issued 

by the Secretary only if the Secretary 

determines, in accordance with the 

requirements set forth in this part, that: 

(1) The proceeds of the guaranteed 

bonds will be used by the guaranteed 

lender to make loans to borrowers for 

electrification or telephone purposes 

eligible for assistance under this 

chapter, or to refinance bonds or notes 

previously issued by the guaranteed 

lender for such purposes; 

(2) At the time the guarantee is 

executed, the total principal amount of 

guaranteed bonds outstanding would 

not exceed the principal amount of 

outstanding concurrent loans previously 

made by the guaranteed lender; 

(3) The proceeds of the guaranteed 

bonds will not be used directly or 

indirectly to fund projects for the 

generation of electricity; and 

(4) The guaranteed lender will not use 

any amounts obtained from the 

reduction in funding costs provided by 

the program to reduce the interest rates 

borrowers are paying on new or 

outstanding loans, other than new 

concurrent loans as provided in 7 CFR 

part 1710, of this chapter. 

(b) During the term of the guarantee, 

the guaranteed lender shall: 

(1) Limit cash patronage refunds, for 

guaranteed lenders having a credit 

rating below ‘‘A¥’’ on its senior secured 

debt without regard to the guarantee. 

For such guaranteed lenders, cash 

patronage refunds are limited to five 

percent of the total patronage refund 

eligible. The limit on patronage refunds 

must be maintained until the credit 

rating is restored to ‘‘A¥’’ or above. For 

those guaranteed lenders subject to 

patronage limitations, equity securities 

issued as part of the patronage refund 

shall not be redeemable in cash during 

the term of any part of the guarantee, 

and the guaranteed lender shall not 

issue any dividends on any class of 

equity securities during the term of the 

guarantee. 

(2) Maintain sufficient collateral equal 

to the principal amount outstanding, for 

guaranteed lenders having a credit 

rating below ‘‘A¥’’ on its senior secured 

debt without regard to the guarantee. 

Collateral shall be in the form of specific 

and identifiable unpledged securities 

equal to the value of the guaranteed 

amount. In the case of a guaranteed 

lender’s default, the U.S. government 

claim shall not be subordinated to the 

claims of other creditors, and the 

indenture must provide that in the event 

of default, the government has first 

rights on the asset. Upon application 

and throughout the term of the 

guarantee, guaranteed lenders not 

subject to collateral pledging 

requirements shall identify, with the 

concurrence of the Secretary, specific 

assets to be held as collateral should the 

credit rating of its senior secured debt 

without regard to the guarantee fall 

below ‘‘A¥’’. The Secretary has 

discretion to require collateral at any 

time should circumstances warrant. 

(c) The final maturity of the 

guaranteed bonds shall not exceed 20 

years. 

(d) The guaranteed bonds shall be 

issued to the Federal Financing Bank on 

terms and conditions consistent with 

comparable government-guaranteed 

bonds and satisfactory to the Secretary. 

(e) The Secretary shall guarantee 

payment son guaranteed bonds in such 

forms and on such terms and conditions 

and subject to such covenants, 

representations, warranties and 

requirements (including requirements 

for audits) as determined appropriate for 

satisfying the requirements of this part. 

The Secretary shall require the 

guaranteed lender to enter into a 

guarantee agreement to evidence its 

acceptance of the foregoing. Any 

guarantee issued under this part shall be 

made in a separate and distinct offering.

§ 1720.5 Eligibility criteria. 

(a) To be eligible to participate in the 

program, a guaranteed lender must be: 

(1) A bank or other lending institution 

organized as a private, not-for-profit 

cooperative association, or otherwise on 

a non-profit basis; and 

(2) Able to demonstrate to the 

Secretary that it possesses the 

appropriate expertise, experience, and 

qualifications to make loans for 

electrification or telephone purposes. 

