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[Code of Federal Regulations]
[Title 7, Volume 11, Parts 1600 to 1899]
[Revised as of January 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1786]

[Page 1005-1035]
 
PART 1786--PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC AND TELEPHONE BORROWERS

Subpart A--General  [Reserved]

1786.1--1786.24  [Reserved]

  Subpart B--Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

1786.25  Purpose.
1786.26  Policy.
1786.27  Definitions and rules of construction.
1786.28  Qualifications.
1786.29  Prepayment authority, program allocations, categories of 
          prepayment applications and financially distressed borrowers' 
          reserve.
1786.30  Processing procedure.
1786.31  Application procedure.
1786.32  Settlement procedure.
1786.33  Forms.
1786.34  Access to records of lenders, servicers, and trustees.
1786.35  Loss, theft, destruction, mutilation, or defacement of RUS 
          guarantee.
1786.36  Other prepayments.
1786.37  Application of regulation to previous prepayments.
1786.38  Judicial review.
1786.39--1786.49  [Reserved]

  Subpart C--Special Discounted Prepayments on RUS Direct/Insured Loans

1786.50  Purpose.
1786.51  Definitions.
1786.52  Prepayment.
1786.53  Discounted present value.
1786.54  Eligibility criteria.
1786.55  Application procedure.
1786.56  Approval of applications.
1786.57  Prepayment agreement.
1786.58  Security.
1786.59  Loan fund audit.
1786.60  Closing.
1786.61  Other prepayments.
1786.62--1786.74  [Reserved]

Subpart D  [Reserved]

Subpart E--Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

1786.95  Purpose.
1786.96  Definitions.
1786.97  Prepayment.
1786.98  Discounted present value.
1786.99  Eligibility criteria.
1786.100  Application procedure.
1786.101  Approval of application.
1786.102  Prepayment agreement.
1786.103  Security.
1786.104  Loan fund audit.
1786.105  Closing.
1786.106  Other prepayments.

Appendix A to Subpart E to **Part** 1786--Listing of Eligible Borrowers
Appendix B to Subpart E to **Part** 1786--Federal Reserve Statistical 
          Release

         Subpart F--Discounted Prepayments on RUS Electric Loans

1786.150  Purpose.
1786.151  Definitions and rules of construction.
1786.152  Prepayments of RUS loans.
1786.153  Discounted present value.
1786.154  Qualified Notes.
1786.155  Eligible borrower.
1786.156  Application procedure.
1786.157  Approval of applications.
1786.158  Terms and conditions of prepayment agreement.
1786.159  Initial closing.
1786.160  Subsequent closings.
1786.161  Return of Qualified Notes and release of lien.
1786.162  Outstanding loan documents.
1786.163  Existing wholesale power contracts.
1786.164  Loan fund audit.
1786.165  Reporting.
1786.166  Approvals.
1786.167  Restrictions to additional RUS financing.
1786.168  Borrowers who prepaid under this **part** prior to October 21, 
          1992.
1786.169  Liability.
1786.170  Prepayment of loans approved after December 20, 1993. 
          [Reserved]
1786.171--1786.199  [Reserved]

   Subpart G--Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(C) of the RE Act

1786.200  Purpose.
1786.201  Definitions and rules of construction.
1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.
1786.203  Special considerations.

[[Page 1006]]

1786.204  Limitations.
1786.205  Application procedure.
1786.206  Refinancing note.
1786.207  Prepayment premium.
1786.208  Increased principal.
1786.209  Outstanding loan documents.
1786.210  Approvals.

    Authority: 7 U.S.C. 901-950b; Title I, subtitle B, Pub. L. 99-509; 
Pub. L. 101-624, 104 Stat. 4051; Pub. L. 103-354, 108 Stat. 3178, (7 
U.S.C. 6941 et seq.), unless otherwise noted.

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.

    Editorial Note: Nomenclature changes to **part** 1786 appear at 55 FR 
49250, Nov. 27, 1990.

Subpart A--General  [Reserved]

Secs. 1786.1--1786.24  [Reserved]

  Subpart B--Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Title I, Pub. L. 100-202; Pub. L. 100-203; Title VI, Pub. L. 100-460; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.

Sec. 1786.25  Purpose.

    This subpart contains the general regulations of the Rural Utilities 
Service (RUS) for implementing the provisions of (a) section 306(A) of 
the Rural Electrification Act of 1936, as amended (RE Act); (b) section 
633 of the Rural Development, Agriculture, and Related Agencies 
Appropriations Act, 1988 (Pub. L. 100-202) (the continuing resolution); 
and (c) section 637 of the Rural Development, Agriculture, and Related 
Agencies Appropriations Act, 1989 (Pub. L. 100-460) (the 1989 
Appropriations Act) which permit, in certain circumstances, loans made 
by the Federal Financing Bank (FFB) and guaranteed by the Administrator 
of RUS to be prepaid by RUS electric and telephone borrowers by paying 
the outstanding principal balance due on the FFB loan, using a private 
loan with the existing RUS guarantees or using internally generated 
funds.

Sec. 1786.26  Policy.

    It is the policy of RUS to facilitate the prepayment of FFB loans in 
accordance with the provisions of section 306(A) of the RE Act and 
section 633 of the continuing resolution as modified by section 637 of 
the 1989 Appropriations Act. Furthermore, consistent with the RE Act, 
the continuing resolution and the 1989 Appropriations Act, it is the 
policy of RUS to implement the objectives of the prepayment program in a 
manner which does not result in an increase in loan guarantee risk or an 
inappropriate increase in the administrative burden on RUS.

Sec. 1786.27  Definitions and rules of construction.

    (a) Definitions. For the purposes of this subpart, the following 
terms shall have the following meanings:
    Administrator means the Administrator of RUS.
    Application Category shall have the meaning set forth in 
Sec. 1786.29(c).
    Application period means a period during which RUS is accepting 
applications to make prepayments pursuant to this subpart, and initially 
means:
    (1) In the case of telephone borrowers, the period commencing on 
February 12, 1990 and ending on March 12, 1990;
    (2) In the case of financially distressed borrowers, the period 
commencing October 1, 1990 and ending on July 30, 1993; or
    (3) In the case of other borrowers, the period to be announced by 
RUS.
    Borrower means any organization which has an outstanding FFB loan 
guaranteed by RUS under the RE Act.
    Business Day means any day other than a Saturday, a Sunday, a legal 
public holiday under 5 U.S.C. section 6103 for the purposes of statutes 
relating to pay and leave of employees, or any other day declared to be 
legal holiday for the purposes of statutes relating to pay and leave of 
employees by Federal statute or Federal Executive Order.
    Continuing Resolution means section 633 of the Rural Development, 
Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100-
202).

[[Page 1007]]

    Date Received means the date inscribed on the Notice of Intent to 
Prepay the Federal Financing Bank, by an authorized official of RUS, as 
the date the application was received.
    Documentation means all or **part** of the agreements relating to a 
prepayment under this **part**, irrespective of whether RUS is a party to 
each agreement, including all exhibits to such agreements.
    Electric Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(1).
    Existing Loan Guarantee means a guarantee of payment issued by RUS 
to FFB pursuant to the RE Act for an FFB loan made on or before July 2, 
1986.
    Fees means any fees, costs or charges, incurred in connection with 
obtaining the private loan used to make the prepayment including without 
limitation, accounting fees, filing fees, legal fees (including fees and 
disbursements charged by counsel representing the borrower), printing 
costs, recording fees, trustee fees, underwriting fees, capital stock 
purchases or other equity investment requirements of the lender, and 
other related transaction expenses.
    Financially Distressed Borrower means an RUS-financed electric 
system determined by the Administrator to be either (1) in default or 
near default on interest or principal payments due on loans made or 
guaranteed under the RE Act, and is making a good faith effort to 
increase rates and reduce costs to avoid or mitigate default; or (2) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as **part** of the work out or restructuring.
    Financially Viable Lender means:
    (1) A lender (i) which has a capital and surplus of at least $50 
million; (ii) is a beneficiary of an irrevocable letter of credit, in 
form and substance satisfactory to the Administrator, payable to it in 
the amount of $50 million; (iii) is the beneficiary of a guarantee, in 
form and substance satisfactory to the Administrator, in the amount of 
$50 million from a lending institution with a capital and surplus of at 
least $50 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $50 
million; or
    (2) In the event of a prepayment totalling less than $100 million, a 
lender (i) which has a capital and surplus of at least $10 million; (ii) 
is a beneficiary of an irrevocable letter of credit, in form and 
substance satisfactory to the Administrator, payable to it in the amount 
of $10 million; (iii) is the beneficiary of a guarantee, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million from a lending institution with a capital and surplus of at 
least $10 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million;
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    FFB Loan means one or more advances, or a **part** of one or more 
advances, made on or before July 2, 1986, by FFB on a promissory note or 
notes executed by a borrower and guaranteed by RUS pursuant to section 
306 of the RE Act (7 U.S.C. 936).
    Guarantee means the original endorsement, in the form specified by 
RUS which is executed by the Administrator and shall be an obligation 
supported by the full faith and credit of the United States and 
incontestable except for fraud or misrepresentation of which the holder 
had actual knowledge at the time it became a holder.
    Increase in Loan Guarantee Risk means the change in any of the 
components of loan guarantee risk associated with the private loan which 
in the judgment of RUS increases the magnitude or duration of the loan 
guarantee risk currently assumed by RUS in connection with the existing 
loan guarantee;
    Internally Generated Funds means money belonging to the borrower 
other than: (1) Proceeds of loans made or guaranteed under the RE Act or 
(2) funds on deposit in the cash construction trustee account;
    Lender means the organization making and servicing the private loan 
which is to be guaranteed under the provisions of this subpart and used 
to prepay the FFB loan. The term lender

[[Page 1008]]

does not include the FFB, or any other Government agency.
    Loan Guarantee Agreement means the written contract by and among the 
lender, the borrower, the Administrator, and such other parties that RUS 
may require, setting forth the terms and conditions of a guarantee 
issued pursuant to the provisions of this subpart.
    Loan Guarantee Risk means the risk as determined by RUS associated 
with guaranteeing a loan for a particular borrower. Components of loan 
guarantee risk include the following:
    (1) The outstanding principal balance of a loan;
    (2) The dollar weighted average interest rate (stated as an annual 
percentage rate) on a loan;
    (3) The final maturity date of a loan;
    (4) The annual principal amortization of the loan; and
    (5) Any other factor that as determined by RUS increases the 
magnitude or duration of the guarantee.
    Mortgage means the mortgage and security agreements by and among the 
borrower and RUS, as from time to time supplemented, amended and 
restated.
    1989 Appropriations Act means the Rural Development, Agriculture, 
and Related Agencies Appropriations Act, 1989 (Pub. L. 100-460).
    Notice of Intent to Prepay the Federal Financing Bank means the 
notice in the form specified in Sec. 1786.33 hereof.
    Prepayment Authority shall have the meaning specified in 
Sec. 1786.29(a).
    Private Loan means a loan or loans to be guaranteed under the 
provisions of this **part** and used to prepay an FFB loan.
    Pro-rated Percentage shall have the meaning specified in 
Sec. 1786.30(b)(1).
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901-
950b), as amended.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Service or Servicing means the following activities:
    (1) The billing and collecting of the private loan payments from the 
borrower;
    (2) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the private loan and submitting a 
report, as soon as possible thereafter, setting forth the servicer's 
views as to the reasons for the default, how long the servicer expects 
the borrower to be in default, and what corrective actions the borrower 
states it is taking to achieve a current debt service position;
    (3) Notifying the Administrator of any known violations or defaults 
by the borrower under the lending agreement, loan guarantee agreement, 
the mortgage, or related security instruments, or conditions of which 
the servicer or the lender is aware which might lead to nonpayment, 
violation or other default; and
    (4) Such other activities as may be specified in the loan guarantee 
agreement.
    Settlement Date means the date the borrower disburses funds to the 
FFB in order to complete a prepayment pursuant to this subpart, and 
shall be a date agreed to by RUS, and a date on which both the FFB and 
the Federal Reserve Bank of New York are open for business.
    Standard Electric Program Application shall have the meaning 
specified in Sec. 1786.29(c)(1).
    Telephone Borrower means a borrower that provides telephone service 
as defined in 7 CFR 1735.2(a).
    Telephone Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(2).
    (b) Rules of Construction. Unless the context shall otherwise 
indicate, the terms defined in Sec. 1786.27(a) hereof include the plural 
as well as the singular, and the singular as well as the plural. The 
words ``herein,'' ``hereof'' and

[[Page 1009]]

``hereunder'', and words of similar import, refer to this subpart as a 
whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440, 
Dec. 27, 1994]

Sec. 1786.28  Qualifications.

