1005

Rural Utilities Service, USDA Pt. 1786

filing written notice to that effect with

Robert D. Ruddy, Director, Fiscal Accounting Division, Rural Utilities

Service, Washington, DC 20250–1500.

(b) A borrower may reduce the balance of its cushion of credit account

only if the amount obtained from the

reduction is used to make scheduled

payments on loans made or guaranteed

under the Act.

[54 FR 13669, Apr. 5, 1989; 54 FR 17703, Apr. 25,

1989]

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.

1006

§§ 1786.1—1786.24 7 CFR Ch. XVII (1–1–00 Edition)

1786.204 Limitations.

1786.205 Application procedure.

1786.206 Refinancing note.

1786.207 Prepayment premium.

1786.208 Increased principal.

1786.209 Outstanding loan documents.

1786.210 Approvals.

AUTHORITY: 7 U.S.C. 901–950b; Title I, subtitle B, Pub. L. 99–509; Pub. L. 101–624, 104

Stat. 4051; Pub. L. 103–354, 108 Stat. 3178, (7

U.S.C. 6941 et seq.), unless otherwise noted.

SOURCE: 55 FR 1145, Jan. 11, 1990, unless

otherwise noted.

EDITORIAL NOTE: Nomenclature changes to

part 1786 appear at 55 FR 49250, Nov. 27, 1990.

Subpart A—General [Reserved]

§§ 1786.1—1786.24 [Reserved]

Subpart B—Prepayment of RUS

Guaranteed Federal Financing Bank Loans Pursuant to

Section 306(A) of the RE Act

AUTHORITY: 7 U.S.C. 901–950b; Title I, Subtitle B, Pub. L. 99–509; Title I, Pub. L. 100–

202; Pub. L. 100–203; Title VI, Pub. L. 100–460;

Pub. L. 103–354, 108 Stat. 3178 (7 U.S.C. 6941 et

seq.).

SOURCE: 55 FR 1145, Jan. 11, 1990, unless

otherwise noted. Redesignated at 55 FR 49250,

Nov. 27, 1990.

§ 1786.25 Purpose.

This subpart contains the general

regulations of the Rural Utilities Service (RUS) for implementing the provisions of (a) section 306(A) of the Rural

Electrification Act of 1936, as amended

(RE Act); (b) section 633 of the Rural

Development, Agriculture, and Related

Agencies Appropriations Act, 1988

(Pub. L. 100–202) (the continuing resolution); and (c) section 637 of the Rural

Development, Agriculture, and Related

Agencies Appropriations Act, 1989

(Pub. L. 100–460) (the 1989 Appropriations Act) which permit, in certain circumstances, loans made by the Federal

Financing Bank (FFB) and guaranteed

by the Administrator of RUS to be prepaid by RUS electric and telephone

borrowers by paying the outstanding

principal balance due on the FFB loan,

using a private loan with the existing

RUS guarantees or using internally

generated funds.

§ 1786.26 Policy.

It is the policy of RUS to facilitate

the prepayment of FFB loans in accordance with the provisions of section

306(A) of the RE Act and section 633 of

the continuing resolution as modified

by section 637 of the 1989 Appropriations Act. Furthermore, consistent

with the RE Act, the continuing resolution and the 1989 Appropriations Act,

it is the policy of RUS to implement

the objectives of the prepayment program in a manner which does not result in an increase in loan guarantee

risk or an inappropriate increase in the

administrative burden on RUS.

§ 1786.27 Definitions and rules of construction.

(a) Definitions. For the purposes of

this subpart, the following terms shall

have the following meanings:

Administrator means the Administrator of RUS.

Application Category shall have the

meaning set forth in §1786.29(c).

Application period means a period during which RUS is accepting applications to make prepayments pursuant

to this subpart, and initially means:

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

1990;

(2) In the case of financially distressed borrowers, the period commencing October 1, 1990 and ending on

July 30, 1993; or

(3) In the case of other borrowers, the

period to be announced by RUS.

Borrower means any organization

which has an outstanding FFB loan

guaranteed by RUS under the RE Act.

Business Day means any day other

than a Saturday, a Sunday, a legal

public holiday under 5 U.S.C. section

6103 for the purposes of statutes relating to pay and leave of employees, or

any other day declared to be legal holiday for the purposes of statutes relating to pay and leave of employees by

Federal statute or Federal Executive

Order.

Continuing Resolution means section

633 of the Rural Development, Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100–202).

1007

Rural Utilities Service, USDA § 1786.27

Date Received means the date inscribed on the Notice of Intent to Prepay the Federal Financing Bank, by an

authorized official of RUS, as the date

the application was received.

Documentation means all or part of

the agreements relating to a prepayment under this part, irrespective of

whether RUS is a party to each agreement, including all exhibits to such

agreements.

Electric Program Applications shall

have the meaning specified in

§1786.29(c)(1).

Existing Loan Guarantee means a

guarantee of payment issued by RUS to

FFB pursuant to the RE Act for an

FFB loan made on or before July 2,

1986.

Fees means any fees, costs or charges,

incurred in connection with obtaining

the private loan used to make the prepayment including without limitation,

accounting fees, filing fees, legal fees

(including fees and disbursements

charged by counsel representing the

borrower), printing costs, recording

fees, trustee fees, underwriting fees,

capital stock purchases or other equity

investment requirements of the lender,

and other related transaction expenses.

Financially Distressed Borrower means

an RUS-financed electric system determined by the Administrator to be either (1) in default or near default on interest or principal payments due on

loans made or guaranteed under the RE

Act, and is making a good faith effort

to increase rates and reduce costs to

avoid or mitigate default; or (2) participating in a work out or debt restructuring plan with RUS, either as

the borrower being restructured or as a

borrower providing assistance as part

of the work out or restructuring.

Financially Viable Lender means:

(1) A lender (i) which has a capital

and surplus of at least $50 million; (ii)

is a beneficiary of an irrevocable letter

of credit, in form and substance satisfactory to the Administrator, payable

to it in the amount of $50 million; (iii)

is the beneficiary of a guarantee, in

form and substance satisfactory to the

Administrator, in the amount of $50

million from a lending institution with

a capital and surplus of at least $50

million; or (iv) has other credit support, in form and substance satisfactory to the Administrator, in the

amount of $50 million; or

(2) In the event of a prepayment totalling less than $100 million, a lender

(i) which has a capital and surplus of at

least $10 million; (ii) is a beneficiary of

an irrevocable letter of credit, in form

and substance satisfactory to the Administrator, payable to it in the

amount of $10 million; (iii) is the beneficiary of a guarantee, in form and substance satisfactory to the Administrator, in the amount of $10 million

from a lending institution with a capital and surplus of at least $10 million;

or (iv) has other credit support, in form

and substance satisfactory to the Administrator, in the amount of $10 million;

FFB means the Federal Financing

Bank, an instrumentality and wholly

owned corporation of the United

States.