(b) To be eligible to receive a 

guarantee, a guaranteed lender’s bond 

must meet the following criteria:

(1) The guaranteed leader must 

furnish the Secretary with a certified list 

of the principal balances of concurrent 

loans then outstanding evidencing that 

such aggregate balance is at least equal 

to the sum of the proposed principal 

amount of guaranteed bonds to be 

issued, and any previously issued 

guaranteed bonds outstanding; and 

(2) The guaranteed bonds to be issued 

by the guaranteed lender must receive 

an underlying investment grade rating 

from a Rating Agency, without regard to 

the guarantee; 

(c) A lending institution’s status as an 

eligible applicant does not assure that 

the Secretary will issue the guarantee 

sought in the amount or under the terms 

requested, or otherwise preclude the 

Secretary from declining to issue a 

guarantee.

§ 1720.6 Application process. 

(a) Applications shall contain the 

following: 

(1) Background and contact 

information on the applicant; 

(2) A term sheet summarizing the 

proposed terms and conditions of, and 

the security pledged to assure the 

applicant’s performance under, the 

guarantee agreement; 

(3) A statement by the applicant as to 

how it proposes to use the proceeds of 

Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 63051

the guaranteed bonds, and the financial 

benefit it anticipates deriving from 

participating in the program; 

(4) A pro-forma cash flow projection 

or business plan for the next five years, 

demonstrating that there is reasonable 

assurance that the applicant will be able 

to repay the guaranteed bonds in 

accordance with their terms; 

(5) Consolidated financial statements 

of the guaranteed lender for the 

previous three years that have been 

audited by an independent certified 

public accountant, including any 

associated notes, as well as any interim 

financial statements and associated 

notes for the current fiscal year; 

(6) Evidence of having been assigned 

an investment grade rating on the debt 

obligations for which it is seeking the 

guarantee, without regard to the 

guarantee; 

(7) Evidence of a credit rating, from a 

Rating Agency, on its senior secured 

debt without regard to the government 

guarantee and satisfactory to the 

Secretary. 

(8) Such other application documents 

and submissions deemed necessary by 

the Secretary for the evaluation of 

applicants. 

(b) The application process occurs as 

follows: 

(1) The applicant submits an 

application to the Secretary; 

(2) The application is screened by 

RUS pursuant to 7 CFR 1720.7(a) of this 

part, to ascertain its threshold eligibility 

for the program; 

(3) RUS evaluates the application 

pursuant to the selection criteria set 

forth in 7 CFR 1720.7(b) of this part; 

(4) If RUS provisionally approves the 

application, the applicant and RUS 

negotiate terms and conditions of the 

bond documents, and 

(5) The applicant offers its guaranteed 

bonds, and the Secretary upon approval 

of the pricing, redemption provisions 

and other terms of the offering, executes 

the guarantee. 

(c) If requested by the applicant at the 

time it files its application, the General 

Counsel of the Department of 

Agriculture shall provide the Secretary 

with an opinion regarding the validity 

and authority of a guarantee issued to 

the lender under section 313A of the RE 

Act.

§ 1720.7 Application evaluation. 

(a) Eligibility screening. Each 

application will be reviewed by the 

Secretary to determine whether it is 

eligible under 7 CFR 1720.5, the 

information required under 7 CFR 

1720.6 is complete and the proposed 

guaranteed bond complies with 

applicable statutes and regulations. The 

Secretary can at any time reject an 

application that fails to meet these 

requirements. 

(b) Evaluation. Pursuant to paragraph 

(a) of this section, applications will be 

subject to a substantive review, on a 

competitive basis, by the Secretary 

based upon the following evaluation 

factors, listed in order of importance: 

(1) The extent to which the proposed 

provisions indicate the applicant will be 

able to repay the guaranteed bonds; 

(2) The adequacy of the proposed 

provisions to protect the Federal 

government, based upon items 

including, but not limited to the nature 

of the pledged security, the priority of 

the lien position, if any, pledged by the 

applicant, and the provision for an 

orderly retirement of principal such as 

an amortizing bond structure or an 

internal sinking fund; 

(3) The applicant’s demonstrated 

performance of financially sound 

business practices; 

(4) The extent to which providing the 

guarantee to the applicant will help 

reduce the cost and/or increase the 

supply of credit to rural America, to 

generate other economic benefits, 

including the amount of fee income 

available to be deposited into the Rural 

Economic Development Subaccount, 

maintained under section 313(b)(2)(A) 

of the RE Act (7 U.S.C. 940c–1(b)(2)(B)), 

after payment of the subsidy amount. 