    (a) Borrowers. To qualify to prepay an FFB loan pursuant to this 
subpart, the borrower must:
    (1) Demonstrate that the FFB loan was outstanding on July 2, 1986;
    (2) Prepay the FFB loan by:
    (i) Using a private loan with the existing loan guarantee;
    (ii) Using internally generated funds; or
    (iii) Using a combination of a private loan with the existing loan 
guarantee and internally generated funds; and
    (3) Certify that any savings resulting from such prepayment will be 
passed on to its customers, or used to improve the financial strength of 
the borrower in cases of financial hardship.
    (b) Lenders. To participate pursuant to this subpart, in a 
borrower's prepayment of an FFB loan by means of a private loan, the 
lender must:
    (1) Be a private legally organized lender, or a lender established 
pursuant to the Farm Credit Act of 1971, as amended;
    (2)(i) Be subject to credit examination and supervision by either an 
agency of the United States or a state and be in good standing with its 
licensing authority and have met the requirements, if any, of licensing, 
lending and loan servicing in the state where the collateral for the 
Loan is located;
    (ii) Be a financially viable lender; or
    (iii) Be a trust administered. by an entity meeting the requirements 
of paragraph (b)(2) (i) or (ii) of this section; and
    (3) Have the capability to adequately service the private loan 
either by using its own resources or by contracting for such resources 
with a financially viable lender. Under no circumstances may the 
borrower or an affiliate of the borrower service the private loan. A 
qualified lender may participate out each private loan to entities other 
than a Government agency, the borrower, or an affiliate of the borrower, 
provided that such participation shall be on terms and conditions 
satisfactory to the Administrator.
    (c) Private Loans. A borrower who qualifies pursuant to 
Sec. 1786.28(a) may at its option elect to use a private loan to make a 
prepayment, or a portion of a prepayment, pursuant to this subpart. 
Private loans, the proceeds of which are used exclusively to prepay FFB 
loans, shall be eligible for a guarantee under this subpart. The 
Administrator shall endorse a guarantee on each note evidencing a 
qualifying private loan. The private loan shall be structured in a 
manner which in the judgment of RUS shall not result in an increase in 
loan guarantee risk and shall comply with the following:
    (1) The private loan shall provide for the periodic payment of 
interest by the borrower not less frequently than annually, at either a 
variable or fixed rate in a manner which shall not result in an increase 
in loan guarantee risk. (i.e. The dollar weighted average interest rate 
on the private loan shall be less than or equal to the dollar weighted 
average interest rate on the FFB loan being prepaid, so that:
[GRAPHIC] [TIFF OMITTED] TC16SE91.024

Where,
C<INF>r</INF>=The revised interest rate cap;
C<INF>o</INF>=The original interest rate cap at the time of prepayment;
A<INF>i</INF>=The average interest rate actually charged in the i<SUP>th</SUP> 
period;
T<INF>i</INF>=Length of the i<SUP>th</SUP> period expressed in years;

[[Page 1010]]

n=The number of years that have elapsed since the initial prepayment;
J=The initial term of the private loan, at the time of prepayment;
Subject to the constraint that A<INF>1</INF> must be less or equal to 
C<INF>o</INF>).

    (2) Principal payments on the private loan shall be made either 
quarterly, semiannually, or annually and shall commence on or before the 
last day of the calendar year during which the prepayment pursuant to 
this subpart was made.
    (3) With the approval of the Administrator, the lender may refund 
the private loan with the proceeds of another loan from the same lender, 
with the existing guarantee and under terms, conditions, and a structure 
substantially similar to the private loan, on such dates as the lender, 
the borrower and RUS may agree, provided however, that such a refunding 
loan shall comply with the provisions of Sec. 1786.28(c) hereof. 
Additionally, with the approval of the Administrator, the private loan 
may be prepaid either in whole or in **part** at any time by the borrower 
using its general funds.
    (4) The private loan and the guaranteed note evidencing the private 
loan shall not be directly or indirectly **part** of a transaction the 
income of which is excluded from gross income for the purposes of 
Chapter I of the Internal Revenue Code of 1986.
    (5) The guaranteed note evidencing the private loan shall not be 
transferable or assignable except
    (i) With the written approval of the Administrator;
    (ii) In the event that the guaranteed note evidencing the private 
loan is held by a trust, to a similar trust, in connection with a 
refunding loan made by the lender pursuant to Sec. 1786.28(c)(3); or
    (iii) As an undivided pro rata interest in a pool of obligations.
    (6) The loan documentation shall provide RUS with the right to 
accelerate the note evidencing the private loan upon the occurrence of 
any ``Event of Default'' under the mortgage with the effect that all of 
the unpaid principal and interest on any such note shall become 
immediately due and payable to RUS, and RUS shall continue to pay under 
its guarantee the principal of and interest on such note without taking 
into account such acceleration. The loan documentation shall also 
provide RUS with a right, upon the occurrence of such an ``Event of 
Default,'' to accelerate payment on its guarantee and accelerate payment 
on the note evidencing the private loan on the earlier of any date the 
interest rate on the private loan is reset, without premium or penalty; 
any date the borrower may prepay in accordance with the terms of the 
private loan, or the tenth anniversary of the date the private loan 
first bears interest at a fixed interest rate.
    (7) The principal of the private loan shall not include amounts 
attributable to fees associated with the private loan. At the time it 
submits its application, a borrower may request that the Administrator 
approve the inclusion of amounts attributable to fees as **part** of the 
interest rate on the private loan, if the net effective interest rate 
including such fees meets the test contained in Sec. 1786.28(c)(1). For 
the purposes of these regulations, such financed fees shall be 
considered ``interest''.
    (8) Private loans and guaranteed notes evidencing private loans 
shall otherwise be in form and substance satisfactory to the 
Administrator.
    (d) Prepayments Without a Guarantee. Qualifying borrowers may elect 
to utilize internally generated funds without a guarantee to prepay an 
FFB loan, or partially prepay an FFB loan, pursuant to this subpart, if
    (1) The borrower notifies RUS, of its intent to prepay using 
internally generated funds in accordance with the application procedures 
set forth in this subpart; and
    (2) The borrower submits a certification to RUS that the prepayment 
does not, materially adversely affect the financial stability of the 
borrower and its ability to meet all its obligations, including debt 
service on all loans made, guaranteed or lien accommodated under the RE 
Act which will remain outstanding after the date of the prepayment.
    (e) The Use of both a Private Loan and Internally Generated Funds. 
Qualifying borrowers may elect to utilize a combination of private loans 
and internally generated funds without a guarantee,

[[Page 1011]]

to prepay an FFB loan pursuant to this subpart, if
    (1) The private loans comply with the provisions of paragraph (c) of 
this section, and
    (2) The borrower complies with paragraph (d) of this section.
    (f) FFB loans. A borrower's FFB loans that qualify to be prepaid 
pursuant to this subpart are:
    (1) Qualifying Borrowers. In the case of qualifying borrowers other 
than financially distressed borrowers, FFB advances with long-term 
maturity dates may be prepaid pursuant to this subpart; and
    (2) Financially distressed borrowers. FFB loans that are eligible to 
be prepaid by utilizing the financially distressed borrowers' reserve 
are advances with long-term maturity dates, and which in the opinion of 
the Administrator, if prepaid, would result in an economic savings to 
the financially distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]

Sec. 1786.29  Prepayment authority, program allocations, categories of 
          prepayment applications and financially distressed borrowers' 
          reserve.

    (a) Prepayment Authority. So long as the aggregate amount of 
prepayments made after December 22, 1987, including prepayments made 
pursuant to Sec. 1786.28(d) and Sec. 1786.28(e), under section 306(A) of 
the RE Act, does not exceed $2.5 billion, the approval of the Secretary 
of the Treasury is not required in order to make a prepayment pursuant 
to this subpart (such amount of prepayments is hereinafter called 
prepayment authority).
    (b) Program Allocations. In accordance with the provisions of 
section 637 of the 1989 Appropriations Act, $350 million of prepayment 
authority is allocated to RUS-financed electric systems and $150 million 
of prepayment authority is allocated to RUS-financed telephone 
utilities. The amounts of prepayment authority allocated to electric 
program borrowers and telephone program borrowers shall not be 
transferred between programs. Borrowers may not sell, assign, or 
otherwise transfer prepayment authority to another borrower.
    (c) Categories of Prepayment Applications. Applications received by 
RUS from borrowers desiring to prepay pursuant to this subpart will be 
separated into the following two application categories:
    (1) Electric Program Applications. Electric program applications are 
applications to make a prepayment pursuant to this subpart from RUS-
financed electric utilities, that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period. Electric program applications will be further 
subdivided and classified as being either (i) a financially distressed 
borrower's application, or (ii) a standard electric program application. 
Applications received from borrowers determined by the Administrator not 
to be a financially distressed borrower will be classified and processed 
as a standard electric program application;
    (2) Telephone Program Applications. Telephone program applications 
are applications to make a prepayment pursuant to this subpart from RUS-
financed telephone utilities that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period;
    (d) Financially distressed borrowers' reserve. The $350 million of 
prepayment authority allocated for RUS-financed electric utilities, is 
initially set aside into a financially distressed borrowers' reserve. 
This reserve of prepayment authority will be available for prepayments 
pursuant to this subpart by financially distressed borrowers who apply 
to make such a prepayment during the application period. In the event 
that a portion of financially distressed borrowers' reserve remains 
unsubscribed at the end of the initial application period, the 
unallocated portion of the financially distressed borrowers' reserve 
will be allocated to other electric borrowers having submitted 
applications during an application period to be announced by RUS. Such 
prepayment applications shall be classified as standard electric program 
applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]

[[Page 1012]]

Sec. 1786.30  Processing procedure.