FFB Loan means one or more advances, or a part of one or more advances, made on or before July 2, 1986,

by FFB on a promissory note or notes

executed by a borrower and guaranteed

by RUS pursuant to section 306 of the

RE Act (7 U.S.C. 936).

Guarantee means the original endorsement, in the form specified by

RUS which is executed by the Administrator and shall be an obligation supported by the full faith and credit of

the United States and incontestable except for fraud or misrepresentation of

which the holder had actual knowledge

at the time it became a holder.

Increase in Loan Guarantee Risk

means the change in any of the components of loan guarantee risk associated

with the private loan which in the

judgment of RUS increases the magnitude or duration of the loan guarantee risk currently assumed by RUS

in connection with the existing loan

guarantee;

Internally Generated Funds means

money belonging to the borrower other

than: (1) Proceeds of loans made or

guaranteed under the RE Act or (2)

funds on deposit in the cash construction trustee account;

Lender means the organization making and servicing the private loan

which is to be guaranteed under the

provisions of this subpart and used to

prepay the FFB loan. The term lender

1008

§ 1786.27 7 CFR Ch. XVII (1–1–00 Edition)

does not include the FFB, or any other

Government agency.

Loan Guarantee Agreement means the

written contract by and among the

lender, the borrower, the Administrator, and such other parties that

RUS may require, setting forth the

terms and conditions of a guarantee

issued pursuant to the provisions of

this subpart.

Loan Guarantee Risk means the risk

as determined by RUS associated with

guaranteeing a loan for a particular

borrower. Components of loan guarantee risk include the following:

(1) The outstanding principal balance

of a loan;

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

(3) The final maturity date of a loan;

(4) The annual principal amortization

of the loan; and

(5) Any other factor that as determined by RUS increases the magnitude

or duration of the guarantee.

Mortgage means the mortgage and security agreements by and among the

borrower and RUS, as from time to

time supplemented, amended and restated.

1989 Appropriations Act means the

Rural Development, Agriculture, and

Related Agencies Appropriations Act,

1989 (Pub. L. 100–460).

Notice of Intent to Prepay the Federal

Financing Bank means the notice in the

form specified in §1786.33 hereof.

Prepayment Authority shall have the

meaning specified in §1786.29(a).

Private Loan means a loan or loans to

be guaranteed under the provisions of

this part and used to prepay an FFB

loan.

Pro-rated Percentage shall have the

meaning specified in §1786.30(b)(1).

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

amended.

REA means the Rural Electrification

Administration formerly an agency of

the United States Department of Agriculture and predecessor agency to RUS

with respect to administering certain

electric and telephone loan programs.

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

pursuant to Section 232 of the Federal

Crop Insurance Reform and Department of Agriculture Reorganization

Act of 1994 (Pub. L. 103–354, 108 Stat.

3178), successor to REA with respect to

administering certain electric and telephone programs. See 7 CFR 1700.1.

Service or Servicing means the following activities:

(1) The billing and collecting of the

private loan payments from the borrower;

(2) Notifying the Administrator

promptly of any default in the payment of principal and interest on the

private loan and submitting a report,

as soon as possible thereafter, setting

forth the servicer’s views as to the reasons for the default, how long the

servicer expects the borrower to be in

default, and what corrective actions

the borrower states it is taking to

achieve a current debt service position;

(3) Notifying the Administrator of

any known violations or defaults by

the borrower under the lending agreement, loan guarantee agreement, the

mortgage, or related security instruments, or conditions of which the

servicer or the lender is aware which

might lead to nonpayment, violation or

other default; and

(4) Such other activities as may be

specified in the loan guarantee agreement.

Settlement Date means the date the

borrower disburses funds to the FFB in

order to complete a prepayment pursuant to this subpart, and shall be a date

agreed to by RUS, and a date on which

both the FFB and the Federal Reserve

Bank of New York are open for business.

Standard Electric Program Application

shall have the meaning specified in

§1786.29(c)(1).

Telephone Borrower means a borrower

that provides telephone service as defined in 7 CFR 1735.2(a).

Telephone Program Applications shall

have the meaning specified in

§1786.29(c)(2).

(b) Rules of Construction. Unless the

context shall otherwise indicate, the

terms defined in §1786.27(a) hereof include the plural as well as the singular,

and the singular as well as the plural.

The words ‘‘herein,’’ ‘‘hereof’’ and

1009

Rural Utilities Service, USDA § 1786.28

‘‘hereunder’’, and words of similar import, refer to this subpart as a whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55

FR 35426, Aug. 30, 1990. Redesignated at 55 FR

49250, Nov. 27, 1990, and amended at 59 FR

66440, Dec. 27, 1994]

§ 1786.28 Qualifications.

(a) Borrowers. To qualify to prepay an

FFB loan pursuant to this subpart, the

borrower must:

(1) Demonstrate that the FFB loan

was outstanding on July 2, 1986;

(2) Prepay the FFB loan by:

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

(ii) Using internally generated funds;

or

(iii) Using a combination of a private

loan with the existing loan guarantee

and internally generated funds; and

(3) Certify that any savings resulting

from such prepayment will be passed

on to its customers, or used to improve

the financial strength of the borrower

in cases of financial hardship.

(b) Lenders. To participate pursuant

to this subpart, in a borrower’s prepayment of an FFB loan by means of a private loan, the lender must:

(1) Be a private legally organized

lender, or a lender established pursuant

to the Farm Credit Act of 1971, as

amended;

(2)(i) Be subject to credit examination and supervision by either an agency of the United States or a state and

be in good standing with its licensing

authority and have met the requirements, if any, of licensing, lending and

loan servicing in the state where the

collateral for the Loan is located;

(ii) Be a financially viable lender; or

(iii) Be a trust administered. by an

entity meeting the requirements of

paragraph (b)(2) (i) or (ii) of this section; and

(3) Have the capability to adequately

service the private loan either by using

its own resources or by contracting for

such resources with a financially viable

lender. Under no circumstances may

the borrower or an affiliate of the borrower service the private loan. A qualified lender may participate out each

private loan to entities other than a

Government agency, the borrower, or

an affiliate of the borrower, provided

that such participation shall be on

terms and conditions satisfactory to

the Administrator.