(c) Independent Assessment. Before a 

guarantee decision is made by the 

Secretary, the Secretary shall request 

that the Federal Financing Bank review 

the adequacy of the determination by 

the Rating Agency, required under 

§ 1720.5(b)(2) as to whether the bond or 

note to be issued would be below 

investment grade without the guarantee. 

(d) Decisions by the Secretary. The 

Secretary shall approve or deny 

applications in a timely manner as such 

applications are received. The Secretary 

may limit the number of guarantees 

made to a maximum of five per year, to 

ensure a sufficient examination is 

conducted of applicant requests. RUS 

shall notify the applicant in writing of 

the Secretary’s approval or denial of an 

application. Approvals for guarantees 

shall be conditioned upon compliance 

with 7 CFR 1720.4 and 1720.6.

§ 1720.8 Issuance of the guarantee. 

(a) The following requirements must 

be met by the applicant prior to the 

endorsement of a guarantee by the 

Secretary. 

(1) A guarantee agreement suitable in 

form and substance to the Secretary 

must be delivered. 

(2) Bond documents must be executed 

by the applicant setting forth the legal 

provisions relating to the guaranteed 

bonds, including but not limited to 

payment dates, interest rates, 

redemption features, pledged security, 

additional borrowing terms including an 

explicit agreement to make payments 

even if loans made using the proceeds 

of such bond or note is not repaid to the 

lender, other financial covenants, and 

events of default and remedies; 

(3) Prior to the issuance of the 

guarantee, the applicant must certify to 

the Secretary that the proceeds from the 

guaranteed bonds will be applied to 

fund eligible new loans under the RE 

Act, to refinance concurrent loans, or to 

refinance existing debt instruments of 

the guaranteed lender used to fund 

eligible loans;

(4) The applicant provides a certified 

list of concurrent loans and their 

outstanding balances as of the date the 

guarantee is to be issued; 

(5) Counsel to the applicant must 

furnish an opinion satisfactory to the 

Secretary as to the applicant being 

legally authorized to issue the 

guaranteed bonds and enter into the 

bond documents; 

(6) No material adverse change occurs 

between the date of the application and 

date of execution of the guarantee; 

(7) The applicant shall provide 

evidence of an investment grade rating 

from a Rating Agency for the proposed 

guaranteed bond without regard to the 

guarantee; 

(8) The applicant shall provide 

evidence of a credit rating on its senior 

secured debt without regard to the 

guarantee and satisfactory to the 

Secretary; and 

(9) Certification by the Chairman of 

the Board and the Chief Executive 

Officer of the applicant (or other senior 

management acceptable to the 

Secretary), acknowledging the 

applicant’s commitment to submit to the 

Secretary, an annual credit assessment 

of the applicant by a Rating Agency, an 

annual review and certification of the 

security of the government guarantee 

that is audited by an independent 

certified public accounting firm or 

federal banking regulator, annual 

consolidated financial statements 

audited by an independent certified 

public accountant each year during 

which the guarantee bonds are 

outstanding, and other such information 

requested by the Secretary. 

(b) The Secretary shall not issue a 

guarantee if the applicant is unwilling 

or unable to satisfy all requirements.

§ 1720.9 Guarantee Agreement. 

(a) The guaranteed lender will be 

required to sign a guarantee agreement 

with the Secretary setting forth the 

63052 Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 

terms and conditions upon which the 

Secretary guarantees the payment of the 

guaranteed bonds. 

(b) The guaranteed bonds shall refer 

to the guarantee agreement as 

controlling the terms of the guarantee. 