    (a) Priority of Processing. The determination of the order or method 
in which applications or portions of applications will be processed by 
RUS pursuant to this subpart rests solely within the discretion of the 
Administrator. RUS expects that a number of prepayment applications will 
be processed simultaneously. In the event that it becomes necessary to 
establish priorities of processing, prepayment applications will be 
processed without regard to the date received, generally in the 
following order of priority:
    (1) Applications from telephone borrowers;
    (2) Applications from financially distressed borrowers;
    (3) Applications from all other borrowers. When assigning priority 
to such applications, RUS will consider a number of factors, including 
without limitation, (i) the number of prepayment applications being 
processed by the area office; (ii) the novelty or complexity of the 
proposed transaction; (iii) the method of prepayment; and (iv) the 
availability of resources. In the event that RUS receives during the 
initial application period, prepayment applications from such borrowers 
in an amount less than remaining prepayment authority for each 
respective program, RUS will establish a new application period and 
publish a notice to that effect in the Federal Register.
    (b) Pro-rated Applications. Standard electric program applications, 
and telephone program applications will be prorated within their 
respective application categories to permit partial prepayments in the 
event that the aggregate amount of prepayment applications received 
during the application period exceeds the amount of prepayment authority 
allocated to that application category. In such circumstances, the 
amount of each borrower's permitted prepayment shall be determined 
within each respective application category, as follows:
    (1) The principal amount of FFB advances under each individual 
application, which, if prepaid pursuant to this subpart, would result in 
an economic savings to the borrower, shall be divided by the aggregate 
principal amount of FFB advances, under all of the applications, which, 
if prepaid pursuant to this subpart, would result in an economic savings 
to the borrowers, in order to determine a percentage (hereinafter called 
a pro-rated percentage) for each borrower;
    (2) Each borrower's share of the prepayment authority for its 
application category shall be equal to the product of (i) the prepayment 
authority times (ii) the respective pro-rated percentage, and may be 
used to prepay a portion of any of the borrower's FFB loans listed 
pursuant to Sec. 1786.31(a)(2);
    (3) If any approved prepayment transaction fails to be settled 
within 180 days of the date the borrower is notified by RUS of its 
prepayment allocation, RUS may rescind its approval. The unused 
prepayment authority represented by such a failed transaction is subject 
to being included in any subsequent notice of a new application period 
under this subpart; and
    (4) In the event that applications from financially distressed 
borrowers exceed the amount prepayment authority remaining in the 
financially distressed borrowers' reserve, the Administrator at his 
discretion shall select one or more of such applications and allocate 
the reserve. In making such a selection and allocation, the 
Administrator may consider various factors, including without 
limitation, (i) the dollar amount of savings to be realized by the 
proposed prepayment; (ii) the interest rates on the FFB loans proposed 
to be prepaid; (iii) the magnitude of the default or potential default; 
and (iv) whether the borrower has previously completed a prepayment 
under section 306(A).
    (c) Notification of Borrowers' Allocations. Promptly after 
allocating the prepayment authority to borrowers and completing any 
proration calculations that may be necessary, RUS will return to each 
borrower submitting a prepayment application pursuant to this subpart, a 
copy of their Notice of Intent to Prepay the Federal Financing Bank 
specifying the amount of the borrower's prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990]

[[Page 1013]]

Sec. 1786.31  Application procedure.

    Applications to make a prepayment pursuant to this subpart shall be 
submitted to RUS on such forms as RUS may prescribe in the following 
manner:
    (a) Application. Each borrower desiring to make a prepayment 
pursuant to this subpart shall submit an application to RUS. No 
application from a borrower will be accepted by RUS prior to the 
commencement of the application period. An application shall not be 
deemed submitted to RUS until it is received by RUS, and the ``Date 
Received'' has been inscribed on the Notice of Intent to Prepay the 
Federal Financing Bank by an authorized official of RUS. Incomplete 
applications may be returned to the borrower at the discretion of RUS 
and thereafter must be resubmitted in order to be processed. To be 
considered complete, the application should include the following:
    (1) ``Notice of Intent to Prepay the Federal Financing Bank'' in the 
form specified in Sec. 1786.33 hereof;
    (2) A listing of each FFB loan advance to be prepaid by loan 
designation, RUS note number, RUS account number, advance date, maturity 
date, original amount, outstanding balance, and interest rate;
    (3) Evidence that the borrower meets the qualification provisions of 
Sec. 1786.28(a) of these regulations;
    (4) The certification set forth in **part** A of the Notice of Intent to 
Prepay the Federal Financing Bank executed by the chief executive 
officer of the borrower;
    (5) In the event that a borrower submits a prepayment application 
which proposes to utilize a portion of the financially distressed 
borrowers' reserve, a certification signed by the chief executive 
officer of the system to the effect that the borrower is either (i) in 
default or near default on interest or principal payments due on loans 
made or guaranteed under the RE Act, and is making a good faith effort 
to increase rates and reduce costs to avoid or mitigate default; or (ii) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as **part** of the work out or restructuring and stating why the borrower is 
in default or near default.
    (b) Election of Method of Prepayment. Prior to requesting RUS to 
schedule a settlement date, the borrower shall (1) elect whether it will 
use a private loan, internally generated funds, or a combination of a 
private loan and internally generated funds to make the prepayment, by 
completing **part** C of its Notice of Intent to Prepay the Federal 
Financing Bank; (2) specify in **part** C of the Notice of Intent to prepay 
the Federal Financing Bank a date after which a prepayment closing may 
be scheduled; (3) if appropriate, execute the certification set forth in 
**part** C of the Notice of Intent to Prepay the Federal Financing Bank; and 
(4) return a completed copy of the Notice of Intent to Prepay the 
Federal Financing Bank to the RUS area office.
    (c) Final Documentation. All documentation in connection with a 
proposed prepayment made pursuant to this subpart shall have been 
submitted to RUS in final form, no later than 5 business days prior to 
the settlement date agreed to by the borrower and RUS. To be considered 
complete, the final documentation shall include the following material:
    (1) A completed copy of the Notice of Intent to Prepay the Federal 
Financing Bank;
    (2) In the event that a borrower proposes to utilize a private loan 
in connection with a prepayment or a portion of a prepayment,
    (i) Evidence, in form and substance satisfactory to RUS, that the 
borrower has an irrevocable commitment from the lender to close the 
private loan on the settlement date at an interest rate that meets the 
requirements of Sec. 1786.28(c)(1);
    (ii) Evidence that the lender meets the qualification provisions of 
Sec. 1786.28(b);
    (iii) Evidence that the private loan meets the qualification 
provisions of Sec. 1786.28(c); and
    (iv) The final documentation for the private loan;
    (3) Estimate of fees, and expenses, including any taxes, in 
connection with the prepayment transaction;
    (4) A certified copy of a resolution of the board of directors of 
the borrower approving the certification cited above

[[Page 1014]]

and requesting RUS approval of the prepayment.
    (5) In the case of financially distressed borrowers, evidence in 
form and substance satisfactory to the Administrator that the benefits 
of prepayment will not be used to reduce rates and that any Federal or 
state regulatory body having jurisdiction over the borrower's rates has 
acknowledged its awareness of this requirement;
    (6) In the event that borrower is unable to deliver final 
documentation or the evidence specified in accordance with, 
Sec. 1786.31(c), RUS may reschedule the settlement date at its 
discretion.

(Approved by the Office of Management and Budget under control number 
0572-0088)
    (c) Procedure for Submission of Prepayment Applications. An original 
and three copies of each initial application must be submitted, between 
the hours of 8:15 a.m. to 4:45 p.m. Washington, DC time, to: Chief, 
Communications and Records Management Branch, Administrative Service 
Division, Rural Utilities Service, U.S. Department of Agriculture, Room 
0175 South Agriculture Building, Washington, DC 20250-1500. The outside 
front of the package containing the prepayment application must be 
clearly marked, ``FFB PREPAYMENT APPLICATION.'' The Notice of Intent to 
Prepay the Federal Financing Bank must be the first document in the 
application package. Upon receipt the prepayment application will be 
opened, logged in, and the Notice of Intent to Prepay the Federal 
Financing Bank will be inscribed with the date received by an authorized 
official of RUS. A copy of the Notice of Intent to Prepay the Federal 
Financing Bank will then be returned to the borrower to acknowledge 
receipt of the application. Should an application be submitted other 
than in accordance with the provisions of Sec. 1786.31, the date 
received shall be a date determined by RUS in its sole discretion.

Sec. 1786.32  Settlement procedure.

    (a) General. Settlements in connection with prepaying FFB loans 
pursuant to this subpart shall be conducted in accordance with the 
provisions of this section.
    (b) Settlement Date. The prepayment will be settled and if a private 
loan is utilized, the guarantee will be delivered, on a settlement date 
agreed upon by the borrower and RUS. Prior to scheduling a settlement 
date for a borrower's prepayment pursuant to this subpart, RUS shall 
have received the material specified in Sec. 1786.31(b).
    (c) Place of Settlement. All settlements will take place in 
Washington, DC, at a location of the borrower's choosing; provided 
however, if more than one settlement is proposed for the same settlement 
date, RUS reserves the right to coordinate the date and location of the 
settlements with borrowers involved.
    (d) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in 
New York, New York, on the settlement date, the borrower shall wire 
immediately available funds to RUS through the Department of the 
Treasury account at the Federal Reserve Bank of New York or shall 
provide for payment to RUS in another manner acceptable to RUS and FFB, 
in an amount sufficient to pay the outstanding principal of the FFB loan 
being prepaid plus accrued interest from the last payment date to and 
including the settlement date.
    (e) Documentation. The borrower shall deliver, or cause to be 
delivered to RUS and FFB, not less than 3 business days prior to the 
settlement date, written notice of the settlement date and a complete 
listing of each FFB loan advance to be prepaid or partially prepaid, in 
the format required by Sec. 1786.31(a)(2). In the event that a private 
loan is used in connection with the prepayment, the following executed 
documents, opinions and material shall be delivered at the settlement:
    (1) The guaranteed note evidencing the private loan.
    (2) The guarantee.
    (3) The loan guarantee agreement.
    (4) Copy of the private loan agreement between the lender and the 
borrower.
    (5) Evidence that the borrower has received all approvals which are 
required under Federal or state law, loan agreements, security 
agreements, existing financing arrangements, or any other agreement to 
which the borrower is a party.

[[Page 1015]]

    (6) An amendment in recordable form revising the description of the 
obligations secured by the mortgage including the obligation of the 
borrower to reimburse RUS for any amounts that RUS may pay under the 
guarantee.
    (7) An approving opinion of the borrower's legal counsel to the 
effect that the guaranteed note evidencing the private loan is a valid 
and legally binding obligation of the borrower which is secured under 
the mortgage, and the priority of the mortgage, as amended pursuant to 
paragraph (e)(6) of this section, remains undisturbed.
    (8) An approving opinion of the lender's legal counsel to the effect 
that the loan guarantee agreement is a valid and legally binding 
obligation of the lender.
    (9) Such other opinions of counsel as may be required by the 
Administrator.
    (10) Copies of any other documentation required by the lender.
    (11) Copies of any other documentation required by RUS to ensure 
that the obligations of the borrower to reimburse RUS for any amounts 
that RUS pays under the guarantee or may advance in connection with the 
private loan are adequately secured under the mortgage.

(Approved by the Office of Management and Budget under control number 
0572-0088)

Sec. 1786.33  Forms.

    Guarantees and loan guarantee agreements executed by RUS pursuant to 
this subpart will be on forms prescribed by RUS. Such forms will 
include, without limitation, additional details on servicing, procedures 
for notifying RUS of a default, the manner for requesting payment on a 
guarantee. The Notice of Intent to Prepay the Federal Financing Bank 
shall be substantially in the form specified by RUS. RUS may also 
prescribe standard forms of certifications to be used in connection with 
materials required to be furnished pursuant to Sec. 1786.31 of this 
subpart.

Sec. 1786.34  Access to records of lenders, servicers, and trustees.

    The lender, the servicer, or the trustee will permit representatives 
of RUS (or other agencies of the U.S. Department of Agriculture 
authorized by that Department) to inspect and make copies of any of 
their records pertaining to RUS guaranteed loans. Such inspection and 
copying may be made during regular office hours of the respective party 
or any other time the party and RUS find convenient.

Sec. 1786.35  Loss, theft, destruction, mutilation, or defacement of RUS 
          guarantee.