(c) Private Loans. A borrower who

qualifies pursuant to §1786.28(a) may at

its option elect to use a private loan to

make a prepayment, or a portion of a

prepayment, pursuant to this subpart.

Private loans, the proceeds of which

are used exclusively to prepay FFB

loans, shall be eligible for a guarantee

under this subpart. The Administrator

shall endorse a guarantee on each note

evidencing a qualifying private loan.

The private loan shall be structured in

a manner which in the judgment of

RUS shall not result in an increase in

loan guarantee risk and shall comply

with the following:

(1) The private loan shall provide for

the periodic payment of interest by the

borrower not less frequently than annually, at either a variable or fixed

rate in a manner which shall not result

in an increase in loan guarantee risk.

(i.e. The dollar weighted average interest rate on the private loan shall be

less than or equal to the dollar weighted average interest rate on the FFB

loan being prepaid, so that:

C C

C AT

J n r o

o ii

i=1

n

= +

( ) −

( ) −

∑

Where,

Cr=The revised interest rate cap;

Co=The original interest rate cap at the time

of prepayment;

Ai=The average interest rate actually

charged in the ith period;

Ti=Length of the ith period expressed in

years;

1010

§ 1786.28 7 CFR Ch. XVII (1–1–00 Edition)

n=The number of years that have elapsed

since the initial prepayment;

J=The initial term of the private loan, at the

time of prepayment;

Subject to the constraint that A1 must be

less or equal to Co).

(2) Principal payments on the private

loan shall be made either quarterly,

semiannually, or annually and shall

commence on or before the last day of

the calendar year during which the prepayment pursuant to this subpart was

made.

(3) With the approval of the Administrator, the lender may refund the private loan with the proceeds of another

loan from the same lender, with the existing guarantee and under terms, conditions, and a structure substantially

similar to the private loan, on such

dates as the lender, the borrower and

RUS may agree, provided however,

that such a refunding loan shall comply with the provisions of §1786.28(c)

hereof. Additionally, with the approval

of the Administrator, the private loan

may be prepaid either in whole or in

part at any time by the borrower using

its general funds.

(4) The private loan and the guaranteed note evidencing the private loan

shall not be directly or indirectly part

of a transaction the income of which is

excluded from gross income for the

purposes of Chapter I of the Internal

Revenue Code of 1986.

(5) The guaranteed note evidencing

the private loan shall not be transferable or assignable except

(i) With the written approval of the

Administrator;

(ii) In the event that the guaranteed

note evidencing the private loan is held

by a trust, to a similar trust, in connection with a refunding loan made by

the lender pursuant to §1786.28(c)(3); or

(iii) As an undivided pro rata interest

in a pool of obligations.

(6) The loan documentation shall provide RUS with the right to accelerate

the note evidencing the private loan

upon the occurrence of any ‘‘Event of

Default’’ under the mortgage with the

effect that all of the unpaid principal

and interest on any such note shall become immediately due and payable to

RUS, and RUS shall continue to pay

under its guarantee the principal of

and interest on such note without taking into account such acceleration. The

loan documentation shall also provide

RUS with a right, upon the occurrence

of such an ‘‘Event of Default,’’ to accelerate payment on its guarantee and accelerate payment on the note evidencing the private loan on the earlier of

any date the interest rate on the private loan is reset, without premium or

penalty; any date the borrower may

prepay in accordance with the terms of

the private loan, or the tenth anniversary of the date the private loan first

bears interest at a fixed interest rate.

(7) The principal of the private loan

shall not include amounts attributable

to fees associated with the private

loan. At the time it submits its application, a borrower may request that

the Administrator approve the inclusion of amounts attributable to fees as

part of the interest rate on the private

loan, if the net effective interest rate

including such fees meets the test contained in §1786.28(c)(1). For the purposes of these regulations, such financed fees shall be considered ‘‘interest’’.

(8) Private loans and guaranteed

notes evidencing private loans shall

otherwise be in form and substance satisfactory to the Administrator.

(d) Prepayments Without a Guarantee.

Qualifying borrowers may elect to utilize internally generated funds without

a guarantee to prepay an FFB loan, or

partially prepay an FFB loan, pursuant

to this subpart, if

(1) The borrower notifies RUS, of its

intent to prepay using internally generated funds in accordance with the application procedures set forth in this

subpart; and

(2) The borrower submits a certification to RUS that the prepayment

does not, materially adversely affect

the financial stability of the borrower

and its ability to meet all its obligations, including debt service on all

loans made, guaranteed or lien accommodated under the RE Act which will

remain outstanding after the date of

the prepayment.

(e) The Use of both a Private Loan and

Internally Generated Funds. Qualifying

borrowers may elect to utilize a combination of private loans and internally

generated funds without a guarantee,

1011

Rural Utilities Service, USDA § 1786.29

to prepay an FFB loan pursuant to this

subpart, if

(1) The private loans comply with the

provisions of paragraph (c) of this section, and

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

(f) FFB loans. A borrower’s FFB loans

that qualify to be prepaid pursuant to

this subpart are:

(1) Qualifying Borrowers. In the case

of qualifying borrowers other than financially distressed borrowers, FFB

advances with long-term maturity

dates may be prepaid pursuant to this

subpart; and

(2) Financially distressed borrowers.

FFB loans that are eligible to be prepaid by utilizing the financially distressed borrowers’ reserve are advances

with long-term maturity dates, and

which in the opinion of the Administrator, if prepaid, would result in an

economic savings to the financially

distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55

FR 35426, Aug. 30, 1990. Redesignated at 55 FR

49250, Nov. 27, 1990]

§ 1786.29 Prepayment authority, program allocations, categories of prepayment applications and financially distressed borrowers’ reserve.

(a) Prepayment Authority. So long as

the aggregate amount of prepayments

made after December 22, 1987, including

prepayments made pursuant to

§1786.28(d) and §1786.28(e), under section 306(A) of the RE Act, does not exceed $2.5 billion, the approval of the

Secretary of the Treasury is not required in order to make a prepayment

pursuant to this subpart (such amount

of prepayments is hereinafter called

prepayment authority).

(b) Program Allocations. In accordance

with the provisions of section 637 of the

1989 Appropriations Act, $350 million of

prepayment authority is allocated to

RUS-financed electric systems and $150

million of prepayment authority is allocated to RUS-financed telephone

utilities. The amounts of prepayment

authority allocated to electric program

borrowers and telephone program borrowers shall not be transferred between

programs. Borrowers may not sell, assign, or otherwise transfer prepayment

authority to another borrower.