(c) The guarantee agreement shall 

address the following matters: 

(1) Definitions and principles of 

construction; 

(2) The form of guarantee; 

(3) Coverage of the guarantee; 

(4) Timely demand for payment on 

the guarantee; 

(5) Any prohibited amendments of 

bond documents or limitations on 

transfer of the guarantee; 

(6) Limitation on acceleration of 

guaranteed bonds; 

(7) Calculation and manner of paying 

the guarantee fee; 

(8) Consequences of revocation of 

payment on the guaranteed bonds; 

(9) Representations and warranties of 

the guaranteed lender; 

(10) Representations and warranties 

for the benefit of the holder of the 

guaranteed bonds; 

(11) Claim procedures; 

(12) What constitutes a failure by the 

guaranteed lender to pay; 

(13) Demand on RUS; 

(14) Assignment to RUS; 

(15) Conditions of guarantee which 

may include requiring the guaranteed 

lender to adopt measures to ensure 

adequate capital levels are retained to 

absorb losses relative to risk in the 

guaranteed lender’s portfolio and 

requirements on the guaranteed lender 

to hold additional capital against the 

risk of default; 

(16) Payment by RUS; 

(17) RUS payment does not discharge 

guaranteed lender; 

(18) Undertakings for the benefit of 

the holders of guaranteed bonds, 

including: notices, registration, 

prohibited amendments, prohibited 

transfers, indemnification, multiple 

bond issues; 

(19) Governing law; 

(20) Notices; 

(21) Benefit of agreement; 

(22) Entirety of agreement; 

(23) Amendments and waivers; 

(24) Counterparts; 

(25) Severability, and 

(26) Such other matters as the 

Secretary believes to be necessary or 

appropriate.

§ 1720.10 Fees. 

(a) Guarantee fee. An annual fee equal 

to 30 basis points (0.3 percent) of the 

amount of the unpaid principal of the 

guarantee bond will be deposited into 

the Rural Economic Development 

Subaccount maintained under section 

313(b)(2)(A) of the RE Act. 

(b) Subject to paragraph (c) of this 

section, up to one-third of the 30 basis 

point guarantee fee may be used to fund 

the subsidy amount of providing 

guarantees, to the extent not otherwise 

funded through appropriation actions 

by Congress. 

(c) Notwithstanding subsections (c) 

and (e)(2) of section 313A of the RE Act, 

the Secretary shall, with the consent of 

the lender and if otherwise authorized 

by law, adjust the schedule for payment 

of the annual fee, not to exceed an 

average of 30 basis points per year for 

the term of the loan, to ensure that 

sufficient funds are available to pay the 

subsidy costs for note guarantees.

§ 1720.11 Servicing. 

The Secretary, or other agent of the 

Secretary on his or her behalf, shall 

have the right to service the guaranteed 

bond, and periodically inspect the 

books and accounts of the guaranteed 

lender to ascertain compliance with the 

provisions of the RE Act and the bond 

documents.

§ 1720.12 Reporting requirements. 

(a) As long as any guaranteed bonds 

remain outstanding, the guaranteed 

lender shall provide the Secretary with 

the following items each year within 90 

days of the guaranteed lender’s fiscal 

year end: 

(1) Consolidated financial statements 

and accompanying footnotes, audited by 

independent certified public 

accountants; 

(2) A review and certification of the 

security of the government guarantee, 

audited by reputable, independent 

certified public accountants or a federal 

banking regulator, who in the judgment 

of the Secretary, has the requisite skills, 

knowledge, reputation, and experience 

to properly conduct such a review; 

(3) Pro forma projection of the 

guaranteed lender’s balance sheet, 

income statement, and statement of cash 

flows over the ensuing five years;

(4) Credit assessment issued by a 

Rating Agency; 

(5) Credit rating, by a Rating Agency, 

on its senior secured debt without 

regard to the guarantee and satisfactory 

to the Secretary; 

(6) Other such information requested 

by the Secretary. 

(b) The bond documents shall specify 

such bond monitoring and financial 

reporting requirements as deemed 

appropriate by the Secretary.

§ 1720.13 Limitations on guarantees. 