    (a) Authorized representative. Except where the evidence of debt was 
or is a bearer instrument, the RUS Administrator is authorized on behalf 
of RUS to issue a replacement guarantee(s) for one(s) which may have 
been lost, stolen, destroyed, mutilated, or defaced. Such replacement(s) 
shall be issued only to the lender or holder and only upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) Requirements. When a guarantee(s) is lost, stolen, destroyed, 
mutilated, or defaced while in the custody of the lender, or holder, the 
lender will coordinate the activities of the party who seeks the 
replacement documents and will submit the required documents to RUS for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of the owner, requesting the 
replacement forms;
    (ii) Legal name and address of lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the guarantee, including the name of the 
borrower, date of the guarantee, face amount of the evidence of debt 
purchased, date of evidence of debt and present balance of the loan. Any 
existing parts of the documents to be replaced should be attached to the 
certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the guarantee; and
    (vi) The lender or holder, shall present evidence demonstrating 
current ownership of the guarantee and note. If the present holder is 
not the same as the original lender, a copy of the endorsement of each 
successive holder in the chain of transfer from the initial private 
lender to present holder

[[Page 1016]]

shall be included. If copies of the endorsement cannot be obtained, best 
available records of transfer shall be presented to RUS (e.g., order 
confirmation, cancelled checks, etc).
    (2) An indemnity bond acceptable to RUS shall accompany the request 
for replacement except when the holder is the United States, a Federal 
Reserve Bank, a Federal Government Corporation, a state or territory, or 
the District of Columbia. The bond may be with or without surety. The 
bond shall be with surety except when the outstanding principal balance 
and accrued interest due the present holder is less than $1,000,000 
verified by the lender in writing in a letter of certification of 
balance due. The surety shall be a qualified surety company holding a 
certificate of authority from the Secretary of the Treasury and listed 
in Treasury Department Circular 580.
    (3) All indemnity bonds shall be issued and/or payable to the United 
States of America acting through the Administrator of the Rural 
Utilities Service. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall save RUS harmless against 
any claim or demand which might arise or against any damage, loss, 
costs, or expenses which might be sustained or incurred by reasons of 
the loss or replacement of the instruments.

Sec. 1786.36  Other prepayments.

    Nothing contained in this subpart shall prohibit a borrower from 
making prepayments of FFB loans in accordance with the terms thereof.

Sec. 1786.37  Application of regulation to previous prepayments.

    Nothing contained in this subpart shall affect the validity of 
prepayments made or guarantees issued pursuant to previous regulations. 
Those borrowers, however, that completed a prepayment pursuant to 
section 306(A) of the RE Act and closed loans prior to February 27, 
1988, may, in their discretion request RUS approval and if required by 
prior regulations the concurrence of the Secretary of the Treasury, of 
any amendments necessary to make the terms and conditions of such loans 
consistent with, or to consolidate such loans with, loans guaranteed 
under these regulations.

Sec. 1786.38  Judicial review.

    This subpart is intended to set forth RUS policies and procedures 
for the orderly administration of the provisions of section 306(A) of 
the RE Act, section 633 of the continuing resolution, and section 637 of 
the 1989 Appropriations Act and is not intended to create any right or 
benefit, substantive or procedural, enforceable at law by a party 
against the United States, its agencies, its officers or any person.

Secs. 1786.39--1786.49  [Reserved]

  Subpart C--Special Discounted Prepayments on RUS Direct/Insured Loans

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.

Sec. 1786.50  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
electric and telephone borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.

Sec. 1786.51  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.53
    Fund means the Rural Electrification and Telephone Revolving Fund 
established pursuant to the Act.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the Unites 
States Department of Agriculture, established pursuant to Section 232 of 
the Federal

[[Page 1017]]

Crop Insurance Reform and Department of Agriculture Reorganization Act 
of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor to REA with respect 
to administering certain electric and telephone programs. See 7 CFR 
1700.1.
    RUS Loan Agreement means the agreement between the borrower and RUS 
providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made pursuant to Titles I, II or III of 
the Act (7 U.S.C. 901-940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27, 1990, 
as amended at 59 FR 66441, Dec. 27, 1994]

Sec. 1786.52  Prepayment.

    Through September 30, 1987, the Administrator may, pursuant to this 
subpart, permit eligible electric and telephone borrowers to prepay all 
outstanding RUS Notes issued or assumed by such borrowers and held in 
the Fund, upon paying the lesser of the outstanding balance or the 
Discounted Present Value.

Sec. 1786.53  Discounted present value.

    The Discounted Present Value shall be calculated five business days 
before prepayment is made by summing the present values of all remaining 
payments by using the following formula:
[GRAPHIC] [TIFF OMITTED] TC16SE91.025

Where:

P<INF>k</INF>=Total payment including interest, due on the 
k<SUP>th</SUP> payment date following the prepayment date.
n=Total number of remaining payments dates.
I=The discount rate, in decimals, which shall be the average rate on 
utility bonds bearing a rating of ``Aa'' as set forth in that issue of 
Moody's Public Utility News Reports most recently published prior to the 
date on which Discounted Present Value is calculated.
D1<INF>1</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a non-leap year (365 day year).
D2<INF>i</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a leap year (366 day year).

Sec. 1786.54  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value a 
borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS and 
the Rural Telephone Bank.
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes.
    (c) The borrower must identify the source of private financing that 
will be used to refinance its outstanding RUS Notes, which financing may 
not include obligations the income of which is exempt from taxation 
under the Internal Revenue Code of 1986.
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced.
    (e) The borrower must agree to a rescission of the unadvanced 
balance of the RUS Notes.
    (f) The borrower must agree that the borrower, its successors or 
assigns, shall pay to the Government, as a condition of receiving 
additional loans or loan guarantees pursuant to Titles I, II and III of 
the Act, an amount equal to the aggregate of the difference with respect 
to each of the RUS Notes between the amount outstanding on the RUS Note 
and the Discounted Present Value of the RUS Note upon prepayment with 
interest accruing quarterly; the interest rates shall be the rates 
provided in the respective RUS Notes.
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the

[[Page 1018]]

Administrator may request that it will meet its obligations to the power 
supplier.

Sec. 1786.55  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this subpart 
should apply to the appropriate RUS Area Director by submitting:
    (a) A board resolution that:
    (1) Requests approval of the prepayment of the borrower's 
outstanding RUS Notes, and
    (2) States the intent of the borrower to comply with all eligibility 
criteria set forth in Sec. 1786.54 of this subpart.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) Such additional information as the Administrator shall request.

Sec. 1786.56  Approval of applications.

    The applications will ordinarily be reviewed and, if satisfactory, 
approved, and closing schedule based on the order in which executed 
prepayment agreements are received. The Administrator may limit the 
number of applications approved and closings scheduled from time to time 
taking into account, among other matters, the financial interests and 
administrative considerations of the Government.

Sec. 1786.57  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to Titles I, II and III of the Act, an amount 
equal to the aggregate of the difference with respect to each of the RUS 
Notes between the amount outstanding on the RUS Note and the Discounted 
Present Value of the RUS Note upon prepayment with interest accruing 
quarterly; the interest rates shall be the rates provided in the 
respective RUS Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.
    (f) Such other terms and conditions as the Administrator deems 
appropriate.

Sec. 1786.58  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property that secure loans made or 
guaranteed pursuant to the Act, the Administrator of RUS or the Governor 
of the Rural Telephone Bank, as the case may be, will consider request 
for the accommodation of such liens for the purpose of providing 
security for loans the proceeds of which were used to prepay RUS Notes. 
Such lien accommodations shall be limited in amount to the Discounted 
Present Value of the RUS Notes plus such costs, as the Administrator 
shall determine to be reasonable, incurred by the borrower in obtaining 
such loans.

Sec. 1786.59  Loan fund audit.

    Within 6 months of closing RUS shall have the right to audit 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to RUS Notes 
which do not comply with the requirements of the RUS Loan Agreement, the 
borrower shall be required to pay to the Government an amount equal to 
the difference between the amount which the borrower prepaid on such RUS 
Notes evidencing RUS loan funds which were improperly disbursed and the 
amount which the borrower would otherwise have been required to return 
to the Government as a result of noncompliance if the borrower had not 
prepaid such RUS Notes. (See 7 CFR **part** 1721)

[[Page 1019]]

Sec. 1786.60  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement including such approvals as may be required by regulatory 
bodies and other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement; Provided, however, That no 
closing may be scheduled for after September 30, 1987. At closing, a 
borrower shall prepay the RUS Notes by paying to the Government an 
amount equal to the Discounted Present Value of the RUS Notes. The 
closing shall otherwise be conducted as prescribed in the prepayment 
agreement.

Sec. 1786.61  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.

Secs. 1786.62--1786.74  [Reserved]

Subpart D  [Reserved]

Subpart E--Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

    Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted.

Sec. 1786.95  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
certain electric borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.

Sec. 1786.96  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Consolidation means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into a new successor organization that 
takes over the assets and assumes the liabilities of those 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.98.
    Fund means the Rural Electrification and Telephone Revolving Fund 
pursuant to the Act.
    Merger means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into an existing survivor organization that 
takes over the assets and assumes the liabilities of the merged 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS Loan Agreement means the agreement between the borrower and RUS 
providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made or guaranteed by RUS pursuant to 
titles I and III of the Act (7 U.S.C. 901-940).

[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994]

Sec. 1786.97  Prepayment.

    There were 29 former RUS electric borrowers that prepaid their 
direct or insured loans under section 306B(a) of

[[Page 1020]]

the Act prior to October 1, 1987. (See subpart C of this **part**.) These 
borrowers are listed in appendix A to subpart E of this **part**. Any RUS 
electric borrower which is the result of a merger or consolidation 
involving any of these 29 former borrowers and a borrower with 
outstanding Notes may, after meeting all requirements of this subpart, 
prepay all outstanding RUS Notes issued or assumed by the borrower upon 
paying the lesser of the outstanding balance or the Discounted Present 
Value. Such prepayment must be made not later than one year after the 
effective date of the merger or consolidation.

Sec. 1786.98  Discounted present value.

    (a) The Discounted Present Value shall be calculated by RUS before 
prepayment is made by summing the present values of all remaining 
payments on all outstanding notes according to the following formula to 
compute the discounted present value of each note and adjusting as here 
and after provided for tax exempt financing.
[GRAPHIC] [TIFF OMITTED] TC16SE91.027

Where:

P<INF>k</INF>=Total payment, including interest, due on the 
k<SUP>th</SUP> payment date following the prepayment date. n=Total 
number of remaining payment dates. I=The discount rate applied to each 
transaction will be ascertained by using data specified in the ``Federal 
Reserve Statistical Release'' which is published each Monday. (See 
appendix B to subpart E of this **part**.) The specific discount rate will 
be the discount rate(s) specified in the ``Treasury Constant 
Maturities'' section of this publication eight working days prior to the 
closing. In applying the discount rate, the 1-year Treasury rate will be 
used for all notes with a remaining term of less than 2 years; the 2-
year Treasury rate for notes with maturities between 2 and 3 years; the 
3-year Treasury rate for all notes with maturities between 3 and 5 
years; the 5-year Treasury rate for all notes with maturities between 5 
and 7 years; the 7-year Treasury rate for all notes with maturities 
between 7 and 10 years; the 10-year Treasury rate for all notes with 
maturities between 10 and 30 years; and the 30-year Treasury rate for 
all notes with maturities longer than 30 years.
D1<INF>i</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a non-leap year (365 day year).
D2<INF>i</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a leap year (366 day year).

    (b) Notwithstanding paragraph (a) of this section, in the event that 
the borrower shall elect to prepay using tax exempt financing, the 
calculation of the Discounted Present Value shall be adjusted to make 
the discount the equivalent of fully taxable financing.