(c) Categories of Prepayment Applications. Applications received by RUS

from borrowers desiring to prepay pursuant to this subpart will be separated

into the following two application categories:

(1) Electric Program Applications. Electric program applications are applications to make a prepayment pursuant

to this subpart from RUS-financed

electric utilities, that qualify in accordance with §1786.28(a) hereof and

which are received by RUS during the

application period. Electric program

applications will be further subdivided

and classified as being either (i) a financially distressed borrower’s application, or (ii) a standard electric program application. Applications received from borrowers determined by

the Administrator not to be a financially distressed borrower will be classified and processed as a standard electric program application;

(2) Telephone Program Applications.

Telephone program applications are

applications to make a prepayment

pursuant to this subpart from RUS-financed telephone utilities that qualify

in accordance with §1786.28(a) hereof

and which are received by RUS during

the application period;

(d) Financially distressed borrowers’ reserve. The $350 million of prepayment

authority allocated for RUS-financed

electric utilities, is initially set aside

into a financially distressed borrowers’

reserve. This reserve of prepayment authority will be available for prepayments pursuant to this subpart by financially distressed borrowers who

apply to make such a prepayment during the application period. In the event

that a portion of financially distressed

borrowers’ reserve remains

unsubscribed at the end of the initial

application period, the unallocated

portion of the financially distressed

borrowers’ reserve will be allocated to

other electric borrowers having submitted applications during an application period to be announced by RUS.

Such prepayment applications shall be

classified as standard electric program

applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55

FR 35427, Aug. 30, 1990. Redesignated at 55 FR

49250, Nov. 27, 1990]

1012

§ 1786.30 7 CFR Ch. XVII (1–1–00 Edition)

§ 1786.30 Processing procedure.

(a) Priority of Processing. The determination of the order or method in

which applications or portions of applications will be processed by RUS pursuant to this subpart rests solely within the discretion of the Administrator.

RUS expects that a number of prepayment applications will be processed simultaneously. In the event that it becomes necessary to establish priorities

of processing, prepayment applications

will be processed without regard to the

date received, generally in the following order of priority:

(1) Applications from telephone borrowers;

(2) Applications from financially distressed borrowers;

(3) Applications from all other borrowers. When assigning priority to

such applications, RUS will consider a

number of factors, including without

limitation, (i) the number of prepayment applications being processed by

the area office; (ii) the novelty or complexity of the proposed transaction;

(iii) the method of prepayment; and

(iv) the availability of resources. In the

event that RUS receives during the initial application period, prepayment applications from such borrowers in an

amount less than remaining prepayment authority for each respective program, RUS will establish a new application period and publish a notice to

that effect in the FEDERAL REGISTER.

(b) Pro-rated Applications. Standard

electric program applications, and telephone program applications will be

prorated within their respective application categories to permit partial prepayments in the event that the aggregate amount of prepayment applications received during the application

period exceeds the amount of prepayment authority allocated to that application category. In such circumstances, the amount of each borrower’s permitted prepayment shall be

determined within each respective application category, as follows:

(1) The principal amount of FFB advances under each individual application, which, if prepaid pursuant to this

subpart, would result in an economic

savings to the borrower, shall be divided by the aggregate principal

amount of FFB advances, under all of

the applications, which, if prepaid pursuant to this subpart, would result in

an economic savings to the borrowers,

in order to determine a percentage

(hereinafter called a pro-rated percentage) for each borrower;

(2) Each borrower’s share of the prepayment authority for its application

category shall be equal to the product

of (i) the prepayment authority times

(ii) the respective pro-rated percentage, and may be used to prepay a portion of any of the borrower’s FFB loans

listed pursuant to §1786.31(a)(2);

(3) If any approved prepayment transaction fails to be settled within 180

days of the date the borrower is notified by RUS of its prepayment allocation, RUS may rescind its approval.

The unused prepayment authority represented by such a failed transaction is

subject to being included in any subsequent notice of a new application period under this subpart; and

(4) In the event that applications

from financially distressed borrowers

exceed the amount prepayment authority remaining in the financially distressed borrowers’ reserve, the Administrator at his discretion shall select

one or more of such applications and

allocate the reserve. In making such a

selection and allocation, the Administrator may consider various factors, including without limitation, (i) the dollar amount of savings to be realized by

the proposed prepayment; (ii) the interest rates on the FFB loans proposed to

be prepaid; (iii) the magnitude of the

default or potential default; and (iv)

whether the borrower has previously

completed a prepayment under section

306(A).

(c) Notification of Borrowers’ Allocations. Promptly after allocating the

prepayment authority to borrowers

and completing any proration calculations that may be necessary, RUS will

return to each borrower submitting a

prepayment application pursuant to

this subpart, a copy of their Notice of

Intent to Prepay the Federal Financing

Bank specifying the amount of the borrower’s prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55

FR 49250, Nov. 27, 1990]

1013

Rural Utilities Service, USDA § 1786.31

§ 1786.31 Application procedure.

Applications to make a prepayment

pursuant to this subpart shall be submitted to RUS on such forms as RUS

may prescribe in the following manner:

(a) Application. Each borrower desiring to make a prepayment pursuant to

this subpart shall submit an application to RUS. No application from a

borrower will be accepted by RUS prior

to the commencement of the application period. An application shall not be

deemed submitted to RUS until it is received by RUS, and the ‘‘Date Received’’ has been inscribed on the Notice of Intent to Prepay the Federal Financing Bank by an authorized official

of RUS. Incomplete applications may

be returned to the borrower at the discretion of RUS and thereafter must be

resubmitted in order to be processed.

To be considered complete, the application should include the following:

(1) ‘‘Notice of Intent to Prepay the

Federal Financing Bank’’ in the form

specified in §1786.33 hereof;

(2) A listing of each FFB loan advance to be prepaid by loan designation, RUS note number, RUS account

number, advance date, maturity date,

original amount, outstanding balance,

and interest rate;

(3) Evidence that the borrower meets

the qualification provisions of

§1786.28(a) of these regulations;

(4) The certification set forth in part

A of the Notice of Intent to Prepay the

Federal Financing Bank executed by

the chief executive officer of the borrower;

(5) In the event that a borrower submits a prepayment application which

proposes to utilize a portion of the financially distressed borrowers’ reserve,

a certification signed by the chief executive officer of the system to the effect

that the borrower is either (i) in default or near default on interest or

principal payments due on loans made

or guaranteed under the RE Act, and is

making a good faith effort to increase

rates and reduce costs to avoid or mitigate default; or (ii) participating in a

work out or debt restructuring plan

with RUS, either as the borrower being

restructured or as a borrower providing

assistance as part of the work out or

restructuring and stating why the borrower is in default or near default.