In a given year the maximum amount 

of guaranteed bonds that the Secretary 

may approve will be subject to budget 

authority, together with receipts 

authority from projected fee collections 

from guaranteed lenders, the principle 

amount of outstanding concurrent loans 

made by the guaranteed lender, and 

Congressionally-mandated ceilings on 

the total amount of credit. The Secretary 

may also impose other limitations as 

appropriate to administer this guarantee 

program.

§ 1720.14 Nature of guarantee; 

acceleration of guaranteed bonds. 

(a) Any guarantee executed by the 

Secretary under this part shall be an 

obligation supported by the full faith 

and credit of the United States and 

incontestable except for fraud or 

misrepresentation of which the 

guaranteed bondholder had actual 

knowledge at the time it purchased the 

guaranteed bonds. 

(b) Amounts due under the guarantee 

shall be paid within 30 days of demand 

by a bondholder, certifying the amount 

of payment then due and payable. 

(c) The guarantee shall be assignable 

and transferable to any purchaser of 

guaranteed bonds as provided in the 

bond documents. 

(d) The following actions shall 

constitute events of default under the 

terms of the guarantee agreements: 

(1) The guaranteed lender failed to 

make a payment of principal or interest 

when due on the guaranteed bonds; 

(2) The guaranteed bonds were issued 

in violation of the terms and conditions 

of the bond documents; 

(3) The guarantee fee required by 7 

CFR 1720.10 of this part, has not been 

paid; 

(4) The guaranteed lender made a 

misrepresentation to the Secretary in 

any material respect in connection with 

the application, the guaranteed bonds, 

or the reporting requirements listed in 7 

CFR 1720.12; or 

(5) The guaranteed lender failed to 

comply with any material covenant or 

provision contained in the bond 

documents. 

(e) In the event the guaranteed lender 

fails to cure such defaults within the 

notice terms and the timeframe set forth 

in the bond documents, the Secretary 

may demand that the guaranteed lender 

redeem the guaranteed bonds. Such 

redemption amount will be in an 

amount equal to the outstanding 

principal balance, accrued interest to 

the date of redemption, and prepayment 

premium, if any. To the extent the 

Secretary makes any payments under 

the guarantee, the Secretary shall be 

deemed the guaranteed bondholder. 

(f) To the extent the Secretary makes 

any payments under the guarantee, the 

interest rate the government will charge 

to the guaranteed lender for the period 

Federal Register / Vol. 69, No. 209 / Friday, October 29, 2004 / Rules and Regulations 63053

of default shall accrue at an annual rate 

of the greater of 1.5 times the 91-day 

Treasury-Bill rate or 200 basis points 

(2.00%) above the rate on the 

guaranteed bonds. 

(g) Upon guaranteed lender’s event of 

default, under the bond documents, the 

Secretary shall be entitled to take such 

other action as is provided for by law or 

under the bond documents.

§ 1720.15 Equal opportunity requirements. 

Executive Order 12898, 

‘‘Environmental Justice.’’ To comply 

with Executive Order 12898, RUS will 

conduct a Civil Rights Analysis for each 

guarantee prior to approval. Rural 

Development Form 2006–28, ‘‘Civil 

Rights Impact Analysis’’, will be used to 

document compliance in regards to 

environmental justice. The Civil Rights 

Impact Analysis will be conducted prior 

to application approval or a conditional 

commitment of guarantee.

Dated: October 26, 2004. 

Gilbert Gonzalez, 

Acting Under Secretary, Rural Development.

[FR Doc. 04–24353 Filed 10–28–04; 8:45 am] 

BILLING CODE 3410–15–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 39

[Docket No. FAA–2004–18582; Directorate 

Identifier 2003–NM–35–AD; Amendment 39–

13831; AD 2004–22–03] 

RIN 2120–AA64

Airworthiness Directives; Empresa 

Brasileira de Aeronautica S.A. 