Sec. 1786.99  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value, 
a borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS;
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes;
    (c) The borrower must identify the source of financing that will be 
used directly or indirectly to refinance its outstanding RUS Notes. The 
borrower must certify in writing whether such financing will be tax 
exempt and, if so, shall furnish all information on the financing as RUS 
may request to enable RUS to adjust the discount to the equivalent to 
fully taxable financing;
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced or 
repaid RUS for all unexpended funds;
    (e) The borrower must agree to a rescission of the unadvanced 
balance of any RUS Notes outstanding as of the date of its application 
for prepayment;
    (f) The borrower must agree that the borrower, its successors and 
assigns,

[[Page 1021]]

shall pay to the Government, as a condition of receiving additional 
loans or loan guarantees pursuant to titles I and III of the Act, an 
amount equal to the aggregate of the difference with respect to each of 
the RUS Notes between the amount outstanding on the RUS Note and the 
Discounted Present Value of the RUS Note upon prepayment with interest 
accruing quarterly; the interest rates shall be the rates provided in 
the respective Notes; and
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the Administrator may request 
that it will meet its obligations to the power supplier. The borrower 
must also specifically agree to the following limitation: The borrower 
agrees that, for so long as the Wholesale Power Contract shall be in 
effect between the borrower and the power supplier, the borrower will 
not, without the approval in writing of the power supplier and the 
Administrator, take or suffer to be taken any steps for reorganization 
or to consolidate with or merge into any corporation or any other public 
power district, or to sell, lease or transfer (or make any agreement 
therefor) all or a substantial portion of its assets, whether now owned 
or hereafter acquired. Notwithstanding the foregoing, the borrower may 
take or suffer to be taken any steps for reorganization or to 
consolidate with or merge into any corporation or any other public power 
district, or to sell, lease or transfer (or make any agreement therefor) 
all or a substantial portion of its assets, whether now owned or 
hereafter acquired, so long as the borrower shall pay such portion of 
the outstanding indebtedness evidenced by the power supplier's Notes at 
the time outstanding as shall be determined by the power supplier with 
the prior written consent of the Administrator and shall otherwise 
comply with such reasonable terms and conditions as the Administrator 
and the Power Supplier shall require.

Sec. 1786.100  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this Subpart 
should apply to the appropriate RUS Area Director not less than 60 days 
prior to one year after the effective date of the merger or 
consolidation by submitting:
    (a) A board resolution that:
    (1) Requests approval of the prepayment of the borrower's 
outstanding RUS Notes;
    (2) States the intent of the borrower to comply with all eligibility 
criteria set forth in Sec. 1786.99 of this subpart; and
    (3) Identifies the source of financing.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) An opinion of counsel as to the effective date of the merger or 
consolidation.
    (d) Such additional information as the Administrator will request.

Sec. 1786.101  Approval of application.

    The applications will be reviewed and, if satisfactory, approved. 
Closing will be scheduled upon approval.

Sec. 1786.102  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place, date and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to titles I and III of the Act, an amount equal 
to the aggregate of the difference with respect to each of the RUS Notes 
between the amount outstanding on the RUS Note and the Discounted 
Present Value of the prepaid RUS Note; with interest accruing quarterly. 
The interest rates shall be the rates provided in the respective RUS 
Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.

[[Page 1022]]

    (f) Such other terms and conditions as the Administrator deems 
appropriate.

Sec. 1786.103  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property, the Administrator of RUS will 
consider a request for the accommodation of such liens for the purpose 
of providing security for loans the proceeds of which were used to 
prepay RUS Notes. Such lien accommodations shall be limited in amount to 
the Discounted Present Value of the RUS Notes plus such costs, as the 
Administrator shall determine to be reasonable, incurred by the borrower 
in obtaining such loans.

Sec. 1786.104  Loan fund audit.

    RUS shall have the right to audit within 6 months of closing, 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to RUS Notes 
which do not comply with the requirements of the RUS Loan Agreement, the 
borrower shall be required to pay the Government an amount equal to the 
difference between the amount which the borrower prepaid on such RUS 
Notes evidencing RUS loans funds which were improperly disbursed and the 
amount which the borrower would otherwise have been required to return 
to the Government as a result of noncompliance if the borrower had not 
prepaid such RUS Notes. (See 7 CFR **part** 1721, Post-Loan Policies and 
Procedures for Insured Electric Loans.)

Sec. 1786.105  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement, including such approvals as may be required by regulatory 
bodies and other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement. RUS shall designate the date 
of closing which in no event shall be later than one year after the 
effective date of the merger or consolidation. At closing, in addition 
to paying all current interest due on the date of prepayment, a borrower 
shall prepay the RUS Notes by paying to the Government an amount equal 
to the lesser of the outstanding balance or the Discounted Present Value 
of the RUS Notes. The closing shall otherwise be conducted as prescribed 
in the prepayment agreement.

Sec. 1786.106  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.

   Appendix A to Subpart E to **Part** 1786--Listing of Eligible Borrowers

------------------------------------------------------------------------
                State                      Borrower name and address
------------------------------------------------------------------------
Colorado............................  Colorado-Ute Electric Assn., Inc.,
                                       Montrose.
Florida.............................  Lee County Electric Coop. Inc.,
                                       North Fort Myers.
Indiana.............................  Clark County Rural Elec. Memb.
                                       Corp., Sellersburg.
Louisiana...........................  Beauregard Electric Cooperative,
                                       Inc., Deridder.
Missouri............................  Culvre River Electric Cooperative,
                                       Inc., Troy.
Nebraska............................  Roosevelt Public Power District,
                                       Mitchell.
Nebraska............................  Howard Greely Rural Public Power
                                       Dist., St. Paul.
Nebraska............................  Cuming County Public Power
                                       District, West Point.
Nebraska............................  York County Rural Public Power
                                       District, York.
Nebraska............................  Elkhorn Rural Public Power
                                       District, Battle Creek.
Nebraska............................  Southern Nebraska Rural P. P. D.,
                                       Grand Island.
Nebraska............................  McCook Public Power District,
                                       McCook.
Nebraska............................  Niobrara Valley Electric Memb.
                                       Corp., O'Neill.
Nebraska............................  Cornhusker Public Power District,
                                       Columbus.
Nebraska............................  Custer Public Power District,
                                       Broken Bow.
Nebraska............................  Northwest Rural Public Power
                                       Dist., Hay Springs.
Nebraska............................  Southwest Public Power District,
                                       Palisade.
Nebraska............................  Loup Valleys Rural Public Power
                                       District, Ord.
Nebraska............................  South Central Public Power
                                       District, Nelson.
Oklahoma............................  Peoples' Electric Cooperative,
                                       Ada.

[[Page 1023]]


Texas...............................  Deaf Smith County Electric Coop.
                                       Inc., Hereford.
Texas...............................  Pedernales Electric Coop. Inc.,
                                       Johnson City.
Texas...............................  Bandera Electric Cooperative,
                                       Inc., Bandera.
Texas...............................  Guadalupe Valley Electric Coop.,
                                       Inc., Gonzales.
Texas...............................  Bluebonnet Electric Cooperative,
                                       Inc., Giddings.
Texas...............................  Cap Rock Electric Cooperative,
                                       Inc. Stanton.
Texas...............................  San Bernard Electric Cooperative,
                                       Inc., Bellville.
Washington..........................  Inland Power & Light Company,
                                       Spokane.
Washington..........................  Pub. Util. Dist. No. 1 Grays
                                       Harbor Co., Aberdeen.
------------------------------------------------------------------------

   Appendix B to Subpart E to **Part** 1786--Federal Reserve Statistical 
                                 Release

                   Federal Reserve Statistical Release

    These data are released each Monday. The availability of the release 
will be announced when the information is available, on (202) 452-3206.

                               H. 15 (519)

    For immediate release February 4, 1991.

                                                                 Selected Interest Rates
                                                              [Yields in percent per annum]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           1991 Jan.   1991 Jan.   1991 Jan.   1991 Jan.   1991 Feb.
                       Instruments                            28          29          30          31           1       This week   Last week   1991 Jan.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Funds (effective) \1\ \2\ \3\...................        7.61        7.16        6.96        8.18        6.30        7.46        6.88        6.91
Commercial paper \3\ \4\ \5\
    1-Month.............................................        6.88        6.96        6.95        6.99        6.73        6.90        6.83        7.12
    3-Month.............................................        6.92        6.96        6.94        6.95        6.67        6.89        6.92        7.10
    6-Month.............................................        6.87        6.91        6.88        6.88        6.58        6.82        6.86        7.02
Finance paper placed directly \3\ \4\ \6\
    1-Month.............................................        6.76        6.85        6.83        6.83        6.55        6.76        6.68        6.95
    3-Month.............................................        6.75        6.83        6.83        6.76        6.46        6.73        6.77        6.92
    6-Month.............................................        6.53        6.53        6.59        6.53        6.19        6.47        6.55        6.59
Bankers acceptances (top rated) \3\ \4\ \7\
    3-Month.............................................        6.80        6.82        6.77        6.68        6.30        6.67        6.76        6.96
    6-Month.............................................        6.67        6.70        6.65        6.55        6.15        6.54        6.63        6.84
CDS (secondary market) \3\ \8\
    1-Month.............................................        6.78        6.85        6.87        6.82        6.52        6.77        6.77        7.10
    3-Month.............................................        6.94        6.95        6.93        6.88        6.51        6.84        6.94        7.17
    6-Month.............................................        6.95        6.98        6.95        6.88        6.51        6.85        6.97        7.17
Eurodollar deposits (London) \3\ \9\
    1-Month.............................................        6.81        6.88        6.88        6.88        6.88        6.86        6.81        7.13
    3-Month.............................................        6.94        7.06        7.00        6.94        6.94        6.98        7.01        7.23
    6-Month.............................................        7.00        7.00        7.00        6.94        6.94        6.98        7.04        7.23
Bank prime loan \2\ \3\ \10\............................        9.50        9.50        9.50        9.50        9.50        9.50        9.50        9.52
Discount window borrowing \2\ \11\......................        6.50        6.50        6.50        6.50        6.00        6.50        6.50        6.50
U.S. Government securities
  Treasury bills
    Auction average \3\ \4\ \12\
      3-Month...........................................        6.22  ..........  ..........  ..........  ..........        6.22        6.14        6.30
      6-Month...........................................        6.28  ..........  ..........  ..........  ..........        6.28        6.21        6.34
      1-Year............................................  ..........  ..........  ..........  ..........  ..........  ..........  ..........        6.22
    Auction average (investment) \12\
      3-Month...........................................        6.41  ..........  ..........  ..........  ..........        6.41        6.32        6.49
      6-Month...........................................        6.58  ..........  ..........  ..........  ..........        6.58        6.50        6.64
    Secondary market \3\ \4\
      3-Month...........................................        6.25        6.22        6.20        6.19        6.00        6.17        6.12        6.22
      6-Month...........................................        6.26        6.26        6.24        6.20        5.97        6.19        6.20        6.28
      1-Year............................................        6.24        6.20        6.17        6.13        5.91        6.13        6.19        6.25

[[Page 1024]]


Treasury Constant maturities \13\
      1-Year............................................        6.64        6.59        6.56        6.51        6.27        6.51        6.58        6.64
      2-Year............................................        7.12        7.10        7.07        7.05        6.83        7.03        7.09        7.13
      3-Year............................................        7.38        7.35        7.34        7.30        7.10        7.29        7.35        7.38
      5-Year............................................        7.67        7.64        7.64        7.62        7.45        7.60        7.66        7.70
      7-Year............................................        7.93        7.90        7.90        7.89        7.75        7.87        7.92        7.97
      10-Year...........................................        8.06        8.05        8.05        8.03        7.91        8.02        8.04        8.09
      30-Year...........................................        8.23        8.20        8.23        8.21        8.09        8.19        8.22        8.27
  Composite
    Over 10 years (long-term) \14\......................        8.29        8.26        8.29        8.27        8.15        8.25        8.28        8.33
Corporate bonds
  Moody's Seasoned
    AAA.................................................        9.03        9.01        9.00        8.99        8.96        9.00        9.05        9.04
    BAA.................................................       10.43       10.37       10.35       10.33       10.24       10.34       10.44       10.45
    A-Utility \15\......................................  ..........  ..........  ..........  ..........        9.65        9.65        9.80        9.83
State and local bonds \16\..............................  ..........  ..........  ..........        7.00  ..........        7.00        7.06        7.08
Conventional mortgages \17\.............................  ..........  ..........  ..........  ..........        9.56        9.56        9.61        9.64
--------------------------------------------------------------------------------------------------------------------------------------------------------
Footnotes:
\1\ The daily effective federal funds rate is a weighted average of rates on trades through N.Y. brokers.
\2\ Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month.
\3\ Annualized using a 360-day year or bank interest.
\4\ Quoted on a discount basis.
\5\ An average of offering rates on commercial paper placed by several leading dealers for firms whose bond rating is AA or the equivalent.
\6\ An average of offering rates on paper directly placed by finance companies.
\7\ Representative closing yields for acceptances of the highest rated money center banks.
\8\ An average of dealer offering rates on nationally traded certificates of deposit.
\9\ Bid rates for Eurodollar deposits at 11 a.m. London time.
\10\ One of several base rates used by banks to price short-term business loans.
\11\ Rate for the Federal Reserve Bank of New York.
\12\ Auction date for daily data; weekly and monthly averages computed on an issue-date basis.
\13\ Yields on actively traded issues adjusted to constant maturities. Source: U.S. Treasury.
\14\ Unweighted average of rates on all outstanding bonds neither due nor callable in less than 10 years, including one very low yielding ``flower''
  bond.
\15\ Estimate of the yield on a recently offered, A-rated utility bond with a maturity of 30 years and call protection of 5 years; Friday quotations.
\16\ Bond buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations.
\17\ Contract interest rates on commitments for fixed-rate first mortgages. Source: FHLMC.
Note: Weekly and monthly figures are averages of business days unless otherwise noted.