(b) Election of Method of Prepayment.

Prior to requesting RUS to schedule a

settlement date, the borrower shall (1)

elect whether it will use a private loan,

internally generated funds, or a combination of a private loan and internally generated funds to make the prepayment, by completing part C of its

Notice of Intent to Prepay the Federal

Financing Bank; (2) specify in part C of

the Notice of Intent to prepay the Federal Financing Bank a date after which

a prepayment closing may be scheduled; (3) if appropriate, execute the certification set forth in part C of the Notice of Intent to Prepay the Federal Financing Bank; and (4) return a completed copy of the Notice of Intent to

Prepay the Federal Financing Bank to

the RUS area office.

(c) Final Documentation. All documentation in connection with a proposed prepayment made pursuant to

this subpart shall have been submitted

to RUS in final form, no later than 5

business days prior to the settlement

date agreed to by the borrower and

RUS. To be considered complete, the

final documentation shall include the

following material:

(1) A completed copy of the Notice of

Intent to Prepay the Federal Financing

Bank;

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

of a prepayment,

(i) Evidence, in form and substance

satisfactory to RUS, that the borrower

has an irrevocable commitment from

the lender to close the private loan on

the settlement date at an interest rate

that meets the requirements of

§1786.28(c)(1);

(ii) Evidence that the lender meets

the qualification provisions of

§1786.28(b);

(iii) Evidence that the private loan

meets the qualification provisions of

§1786.28(c); and

(iv) The final documentation for the

private loan;

(3) Estimate of fees, and expenses, including any taxes, in connection with

the prepayment transaction;

(4) A certified copy of a resolution of

the board of directors of the borrower

approving the certification cited above

1014

§ 1786.32 7 CFR Ch. XVII (1–1–00 Edition)

and requesting RUS approval of the

prepayment.

(5) In the case of financially distressed borrowers, evidence in form and

substance satisfactory to the Administrator that the benefits of prepayment

will not be used to reduce rates and

that any Federal or state regulatory

body having jurisdiction over the borrower’s rates has acknowledged its

awareness of this requirement;

(6) In the event that borrower is unable to deliver final documentation or

the evidence specified in accordance

with, §1786.31(c), RUS may reschedule

the settlement date at its discretion.

(Approved by the Office of Management and

Budget under control number 0572–0088)

(c) Procedure for Submission of Prepayment Applications. An original and three

copies of each initial application must

be submitted, between the hours of 8:15

a.m. to 4:45 p.m. Washington, DC time,

to: Chief, Communications and Records

Management Branch, Administrative

Service Division, Rural Utilities Service, U.S. Department of Agriculture,

Room 0175 South Agriculture Building,

Washington, DC 20250–1500. The outside

front of the package containing the

prepayment application must be clearly marked, ‘‘FFB PREPAYMENT APPLICATION.’’ The Notice of Intent to

Prepay the Federal Financing Bank

must be the first document in the application package. Upon receipt the

prepayment application will be opened,

logged in, and the Notice of Intent to

Prepay the Federal Financing Bank

will be inscribed with the date received

by an authorized official of RUS. A

copy of the Notice of Intent to Prepay

the Federal Financing Bank will then

be returned to the borrower to acknowledge receipt of the application.

Should an application be submitted

other than in accordance with the provisions of §1786.31, the date received

shall be a date determined by RUS in

its sole discretion.

§ 1786.32 Settlement procedure.

(a) General. Settlements in connection with prepaying FFB loans pursuant to this subpart shall be conducted

in accordance with the provisions of

this section.

(b) Settlement Date. The prepayment

will be settled and if a private loan is

utilized, the guarantee will be delivered, on a settlement date agreed upon

by the borrower and RUS. Prior to

scheduling a settlement date for a borrower’s prepayment pursuant to this

subpart, RUS shall have received the

material specified in §1786.31(b).

(c) Place of Settlement. All settlements

will take place in Washington, DC, at a

location of the borrower’s choosing;

provided however, if more than one settlement is proposed for the same settlement date, RUS reserves the right

to coordinate the date and location of

the settlements with borrowers involved.

(d) Repayment of FFB. Prior to 1:00

p.m. prevailing local time in New York,

New York, on the settlement date, the

borrower shall wire immediately available funds to RUS through the Department of the Treasury account at the

Federal Reserve Bank of New York or

shall provide for payment to RUS in

another manner acceptable to RUS and

FFB, in an amount sufficient to pay

the outstanding principal of the FFB

loan being prepaid plus accrued interest from the last payment date to and

including the settlement date.

(e) Documentation. The borrower shall

deliver, or cause to be delivered to RUS

and FFB, not less than 3 business days

prior to the settlement date, written

notice of the settlement date and a

complete listing of each FFB loan advance to be prepaid or partially prepaid, in the format required by

§1786.31(a)(2). In the event that a private loan is used in connection with

the prepayment, the following executed documents, opinions and material shall be delivered at the settlement:

(1) The guaranteed note evidencing

the private loan.

(2) The guarantee.

(3) The loan guarantee agreement.

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

(5) Evidence that the borrower has

received all approvals which are required under Federal or state law, loan

agreements, security agreements, existing financing arrangements, or any

other agreement to which the borrower

is a party.

1015

Rural Utilities Service, USDA § 1786.35

(6) An amendment in recordable form

revising the description of the obligations secured by the mortgage including the obligation of the borrower to

reimburse RUS for any amounts that

RUS may pay under the guarantee.

(7) An approving opinion of the borrower’s legal counsel to the effect that

the guaranteed note evidencing the private loan is a valid and legally binding

obligation of the borrower which is secured under the mortgage, and the priority of the mortgage, as amended pursuant to paragraph (e)(6) of this section, remains undisturbed.

(8) An approving opinion of the lender’s legal counsel to the effect that the

loan guarantee agreement is a valid

and legally binding obligation of the

lender.

(9) Such other opinions of counsel as

may be required by the Administrator.

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

(11) Copies of any other documentation required by RUS to ensure that

the obligations of the borrower to reimburse RUS for any amounts that

RUS pays under the guarantee or may

advance in connection with the private

loan are adequately secured under the

mortgage.