(EMBRAER) Model EMB–135 and –145 

Series Airplanes

AGENCY: Federal Aviation 

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: The FAA is adopting a new 

airworthiness directive (AD) for certain 

EMBRAER Model EMB–135 and –145 

series airplanes. This AD requires 

measuring the fillet radius dimension of 

the trunnion fitting webs of the wings; 

and reworking the fillet radius of the 

trunnion fitting web in order to increase 

the radius, doing related investigative 

actions, and doing applicable corrective 

action, if necessary. This AD is 

prompted by a report indicating that 

trunnion fittings of the wings have been 

manufactured with a web fillet radius 

smaller than the minimum required by 

the design data, which may induce the 

occurrence of fatigue cracks at the root 

of the trunnion fillet radius and adjacent 

structures (e.g., spar and ribs). We are 

issuing this AD to detect and correct 

fatigue cracking of the wing trunnion 

fittings or adjacent structure, which 

could result in failure of the main 

landing gear, consequent damage to 

surrounding structure, and possible loss 

of control of the airplane during 

landing.

DATES: This AD becomes effective 

December 3, 2004. 

The incorporation by reference of 

certain publications listed in the AD is 

approved by the Director of the Federal 

Register as of December 3, 2004.

ADDRESSES: For service information 

identified in this AD, contact Empresa 

Brasileira de Aeronautica S.A. 

(EMBRAER), P.O. Box 343—CEP 12.225, 

Sao Jose dos Campos—SP, Brazil. You 

can examine this information at the 

National Archives and Records 

Administration (NARA). For 

information on the availability of this 

material at NARA, call (202) 741–6030, 

or go to: http://www.archives.gov/

federal_register/

code_of_federal_regulations/

ibr_locations.html.

Docket: The AD docket contains the 

proposed AD, comments, and any final 

disposition. You can examine the AD 

docket on the Internet at http://

dms.dot.gov, or in person at the Docket 

Management Facility office between 9 

a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. The 

Docket Management Facility office 

(telephone (800) 647–5227) is located on 

the plaza level of the Nassif Building at 

the DOT street address stated in the 

ADDRESSES section.

FOR FURTHER INFORMATION CONTACT: 

Technical information: Todd 

Thompson, Aerospace Engineer, 

International Branch, ANM–116, FAA, 

Transport Airplane Directorate, 1601 

Lind Avenue, SW., Renton, Washington 

98055–4056; telephone (425) 227–1175; 

fax (425) 227–1149. 

Plain language information: Marcia 

Walters, marcia.walters@faa.gov.

SUPPLEMENTARY INFORMATION: The FAA 

proposed to amend 14 CFR part 39 with 

an AD for certain EMBRAER Model 

EMB–135 and –145 series airplanes. The 

proposed AD was published in the 

Federal Register on July 13, 2004 (69 FR 

41994), to require measuring the fillet 

radius dimension of the trunnion fitting 

webs of the wings; and reworking the 

fillet radius of the trunnion fitting web 

in order to increase the radius, doing 

related investigative actions, and doing 

applicable corrective action, if 

necessary. 

Comments 

We provided the public the 

opportunity to participate in the 

development of this AD. No comments 

have been submitted on the proposed 

AD or on the determination of the cost 

to the public. 

Conclusion 

We have carefully reviewed the 

available data and determined that air 

safety and the public interest require 

adopting the AD as proposed. 

Costs of Compliance 

This AD will affect about 60 airplanes 

of U.S. registry. The measurement will 

take about 2 work hours per airplane, at 

an average labor rate of $65 per work 

hour. Based on these figures, the 

estimated cost of the AD for U.S. 

operators is $7,800, or $130 per 

airplane. 

Regulatory Findings 

We have determined that this AD will 

not have federalism implications under 

Executive Order 13132. This AD will 

not have a substantial direct effect on 

the States, on the relationship between 

the national government and the States, 

or on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify that this AD: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866; 

(2) Is not a ‘‘significant rule’’ under 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979); and 

(3) Will not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

We prepared a regulatory evaluation 

of the estimated costs to comply with 

this AD. See the ADDRESSES section for 

a location to examine the regulatory 

evaluation.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety.

Adoption of the Amendment

■ Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA amends 14 CFR part 39 as 

follows:

PART 39—AIRWORTHINESS 

DIRECTIVES

■ 1. The authority citation for part 39 

continues to read as follows:

Authority: 49 U.S.C. 106(g), 40113, 44701.