          Description of the Treasury Constant Maturity Series

    Yields on Treasury securities at ``constant maturity'' are 
interpolated by the U.S. Treasury from the daily yield curve. This 
curve, which relates the yield on a security to its time to maturity, is 
based on the closing market bid yields on actively traded Treasury 
securities in the over-the-counter market. These market yields are 
calculated from composites of quotations reported by five leading U.S. 
Government securities dealers to the Federal Reserve Bank of New York. 
The constant maturity yield values are read from the yield curve at 
fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method 
provides a yield for a 10-year maturity, for example, even if no 
outstanding security has exactly 10 years remaining to maturity.

         Subpart F--Discounted Prepayments on RUS Electric Loans

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted.

Sec. 1786.150  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
borrowers may prepay, with private financing or internally generated 
funds, outstanding RUS Notes evidencing electric loans at the Discounted 
present value of the RUS Notes, pursuant to the provisions of section 
306(B)

[[Page 1025]]

of the RE Act as amended by Public Law 102-428, 106 Stat. 2183, adopted 
October 21, 1992.

Sec. 1786.151  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric loans made by RUS, or has previously prepaid such 
notes under subparts C and E of this **part**.
    Business day means any day on which both the RUS and the Federal 
Reserve Bank of New York are open for business.
    Construction Fund Account means the Cash--Construction Fund--Trustee 
Account, maintained by the borrower pursuant to the terms of the 
outstanding RUS Loan Contract.
    Closing shall mean one of the several contemplated closings of the 
prepayment of the Qualified Notes prescribed by the Prepayment 
agreement.
    Closing date shall mean any business day identified as such by the 
Government in its preclosing notice delivered to the Company pursuant to 
Sec. 1786.158.
    Closing request shall mean a request by the borrower of the 
Government to schedule a closing for certain Qualified Notes on the date 
requested therein.
    Direct loan means a loan made pursuant to section 4 of the RE Act.
    Discounted present value shall have the meaning set forth in 
Sec. 1786.153.
    Distribution borrower means a borrower that sells electric power and 
energy at retail in rural areas.
    Electric loan means a Direct loan or an Insured loan made for the 
purpose of furnishing electric energy to persons in rural areas.
    Final maturity means the final date on which all outstanding 
principal and accrued interest on an electric loan is due and payable.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Insured loan means a loan made pursuant to Section 305 of the RE 
Act.
    Lien accommodation means the sharing of the Government's (RUS's) 
lien on property, usually all property, covered by the lien of the RUS 
Mortgage.
    Loan guarantee means a loan guarantee under Section 306 of the RE 
Act.
    Power supply borrower means a borrower that sells or intends to sell 
electric power at wholesale to distribution or power supply borrowers 
pursuant to RUS wholesale power contracts.
    Preclosing notice shall mean a notice delivered by the Government to 
the borrower in response to a closing request, identifying the closing 
date, the Qualified Notes to be prepaid at such closing and documents to 
be delivered by the borrower to the Government prior to the closing 
date.
    Prepayment agreement shall have the meaning set forth in 
Sec. 1786.158.
    Qualified Notes shall have the meaning set forth in Sec. 1786.154.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture.
    RUS Loan Contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.
    RUS Mortgage means collectively those mortgages and security 
agreements made by and among the borrower, the Government, and third 
parties, if any, securing indebtedness evidencing electric loans or loan 
guarantees made pursuant to the RE Act.
    Rural development loans means loans or grants made pursuant to Rural 
development programs.
    Rural development programs means loan or grant programs under the 
authority of the Administrator pursuant to sections 313, 501, and 502 of 
the RE Act.
    Supplemental lender means a private lender whose loan to the 
borrower is secured by the RUS mortgage.
    Tax exempt financing means borrowing evidenced by bonds, notes and 
other evidence of indebtedness the income of which is excluded from 
gross income for the purposes of Chapter 1 of the Internal Revenue Code 
of 1986 (26 U.S.C. ch. 1).

[[Page 1026]]

    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as the singular, and the singular as well as the plural.

Sec. 1786.152  Prepayments of RUS loans.

    An electric loan made under the RE Act shall not be sold or prepaid 
at a value that is less than the outstanding principal balance, except 
that, on request of a borrower, an electric loan made under the RE Act, 
or a portion of such a loan, that was advanced before May 1, 1992, or 
has been advanced for not less than 2 years, shall be prepaid by the 
borrower at the lesser of the outstanding principal balance of the loan 
or the discounted present value thereof.

Sec. 1786.153  Discounted present value.

    (a) The discounted present value shall be calculated by summing the 
present values of all remaining payments on all Qualified Notes to be 
prepaid according to the following formula and adjusted as provided in 
paragraph (b) of this section if tax exempt financing is used.
[GRAPHIC] [TIFF OMITTED] TR22MR94.016


Where:

The Greek letter, Sigma (<greek-S>) means the sum of the following 
terms.
The Greek letter, Pi (<greek-P>) means the product of the following 
terms.

P<INF>k</INF>=Total payment, including interest due on the 
K<SUP>th</SUP> payment date following the prepayment date.
n=Total number of remaining payment dates to final maturity.
D1<INF>i</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a non-leap year (365-day year).
D2<INF>i</INF>=Number of days in the i<SUP>th</SUP> payment period that 
are in a leap year (366-day year).
I=The discount rate applied to each transaction ascertained by using 
data specified in the ``Federal Reserve Statistical Release'' (H.15 
(519)), which is published each Monday. The availability of this Release 
will be announced when the information is available by telephone on 
(202) 452-3206. See adjustment for tax exempt refinancing at paragraph 
(b) of this section. The specific discount rate will be based on the 
discount rate(s) specified in the ``Treasury Constant Maturities'' 
section of this publication 8 business days prior to the closing and 
will be interpolated from that information as follows:

------------------------------------------------------------------------
      Remaining final maturity of RUS loan:
-------------------------------------------------
               At least                 But less     Treasury constant
--------------------------------------    than          maturities
                                      -----------
               # years                  # years
------------------------------------------------------------------------
0....................................          2  1-year.
2....................................          3  2-year.
3....................................          4  3-year.
4....................................          5  (<SUP>1</SUP>)
5....................................          6  5-year.
6....................................          7  (<SUP>2</SUP>)
7....................................          8  7-year.
8....................................          9  (<SUP>3</SUP>)
9....................................         10  (<SUP>3</SUP>)
10...................................         11  10-year.
11...................................         20  (<SUP>4</SUP>)
20...................................         21  20-year.
21...................................         30  (<SUP>5</SUP>)
30...................................         36  30-year.
------------------------------------------------------------------------
Notes: <SUP>1</SUP> The arithmetic mean between the 3-year. and 5-year. Treasury
  Constant Maturities; i.e., if 3-year. rate is 3.00% and the 5-year.
  rate is 4.00% then the rate used would be 3.5%.
<SUP>2</SUP> The arithmetic mean between the 5-year and 7-year Treasury Constant
  Maturities computed as above.
<SUP>3</SUP> A straight line interpolated rate between the 7-year rate and the 10-
  year rate. (See formula below)
<SUP>4</SUP> A straight line interpolated rate between the 10-year note and the 20-
  year Bond rate. (See formula below)
<SUP>5</SUP> A straight line interpolated rate between the 20-year bond and the 30-
  year bond using the following formula:

  [GRAPHIC] [TIFF OMITTED] TR22MR94.017
  

Where:

I=The discount rate interpolated from the cost of money to the Treasury.
A=The Treasury interest rate for the most recently published maturity 
(in years) that is the shortest Treasury term (in years)

[[Page 1027]]

which is greater than the borrower's remaining term (in years) to final 
maturity; i.e., (if the note to be prepaid has a final maturity of more 
than 10 years then this rate is the 20-year Treasury rate)
B=The Treasury interest rate for the most recently published maturity 
(in years) that is the longest Treasury term (in years) which is less 
than the borrower's remaining term (in years) to final maturity; i.e., 
(if the note to be prepaid has a final maturity of more than 10 years 
but less than 20 years then this term is the 10-year Treasury rate)
C=The remaining number of full years to the final maturity of the 
borrower's note. Drop all fractions of a year and use the remaining full 
years.
E=The published Treasury term (in years) to maturity which is the 
longest term to maturity for the published term that is less than the 
remaining term (in years) to final maturity of the borrower's note; 
i.e., (if the note to be prepaid has remaining years to maturity between 
11 and 20 years then this term would be 10 or if the note to be prepaid 
has remaining years to maturity between 21 years and 30 years then this 
term would be 20).
F=The published Treasury term (in years) to maturity which is the 
shortest term to maturity for the published term that is greater than 
the remaining term (in years) to maturity of the borrower's note; i.e., 
(if the note to be prepaid has remaining years to maturity between 11 
and 20 years then this term would be 20 or if the remaining years to 
maturity is between 21 and 30 years then this term would be 30).
    Note: The percentage terms used in the above formula will be 
truncated to two decimal places. For the purpose of the terms A, B, E, 
and F above the published Treasury rate and term shall mean the Treasury 
Constant Maturities from the Federal Reserve Statistical Release for 7 
years, 10 years, 20 years, and 30 years.
    (b)(1) In the event that the borrower prepays a loan under paragraph 
(a) of this section using, directly or indirectly, tax exempt financing, 
the discount shall be adjusted to ensure that the borrower receives a 
benefit that is no greater than the benefit the borrower would receive 
if the borrower used financing that was not tax exempt. The borrower 
shall certify in writing whether the financing will be tax exempt.
    (2) The discount rate established in paragraph (a) of this section 
shall be adjusted for a tax exempt financing by substituting for the 
``I'' term in the discount rate formula, a discount rate equal to the 
interest rate(s) published pursuant to 7 CFR 1714.5, determination of 
interest rates on municipal rate loans. This is the interest rate 
established for the new RUS loan program which is based on municipal 
interest rates for issues of comparable maturity. No interpolation or 
average will be used. If a note is to be prepaid under this subpart and 
is subject to this tax exempt adjustment, the discount rate will be 
determined from the published table in the Federal Register. For 
example, if the note to be discounted matures in the year 1999 then the 
discount rate will be the interest rate for the year 1999. RUS will 
publish a schedule of interest rates for municipal rate loans in the 
Federal Register at the beginning of each calendar quarter. The 
published rates in effect eight business days prior to closing will be 
used for the discount rates. All notes to be prepaid that have remaining 
years to maturity of more than 20 years will be discounted at the 
interest rate in effect for new RUS municipal rate loans of comparable 
maturity at the time of closing.

Sec. 1786.154  Qualified Notes.

    An eligible borrower may prepay Qualified Notes under this subpart 
at the discounted present value. A Qualified Note is a note evidencing 
an RUS electric loan, all advances of which were made prior to May 1, 
1992, or not less than 2 years prior to the date of prepayment closing. 
See Secs. 1786.155(a)(3) and 1786.158 (h) and (j).