(Approved by the Office of Management and

Budget under control number 0572–0088)

§ 1786.33 Forms.

Guarantees and loan guarantee

agreements executed by RUS pursuant

to this subpart will be on forms prescribed by RUS. Such forms will include, without limitation, additional

details on servicing, procedures for notifying RUS of a default, the manner

for requesting payment on a guarantee.

The Notice of Intent to Prepay the

Federal Financing Bank shall be substantially in the form specified by

RUS. RUS may also prescribe standard

forms of certifications to be used in

connection with materials required to

be furnished pursuant to §1786.31 of this

subpart.

§ 1786.34 Access to records of lenders,

servicers, and trustees.

The lender, the servicer, or the trustee will permit representatives of RUS

(or other agencies of the U.S. Department of Agriculture authorized by that

Department) to inspect and make copies of any of their records pertaining to

RUS guaranteed loans. Such inspection

and copying may be made during regular office hours of the respective

party or any other time the party and

RUS find convenient.

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

(a) Authorized representative. Except

where the evidence of debt was or is a

bearer instrument, the RUS Administrator is authorized on behalf of RUS

to issue a replacement guarantee(s) for

one(s) which may have been lost, stolen, destroyed, mutilated, or defaced.

Such replacement(s) shall be issued

only to the lender or holder and only

upon receipt of an acceptable certificate of loss and an indemnity bond.

(b) Requirements. When a guarantee(s)

is lost, stolen, destroyed, mutilated, or

defaced while in the custody of the

lender, or holder, the lender will coordinate the activities of the party who

seeks the replacement documents and

will submit the required documents to

RUS for processing. The requirements

for replacement are as follows:

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

(i) Legal name and present address of

the owner, requesting the replacement

forms;

(ii) Legal name and address of lender

of record;

(iii) Capacity of person certifying;

(iv) Full identification of the guarantee, including the name of the borrower, date of the guarantee, face

amount of the evidence of debt purchased, date of evidence of debt and

present balance of the loan. Any existing parts of the documents to be replaced should be attached to the certificate;

(v) A full statement of circumstances

of the loss, theft, or destruction of the

guarantee; and

(vi) The lender or holder, shall

present evidence demonstrating current ownership of the guarantee and

note. If the present holder is not the

same as the original lender, a copy of

the endorsement of each successive

holder in the chain of transfer from the

initial private lender to present holder

1016

§ 1786.36 7 CFR Ch. XVII (1–1–00 Edition)

shall be included. If copies of the endorsement cannot be obtained, best

available records of transfer shall be

presented to RUS (e.g., order confirmation, cancelled checks, etc).

(2) An indemnity bond acceptable to

RUS shall accompany the request for

replacement except when the holder is

the United States, a Federal Reserve

Bank, a Federal Government Corporation, a state or territory, or the District of Columbia. The bond may be

with or without surety. The bond shall

be with surety except when the outstanding principal balance and accrued

interest due the present holder is less

than $1,000,000 verified by the lender in

writing in a letter of certification of

balance due. The surety shall be a

qualified surety company holding a

certificate of authority from the Secretary of the Treasury and listed in

Treasury Department Circular 580.

(3) All indemnity bonds shall be

issued and/or payable to the United

States of America acting through the

Administrator of the Rural Utilities

Service. The bond shall be in an

amount not less than the unpaid principal and interest. The bond shall save

RUS harmless against any claim or demand which might arise or against any

damage, loss, costs, or expenses which

might be sustained or incurred by reasons of the loss or replacement of the

instruments.

§ 1786.36 Other prepayments.

Nothing contained in this subpart

shall prohibit a borrower from making

prepayments of FFB loans in accordance with the terms thereof.

§ 1786.37 Application of regulation to

previous prepayments.

Nothing contained in this subpart

shall affect the validity of prepayments made or guarantees issued pursuant to previous regulations. Those

borrowers, however, that completed a

prepayment pursuant to section 306(A)

of the RE Act and closed loans prior to

February 27, 1988, may, in their discretion request RUS approval and if required by prior regulations the concurrence of the Secretary of the Treasury,

of any amendments necessary to make

the terms and conditions of such loans

consistent with, or to consolidate such

loans with, loans guaranteed under

these regulations.

§ 1786.38 Judicial review.

This subpart is intended to set forth

RUS policies and procedures for the orderly administration of the provisions

of section 306(A) of the RE Act, section

633 of the continuing resolution, and

section 637 of the 1989 Appropriations

Act and is not intended to create any

right or benefit, substantive or procedural, enforceable at law by a party

against the United States, its agencies,

its officers or any person.

§§ 1786.39—1786.49 [Reserved]

Subpart C—Special Discounted

Prepayments on RUS Direct/

Insured Loans

AUTHORITY: 7 U.S.C. 901–950b; Title I, Subtitle B, Pub. L. 99–509; Pub. L. 103–354, 108

Stat. 3178 (7 U.S.C. 6941 et seq.).

SOURCE: 51 FR 46999, Dec. 29, 1986, unless

otherwise noted. Redesignated at 55 FR 49250,

Nov. 27, 1990.

§ 1786.50 Purpose.

This subpart sets forth the policies

and procedures of RUS whereby electric and telephone borrowers may prepay outstanding RUS Notes at the Discounted Present Value of the RUS

Notes with private financing.

§ 1786.51 Definitions.

As used in this subpart:

Act means the Rural Electrification

Act of 1936, as amended (7 U.S.C. 901 et

seq.).

Administrator means the Administrator of RUS.

Discounted Present Value shall have

the meaning specified in §1786.53

Fund means the Rural Electrification

and Telephone Revolving Fund established pursuant to the Act.

REA means the Rural Electrification

Administration formerly an agency of

the United States Department of Agriculture and predecessor agency to RUS

with respect to administering certain

electric and telephone loan programs.

RUS means the Rural Utilities Service, an agency of the Unites States Department of Agriculture, established

pursuant to Section 232 of the Federal

1017

Rural Utilities Service, USDA § 1786.54

Crop Insurance Reform and Department of Agriculture Reorganization

Act of 1994 (Pub. L. 103–354, 108 Stat.

3178), successor to REA with respect to

administering certain electric and telephone programs. See 7 CFR 1700.1.

RUS Loan Agreement means the agreement between the borrower and RUS

providing for loans pursuant to the

Act.

RUS Notes means those notes, bonds

or other obligations evidencing indebtedness created by loans made pursuant

to Titles I, II or III of the Act (7 U.S.C.