Sec. 1786.155  Eligible borrower.

    (a) To be eligible to prepay an electric loan under this subpart, 
the borrower must be in compliance with the following:
    (1) The borrower shall be current on all payment obligations on 
outstanding loans made or guaranteed by RUS. For the purpose of 
determining eligibility for prepayment, a default by a power supply 
borrower from which a distribution borrower purchases wholesale power 
shall not be considered a default by the distribution borrower;
    (2) There shall exist no material defaults under the borrower's RUS 
Loan Contract and Mortgage;
    (3) The borrower shall have expended all funds advanced pursuant to 
the

[[Page 1028]]

RUS Loan Contract for the purposes for which such funds were advanced. A 
borrower will not be eligible to prepay under this subpart if it has any 
funds advanced pursuant to the RUS Loan Contract in its Construction 
Fund Account; and
    (4) The borrower shall be current on all obligations under any 
wholesale power contract with an RUS financed power supply borrower.
    (b) The eligibility of borrowers that have had any indebtedness 
representing loans made or guaranteed by RUS restructured shall be 
determined on a case by case basis considering the terms and conditions 
of the restructuring agreement.

Sec. 1786.156  Application procedure.

    Any borrower seeking to prepay Qualified Notes under this subpart 
should apply to the appropriate RUS Regional Director or the Director of 
the Power Supply Division. The application shall provide the following:
    (a) Borrower's RUS designation;
    (b) Borrower's name and address;
    (c) A certified copy of a resolution of the board of directors of 
the borrower that the borrower wishes to enter into a prepayment 
agreement providing for the prepayment of all or a portion of its 
Qualified Notes;
    (d) Listing of each Qualified Note to be prepaid by loan 
designation, RUS account number, advance date, maturity date, original 
amount, and outstanding principal balance;
    (e) Evidence that the borrower has the ability to obtain the 
financing necessary to prepay its Qualified Notes listed in paragraph 
(d) of this section and identification of the source of financing and 
the need if any of obtaining a lien accommodation from RUS; and
    (f) Such additional information as the Administrator may request.

Sec. 1786.157  Approval of applications.

    (a) Ordinarily, within 30 days of receipt, an application will be 
reviewed and the borrower will be notified as to whether the application 
has been approved. If the application has not been approved, the 
borrower will be informed as to the reasons. If the application is 
approved the borrower shall thereafter be provided with a prepayment 
agreement for execution.
    (b) The Administrator may limit the number of applications approved 
and closings scheduled from time to time, taking into account, among 
other matters, administrative considerations of the RUS.

Sec. 1786.158  Terms and conditions of prepayment agreement.

    Upon receipt of a satisfactory application, RUS shall provide to the 
borrower for its execution a prepayment agreement, in form and substance 
satisfactory to RUS, which may include the following:
    (a) Provide for the prepayment of one or more Qualified Notes from 
time to time, but no more than two closings may be scheduled in any 
calendar year unless a third closing is for the prepayment of all 
outstanding electric loans of the borrower;
    (b) Set forth procedures and forms through which the borrower will 
notify the Government of each election it makes to prepay certain 
Qualified Notes upon a requested closing date and the Government will 
notify the borrower of the established closing date and prepayment 
amount for the Qualified Notes for each closing;
    (c) Reserve to the Administrator the right to reschedule closing 
dates to meet administrative considerations;
    (d) Set forth closing requirements identifying the location and 
manner of payment, and all documentation and information to be delivered 
prior to or at closing, including opinions of counsel and certificates 
from the borrower;
    (e) Provide for notice by either telephone or facsimile to be given 
by RUS to the borrower not more than 8 nor less than 3 business days 
before a scheduled closing date of the amount to be paid at closing 
which shall include all accrued interest and the discounted present 
value of the Qualified Notes to be prepaid;
    (f) Provide for notice of the 120 month period during which the 
borrower's eligibility for direct or insured loans will be restricted;
    (g) Set forth representations and warranties;
    (h) Require the borrower to prepay each Qualified Note specified in 
full;

[[Page 1029]]

    (i) Require the borrower to identify the source of the financing 
that will be used directly or indirectly to refinance the Qualified 
Notes. If the source is other than internally generated funds, the 
borrower must certify in writing whether such financing will be tax 
exempt, and if tax exempt financing will be used, furnish all 
information on the terms and conditions of the financing as RUS may 
require;
    (j) Require the borrower to rescind the unadvanced balance of all 
outstanding electric loans as of the date of initial closing;
    (k) Require the borrower, if it is a party to a wholesale power 
contract with a power supply borrower, to provide the Administrator with 
such assurances as the Administrator may require that it is in 
compliance with and will continue to comply with its obligation to such 
power supply borrower;
    (l) Provide RUS, if the Administrator determines it necessary, with 
security for all outstanding rural development loans and amendments to 
any outstanding rural development loan agreements in form and substance, 
and on terms and conditions, satisfactory to RUS;
    (m) Prescribe remedies for violating the terms and conditions of the 
prepayment agreement;
    (n) Provide for termination by RUS of the right for the borrower to 
prepay thereunder;
    (o) Provide evidence that any approvals required from any 
supplemental lender have been obtained; and
    (p) Set forth such other terms and conditions as the Administrator 
shall deem appropriate.

Sec. 1786.159  Initial closing.

    (a) Upon receipt of the prepayment agreement, the borrower may 
submit, pursuant to the terms of the prepayment agreement, a closing 
request which shall request a closing date no less than 30 business days 
from the date of the request.
    (b) The Government will respond to the borrower's closing request by 
delivering a preclosing notice to the borrower not less than 10 business 
days prior to the date which the Government, after reviewing the 
borrower's closing request, selects as a closing date.

Sec. 1786.160  Subsequent closings.

    (a) Each subsequent prepayment after the initial closing shall be 
facilitated with the submission of an additional closing request by the 
borrower. Each closing request must request a closing date no less than 
30 business days from the date of the request.
    (b) The Government will respond to each subsequent closing request 
by delivering a preclosing notice to the borrower not less than 10 
business days prior to the date which the Government, after reviewing 
the borrower's closing request, selects as a closing date in each case.

Sec. 1786.161  Return of Qualified Notes and release of lien.

    Upon payment to RUS at closing of the full amount specified in the 
notice delivered by RUS to the borrower pursuant to the terms of the 
prepayment agreement (see Sec. 1786.158(e)), RUS will deliver to the 
borrower at closing those Qualified Notes which have been paid in full 
at such closing, and upon payment and discharge of all outstanding RUS 
debt obligations by the borrower, RUS will deliver to the borrower at 
the final closing a release of lien prepared by the borrower pursuant to 
the terms of the prepayment agreement.

Sec. 1786.162  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS Loan Contract, its outstanding 
notes issued to RUS, and the RUS Mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS Mortgage, or other creditors of the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments of any loans pursuant to the RE Act in accordance with the 
terms of such loans.

Sec. 1786.163  Existing wholesale power contracts.

    (a) If the borrower is a party to a wholesale power contract with a 
power supply borrower financed pursuant to

[[Page 1030]]

the RE Act, the Administrator may require that the borrower and the 
power supply borrower enter into a supplement to the outstanding 
wholesale power contract providing substantially as follows:

                          Sample Contract Terms

    So long as any of the notes evidencing secured loans of the power 
supply borrower are outstanding, the borrower will not, without the 
approval in writing of the power supply borrower and the Administrator, 
take or suffer to be taken any steps for reorganization or dissolution, 
or to consolidate with or merge into any corporation, or to sell, lease 
or transfer (or make any agreement therefor) all or a substantial 
portion of its assets, whether now owned or hereafter acquired. The 
power supply borrower will not unreasonably withhold or condition its 
consent to any such, reorganization, dissolution, consolidation, or 
merger, or to any such sale, lease or transfer (or any agreement 
therefor) of assets. The power supply borrower will not withhold or 
condition such consent except in cases where to do otherwise would 
result in rate increases for the other members of the power supply 
borrower or impair the ability of the power supply borrower to repay its 
secured loans in accordance with their terms, or adversely affect system 
performance in a material way. Notwithstanding the foregoing, the 
borrower may take or suffer to be taken any steps for reorganization or 
dissolution or to consolidate with or merge into any corporation or to 
sell, lease or transfer (or make any agreement therefor) all or a 
substantial portion of its assets, whether now owned or hereafter 
acquired without the power supply borrower's consent, so long as the 
borrower shall pay such portion of the outstanding indebtedness on the 
power supply borrower's notes or other obligations as shall be 
determined by the power supply borrower with the prior written consent 
of the Administrator and shall otherwise comply with such reasonable 
terms and conditions as the Administrator and power supply borrower may 
require either: (1) To eliminate any adverse effect that such action 
seems likely to have on the rates of the other members of the power 
supply borrower, or
    (2) To assure that the power supply borrower's ability to repay the 
secured loans and other obligations of the power supply borrower in 
accordance with their terms is not impaired.
    The Administrator may require, among other things, that any payment 
owed under (2) of the preceding sentence that represents a portion of 
the power supply borrower's indebtedness on Notes shall be paid by the 
borrower in the manner necessary to accomplish a defeasance of those 
obligations in accordance with the loan documents relating thereto, or 
be paid directly to the holders of the Notes for application by them as 
prepayments in accordance with the provisions of such documents, or be 
paid to the power supply borrower and held and invested in a manner 
satisfactory to the Administrator.

                     [End of sample contract terms]

    (b) The Administrator may exempt a borrower from the requirement to 
enter into a supplement to its outstanding wholesale power contract if 
the Administrator determines that such requirement is burdensome and 
unnecessary in light of the provisions of the existing wholesale power 
contract, other security arrangements of the power supply borrower, and 
any other relevant facts and circumstances. Normally such exemption will 
be granted only with the concurrence of the power supply borrower.

Sec. 1786.164  Loan fund audit.

    In the event that a borrower shall prepay all its outstanding 
electric loans RUS shall have the right to audit within six (6) months 
of closing transactions involving the RUS Construction Fund Account 
established and maintained by the borrower pursuant to the terms of the 
RUS Loan Contract and to inspect all books, records, accounts, and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to the RUS 
Loan Contracts which do not comply with the requirements thereof, the 
borrower shall be required to pay the RUS an amount equal to the 
difference between the amount which the borrower prepaid under this 
subpart with respect to such advances, and the amount which the borrower 
would otherwise have been required to return to the RUS as a result of 
noncompliance if the borrower had not prepaid such advances, plus 
interest. (See 7 CFR **part** 1721, Post-Loan Policies and Procedures for 
Insured Electric Loans.)

Sec. 1786.165  Reporting.

    Borrowers that no longer have any loans made or guaranteed by RUS 
and are considering applying for other financial assistance pursuant to 
the RE Act are encouraged to file the end-of-year operating report, RUS 
Form 7.

[[Page 1031]]

Sec. 1786.166  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement, including such approvals as may be required by regulatory 
bodies and other lenders.

Sec. 1786.167  Restrictions to additional RUS financing.

    (a) No borrower that prepays an electric loan at a discount as 
provided under this subpart may apply for or receive direct or insured 
loans during the 120 months from the most recent closing date, except at 
the discretion of the Administrator. During the 120 month period the 
Administrator may consider providing an insured loan if, among other 
matters, it is necessary to assure repayment of, or protect the 
Government's security for any outstanding loans or loan guarantees, or 
the borrower's system has suffered severe physical plant related damage 
due to conditions beyond its control and the borrower is unable to 
obtain financing at reasonable terms to restore the system from non-RUS 
sources, including the Federal Emergency Management Agency, and from 
private sources. Upon expiration of the 120 months, such borrowers may 
apply for direct or insured loans in the same manner as other borrowers 
provided that such borrowers may not apply for direct or insured loans 
for facilities, construction of which commenced prior to the expiration 
of the 120 months. Special provisions for mergers involving a borrower 
that has prepaid pursuant to this subpart are in 7 CFR 1717.158.
    (b) Borrowers that prepay their direct or insured RUS loans under 
this subpart remain eligible for certain types of financial assistance 
under the RE Act, including loan guarantees and rural development loans.