901–940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55

FR 49250, Nov. 27, 1990, as amended at 59 FR

66441, Dec. 27, 1994]

§ 1786.52 Prepayment.

Through September 30, 1987, the Administrator may, pursuant to this subpart, permit eligible electric and telephone borrowers to prepay all outstanding RUS Notes issued or assumed

by such borrowers and held in the

Fund, upon paying the lesser of the

outstanding balance or the Discounted

Present Value.

§ 1786.53 Discounted present value.

The Discounted Present Value shall

be calculated five business days before

prepayment is made by summing the

present values of all remaining payments by using the following formula:

Present Value

P

1.0 +

D1

365

D2

366

I k=1

n k

i i

i=1

k =

+ ×





 





∑

∏

Where:

Pk=Total payment including interest, due on

the kth payment date following the prepayment date.

n=Total number of remaining payments

dates.

I=The discount rate, in decimals, which shall

be the average rate on utility bonds bearing a rating of ‘‘Aa’’ as set forth in that

issue of Moody’s Public Utility News Reports most recently published prior to the

date on which Discounted Present Value is

calculated.

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

year).

D2i=Number of days in the ith payment period

that are in a leap year (366 day year).

§ 1786.54 Eligibility criteria.

To be eligible to prepay RUS Notes

at the Discounted Present Value a borrower must comply with the following

criteria:

(a) The borrower must be current on

all payments due on its outstanding

RUS Notes and all other payment obligations owed to RUS and the Rural

Telephone Bank.

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

(c) The borrower must identify the

source of private financing that will be

used to refinance its outstanding RUS

Notes, which financing may not include obligations the income of which

is exempt from taxation under the Internal Revenue Code of 1986.

(d) The borrower must have expended

all funds advanced on account of the

RUS Notes for the purposes for which

such funds were advanced.

(e) The borrower must agree to a rescission of the unadvanced balance of

the RUS Notes.

(f) The borrower must agree that the

borrower, its successors or assigns,

shall pay to the Government, as a condition of receiving additional loans or

loan guarantees pursuant to Titles I, II

and III of the Act, an amount equal to

the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the

RUS Note and the Discounted Present

Value of the RUS Note upon prepayment with interest accruing quarterly;

the interest rates shall be the rates

provided in the respective RUS Notes.

(g) If the borrower is a party to a

wholesale power contract with a power

supplier financed pursuant to the Act,

the borrower must provide the Administrator with such assurances as the

1018

§ 1786.55 7 CFR Ch. XVII (1–1–00 Edition)

Administrator may request that it will

meet its obligations to the power supplier.

§ 1786.55 Application procedure.

Any borrower seeking to prepay its

RUS Notes under this subpart should

apply to the appropriate RUS Area Director by submitting:

(a) A board resolution that:

(1) Requests approval of the prepayment of the borrower’s outstanding

RUS Notes, and

(2) States the intent of the borrower

to comply with all eligibility criteria

set forth in §1786.54 of this subpart.

(b) A list of all RUS Notes together

with the outstanding amount on such

notes.

(c) Such additional information as

the Administrator shall request.

§ 1786.56 Approval of applications.

The applications will ordinarily be

reviewed and, if satisfactory, approved,

and closing schedule based on the order

in which executed prepayment agreements are received. The Administrator

may limit the number of applications

approved and closings scheduled from

time to time taking into account,

among other matters, the financial interests and administrative considerations of the Government.

§ 1786.57 Prepayment agreement.

Upon approving an application for

prepayment under this subpart, the Administrator shall notify the borrower

and deliver to the borrower for its execution a prepayment agreement which

shall set forth and provide:

(a) The RUS Notes to be prepaid and

when the Discounted Present Value

will be calculated.

(b) The place and conditions for closing.

(c) Agreement that the unadvanced

balance of RUS Notes shall be rescinded.

(d) Agreement that the borrower, or

its successors or assigns, shall pay to

the Government, as a condition of receiving additional loans or loan guarantees pursuant to Titles I, II and III of

the Act, an amount equal to the aggregate of the difference with respect to

each of the RUS Notes between the

amount outstanding on the RUS Note

and the Discounted Present Value of

the RUS Note upon prepayment with

interest accruing quarterly; the interest rates shall be the rates provided in

the respective RUS Notes.

(e) Assurances that the borrower will

meet its obligations to any power supplier financed pursuant to the Act.

(f) Such other terms and conditions

as the Administrator deems appropriate.

§ 1786.58 Security.

If, after prepayment of RUS Notes,

the Government should continue to

hold liens on the borrower’s property

that secure loans made or guaranteed

pursuant to the Act, the Administrator

of RUS or the Governor of the Rural

Telephone Bank, as the case may be,

will consider request for the accommodation of such liens for the purpose of

providing security for loans the proceeds of which were used to prepay

RUS Notes. Such lien accommodations

shall be limited in amount to the Discounted Present Value of the RUS

Notes plus such costs, as the Administrator shall determine to be reasonable, incurred by the borrower in obtaining such loans.

§ 1786.59 Loan fund audit.

Within 6 months of closing RUS shall

have the right to audit transactions involving the RUS construction fund established and maintained by the borrower pursuant to the terms of the

RUS Loan Agreement and to inspect

all books, records, accounts and other

documents and papers of the borrower.

Should RUS determine that the borrower has made disbursements of funds

advanced pursuant to RUS Notes which

do not comply with the requirements

of the RUS Loan Agreement, the borrower shall be required to pay to the

Government an amount equal to the

difference between the amount which

the borrower prepaid on such RUS

Notes evidencing RUS loan funds which

were improperly disbursed and the

amount which the borrower would otherwise have been required to return to

the Government as a result of noncompliance if the borrower had not prepaid such RUS Notes. (See 7 CFR part

1721)

1019

Rural Utilities Service, USDA § 1786.97

§ 1786.60 Closing.

(a) The borrower shall be responsible

for obtaining all approvals necessary to

consummate the transaction as required by the prepayment agreement

including such approvals as may be required by regulatory bodies and other

lenders.

(b) The RUS Notes shall be prepaid at

a closing to be held in accordance with

the prepayment agreement; Provided,

however, That no closing may be scheduled for after September 30, 1987. At

closing, a borrower shall prepay the

RUS Notes by paying to the Government an amount equal to the Discounted Present Value of the RUS

Notes. The closing shall otherwise be

conducted as prescribed in the prepayment agreement.

§ 1786.61 Other prepayments.