[59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19, 1996]

Sec. 1786.168  Borrowers who prepaid under this **part** prior to October 
          21, 1992.

    (a) A borrower that had prepaid, prior to the date of enactment of 
Public Law 102-428 (106 Stat. 2183) on October 21, 1992, at a discount 
rate as provided at 7 CFR **part** 1786, subpart C:
    (1) Shall not be eligible except at the discretion of the 
Administrator as stated in paragraph Sec. 1786.167(a), to apply for or 
receive direct or insured loans during the 180-month period beginning on 
the date of the prepayment; and
    (2) Shall not be eligible to apply for or receive direct or insured 
loans from RUS until the borrower has repaid to the RUS the sum of:
    (i) The amount (if any) by which the discount the borrower received 
by reason of the prepayment exceeds the discount the borrower would have 
received had the discount been based on the cost of funds to the 
Department of the Treasury as calculated at Sec. 1786.153 at the time of 
the prepayment; and
    (ii) Interest on the amount described in paragraph (a)(2)(i) of this 
section for the period beginning on the date of the prepayment and 
ending on the date of the repayment, at a rate equal to the average 
annual cost of borrowing by the Department of the Treasury. This rate 
will be calculated first on the date of prepayment and at one year 
intervals from that date based on the same U.S. Treasury issues 
published in the Federal Reserve Statistical Release closest to that 
date. The Treasury rate of interest to be applied for each year will be 
the rate for the Treasury issue of comparable maturity to the number of 
years from the prepayment date to the repayment date and at one year 
intervals thereafter.
    (b) If a borrower and the Administrator have entered into an 
agreement with respect to a prepayment occurring before October 21, 
1992, this section shall supersede any provision in the agreement 
relating to the restoration of eligibility for loans under the RE Act.
    (c) Borrowers who prepaid prior to October 1, 1987, are eligible for 
assistance under the RE Act in the same manner as other borrowers with 
respect to loan guarantees and the rural development loans.
    (d) During the 180 month period described in paragraph (a)(1) of 
this section the Administrator may consider providing an insured loan, 
if the conditions described in Sec. 1786.167(a) exist.

[[Page 1032]]

    (e) Borrowers may not apply for direct or insured loans for 
facilities, construction of which commenced prior to the expiration of 
the 180 month period described in paragraph (a)(1) of this section.

Sec. 1786.169  Liability.

    It is the intent of this subpart that any failure on the **part** of RUS 
to comply with any provisions of this subpart, including without 
limitation, those provisions setting forth specified timeframes for 
action by RUS on applications for prepayments or closing requests, shall 
not give rise to liability of any kind on the **part** of the Government or 
any employees of the Government including, without limitation, liability 
for damages, fees, expenses or costs incurred by or on behalf of a 
borrower, private lender or any other party.

Sec. 1786.170  Prepayment of loans approved after December 20, 1993. 
          [Reserved]

Secs. 1786.171--1786.199  [Reserved]

   Subpart G--Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(C) of the RE Act

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.); sec. 1201(b) of subtitle B of title 1 of Pub. L. 
103-66, 107 Stat. 312.

    Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted.

Sec. 1786.200  Purpose.

    This subpart sets forth the policies and procedures of RUS through 
the existing FFB program, whereby borrowers may prepay and refinance, 
outstanding FFB Notes evidencing electric or telephone loans with FFB, 
pursuant to the provisions of section 306(C) of the RE Act as added by 
Public Law 103-66, 107 Stat. 312, enacted August 10, 1993.

Sec. 1786.201  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric or telephone loans guaranteed by RUS, from FFB.
    Business day means any such day on which both the Federal Financing 
Bank and Federal Reserve Bank--New York are open for business.
    Electric loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for electric service.
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Loan guarantee means RUS's guarantee under section 306 of the RE Act 
of a loan from FFB.
    Payment date means the date that payment is due and is the last day 
in a calendar quarter.
    Prepayment penalty means the same as prepayment premium.
    Prepayment premium shall have the meaning set forth at 
Sec. 1786.207.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    Refinancing note shall have the meaning set forth at Sec. 1786.206.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS loan contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.

[[Page 1033]]

    RUS mortgage means collectively those mortgages and security 
agreements made by and between the borrower and the Government, securing 
indebtedness evidencing electric and telephone loans or loan guarantees 
made pursuant to RE Act. The term includes such mortgages regardless 
whether third parties are mortgagees with RUS.
    Supplemental lender means a private lender whose loan to the 
borrower is secured under an RUS mortgage.
    Telephone loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for telephone service.
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as the singular, and the singular as well as the plural. 
The words ``herein,'' ``hereof'' and ``hereunder'', and words of similar 
import, refer to this subpart as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27, 1994]

Sec. 1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.

    The borrower of an electric or telephone loan made by the FFB and 
guaranteed by RUS under section 306 of the RE Act may, at the option of 
the borrower, refinance or prepay a loan or an advance on the loan, or 
any portion of the loan or advance in accordance with section 306C of 
the RE Act, after meeting certain conditions using the procedures 
prescribed in the note. After refinancing existing notes under this 
section, additional prepayments or refinancings will be governed by the 
terms of the refinancing note(s).

Sec. 1786.203  Special considerations.

    Generally all FFB borrowers with loans guaranteed by RUS whose FFB 
notes have not been accelerated are eligible to prepay or refinance 
under this **part**. All requests for prepayment or refinancing will be 
processed in accordance with this subpart except that some requests for 
refinancing and prepayments are more complicated and thus will involve 
special considerations. These requests will have to be handled on a case 
by case basis and include:
    (a) Telephone borrowers who are required to meet certain terms of 
their indenture;
    (b) Borrowers who have amended their old form note or have already 
repriced prior to September 30, 1993;
    (c) Borrowers that have been involved in a merger or consolidation;
    (d) Borrowers whose obligations to RUS, FFB notes, or security 
instruments differ from those normally used;
    (e) A request to prepay or refinance an amount of less than $100,000 
or an amount of less than the full amount of an advance outstanding; or
    (f) A request to prepay or refinance a note that includes unadvanced 
loan funds.

Sec. 1786.204  Limitations.

    (a) No more than three refinancing notes will be executed for any 
borrower per calendar year.
    (b) The borrower may not select a term for the refinanced advance 
that ends after the maturity date set for that advance.

Sec. 1786.205  Application procedure.

    (a) Any borrower seeking to prepay or refinance an advance from the 
FFB under this subpart should apply by letter to the appropriate RUS 
Regional Director or, in the case of power supply borrowers, to the 
Director of the Power Supply Division. The borrower will be required to 
submit applications and elections in a digital format to be supplied by 
RUS. The application letter shall provide the following:
    (1) Borrower's RUS designation;
    (2) Borrower's name and address;
    (3) Listing of each note to be prepaid by loan designation, RUS note 
number, RUS account number, advance date, maturity date, original 
amount, outstanding balance, and date(s) of any substitute FFB note(s) 
amending the original FFB Note;
    (4) A statement of the borrower's intention to finance the premium 
by an addition to principal balance or to pay the premium in cash or 
with unsecured debt;
    (5) A statement of the maturity options that the borrower wishes to 
select;

[[Page 1034]]

    (6) Such additional information as the Administrator may request.
    (b) Requests for refinancing or prepayment will ordinarily be 
processed in the order that they are received. Borrower's may withdraw 
an application by notifying the appropriate RUS office in which they 
filed the application.
    (c) When the request for prepayment or refinancing is approved for 
processing the borrower will be provided with appropriate instructions, 
documents and forms which may include but are not limited to the 
following:
    (1) An FFB refinancing note;
    (2) Resolution of Board of Directors;
    (3) Legal Opinion;
    (4) Certificate of Secretary;
    (5) Waiver of Notice;
    (6) Notice to borrower electing an effective date other than a 
scheduled quarterly payment date (if applicable);
    (7) Documentation of obligations secured pursuant to section 
1786.208 if any; and
    (8) Security instrument.

(Approved by the Office of Management and Budget under control number 
0572-0032)

Sec. 1786.206  Refinancing note.

    (a) RUS will issue a replacement guaranty for refinancing notes 
delivered to FFB to replace and substitute for existing FFB notes in 
connection with any refinancing by FFB pursuant to section 306C of the 
RE Act.
    (b) Generally, refinancing notes will, to the extent practicable, 
consolidate all of a borrower's existing FFB notes which have been 
guaranteed by RUS and containing terms and conditions as FFB may require 
and RUS and the borrower may accept.
    (c) Notwithstanding any contrary provision contained in this 
subpart, RUS will give preference to processing refinancings that 
utilize a generic form of refinancing note in the event that FFB 
prescribes one.

[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993]

Sec. 1786.207  Prepayment premium.

    (a) A premium shall be assessed against a borrower that refinances 
or prepays a loan or loan advance, or any portion of a loan or advance, 
under this section. RUS will collect the prepayment premium as 
calculated by FFB. FFB will calculate this premium as described in this 
section. Except as provided in paragraph (b) of this section, the 
premium shall be equal to the lesser of:
    (1) The difference between the outstanding principal balance of the 
loan being refinanced and the present value of the loan discounted at a 
rate equal to the then current cost of funds to the Department of the 
Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid;
    (2) 100 percent of the amount of interest for 1 year on the 
outstanding principal balance of the loan or loan advance, or any 
portion of the loan or advance, being refinanced, multiplied by the 
ratio that:
    (i) The number of quarterly payment dates between the date of the 
refinancing or prepayment and the maturity date for the loan advance; 
bears to
    (ii) The number of quarterly payment dates between the first 
quarterly payment date that occurs 12 years after the end of the year in 
which the amount being refinanced was advanced and the maturity date of 
the loan advance; and
    (3)(i) The present value of 100 percent of the amount of interest 
for 1 year on the outstanding principal balance of the loan or loan 
advance, or any portion of the loan or advance, being refinanced or 
prepaid; plus
    (ii) For the interval between the date of the refinancing or 
prepayment and the first quarterly payment date that occurs 12 years 
after the end of the year in which the amount being refinanced or 
prepaid was advanced, the present value of the difference between:
    (A) Each payment scheduled for the interval on the loan amount being 
refinanced or prepaid; and
    (B) The payment amounts that would be required during the interval 
on the amounts being refinanced or prepaid if the interest rate on the 
loan were equal to the then current cost of funds to the Department of 
the Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid.
    (b)(1) Except as provided in paragraph (b)(2) of this section, the 
premium provided by paragraph (a)(1) of

[[Page 1035]]

this section shall be required for refinancing or prepayment under this 
section.
    (2) In the case of a loan advanced under an agreement that permits 
the refinancing or prepayment of the loan advance based on the payment 
of 1 year of interest on the outstanding principal balance of the loan 
advance, a borrower may, in lieu of the premium required by paragraph 
(a)(1) of this section, pay a premium as provided by:
    (i) Paragraph (a)(2) of this section, if the loan advance has 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment; or
    (ii) Paragraph (a)(3) of this section, if the loan advance has not 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment.

Sec. 1786.208  Increased principal.

    A borrower can meet the premium requirements by increasing the 
outstanding principal balance of the loan advance that is being 
refinanced. If it does so the borrower shall make a payment at the time 
of the refinancing equal to 2.5 percent of the amount of the premium 
that is added to the outstanding principal balance of the loan.

Sec. 1786.209  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS loan contract, its outstanding 
notes issued to RUS, and the RUS mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS mortgage or the rights of any other creditors of 
the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments on any loans pursuant to the RE Act in accordance with the 
terms thereof or as may be otherwise permitted by law.

Sec. 1786.210  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the refinancing 
note, including such approvals as may be required by regulatory bodies 
and other lenders.
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