RUS loan documentation generally

permits borrowers to prepay RUS

Notes by paying the outstanding balance due thereon. Nothing in this subpart shall prohibit any borrower from

prepaying its outstanding RUS Notes

in accordance with the terms thereof.

The provisions of this subpart shall not

be applicable to such prepayment.

§§ 1786.62—1786.74 [Reserved]

Subpart D [Reserved]

Subpart E—Discounted Prepayments on RUS Notes in the

Event of a Merger of Certain

RUS Electric Borrowers

SOURCE: 56 FR 37268, Aug. 6, 1991, unless

otherwise noted.

§ 1786.95 Purpose.

This subpart sets forth the policies

and procedures of RUS whereby certain

electric borrowers may prepay outstanding RUS Notes at the Discounted

Present Value of the RUS Notes with

private financing.

§ 1786.96 Definitions.

As used in this subpart:

Act means the Rural Electrification

Act of 1936, as amended (7 U.S.C. 901 et

seq.).

Administrator means the Administrator of RUS.

Consolidation means:

(1) The combination, pursuant to

state law, of two or more borrower or

nonborrower organizations into a new

successor organization that takes over

the assets and assumes the liabilities

of those organizations; or

(2) Any other transaction including

an acquisition which has substantially

the same effect.

Discounted Present Value shall have

the meaning specified in §1786.98.

Fund means the Rural Electrification

and Telephone Revolving Fund pursuant to the Act.

Merger means:

(1) The combination, pursuant to

state law, of two or more borrower or

nonborrower organizations into an existing survivor organization that takes

over the assets and assumes the liabilities of the merged organizations; or

(2) Any other transaction including

an acquisition which has substantially

the same effect.

REA means the Rural Electrification

Administration formerly an agency of

the United States Department of Agriculture and predecessor agency to RUS

with respect to administering certain

electric and telephone loan programs.

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

pursuant to Section 232 of the Federal

Crop Insurance Reform and Department of Agriculture Reorganization

Act of 1994 (Pub. L. 103–354, 108 Stat.

3178), successor to REA with respect to

administering certain electric and telephone programs. See 7 CFR 1700.1.

RUS Loan Agreement means the agreement between the borrower and RUS

providing for loans pursuant to the

Act.

RUS Notes means those notes, bonds

or other obligations evidencing indebtedness created by loans made or guaranteed by RUS pursuant to titles I and

III of the Act (7 U.S.C. 901–940).

[56 FR 37268, Aug. 6, 1991, as amended at 59

FR 66440, Dec. 27, 1994]

§ 1786.97 Prepayment.

There were 29 former RUS electric

borrowers that prepaid their direct or

insured loans under section 306B(a) of

1020

§ 1786.98 7 CFR Ch. XVII (1–1–00 Edition)

the Act prior to October 1, 1987. (See

subpart C of this part.) These borrowers are listed in appendix A to subpart E of this part. Any RUS electric

borrower which is the result of a merger or consolidation involving any of

these 29 former borrowers and a borrower with outstanding Notes may,

after meeting all requirements of this

subpart, prepay all outstanding RUS

Notes issued or assumed by the borrower upon paying the lesser of the

outstanding balance or the Discounted

Present Value. Such prepayment must

be made not later than one year after

the effective date of the merger or consolidation.

§ 1786.98 Discounted present value.

(a) The Discounted Present Value

shall be calculated by RUS before prepayment is made by summing the

present values of all remaining payments on all outstanding notes according to the following formula to compute the discounted present value of

each note and adjusting as here and

after provided for tax exempt financing.

Present Value

P

1.0 +

D1

365

D2

366

I k=1

n k

i i

i=1

k =

+ ×





 





∑

∏

Where:

Pk=Total payment, including interest, due on

the kth payment date following the prepayment date. n=Total number of remaining

payment dates. I=The discount rate applied to each transaction will be

ascertained by using data specified in the

‘‘Federal Reserve Statistical Release’’

which is published each Monday. (See appendix B to subpart E of this part.) The

specific discount rate will be the discount

rate(s) specified in the ‘‘Treasury Constant

Maturities’’ section of this publication

eight working days prior to the closing. In

applying the discount rate, the 1-year

Treasury rate will be used for all notes

with a remaining term of less than 2 years;

the 2-year Treasury rate for notes with maturities between 2 and 3 years; the 3-year

Treasury rate for all notes with maturities

between 3 and 5 years; the 5-year Treasury

rate for all notes with maturities between

5 and 7 years; the 7-year Treasury rate for

all notes with maturities between 7 and 10

years; the 10-year Treasury rate for all

notes with maturities between 10 and 30

years; and the 30-year Treasury rate for all

notes with maturities longer than 30 years.

D1i=Number of days in the ith payment period

that are in a non-leap year (365 day year).

D2i=Number of days in the ith payment period

that are in a leap year (366 day year).

(b) Notwithstanding paragraph (a) of

this section, in the event that the borrower shall elect to prepay using tax

exempt financing, the calculation of

the Discounted Present Value shall be

adjusted to make the discount the

equivalent of fully taxable financing.

§ 1786.99 Eligibility criteria.

To be eligible to prepay RUS Notes

at the Discounted Present Value, a borrower must comply with the following

criteria:

(a) The borrower must be current on

all payments due on its outstanding

RUS Notes and all other payment obligations owed to RUS;

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

(c) The borrower must identify the

source of financing that will be used directly or indirectly to refinance its

outstanding RUS Notes. The borrower

must certify in writing whether such

financing will be tax exempt and, if so,

shall furnish all information on the financing as RUS may request to enable

RUS to adjust the discount to the

equivalent to fully taxable financing;

(d) The borrower must have expended

all funds advanced on account of the

RUS Notes for the purposes for which

such funds were advanced or repaid

RUS for all unexpended funds;

(e) The borrower must agree to a rescission of the unadvanced balance of

any RUS Notes outstanding as of the

date of its application for prepayment;

(f) The borrower must agree that the

borrower, its successors and assigns,

1021

Rural Utilities Service, USDA § 1786.102

shall pay to the Government, as a condition of receiving additional loans or

loan guarantees pursuant to titles I

and III of the Act, an amount equal to

the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the

RUS Note and the Discounted Present

Value of the RUS Note upon prepayment with interest accruing quarterly;

the interest rates shall be the rates

provided in the respective Notes; and

(g) If the borrower is a party to a

wholesale power contract with a power

supplier financed pursuant to the Act,

the borrower must provide the Administrator with such assurances as the

Administrator may request that it will

meet its obligations to the power supplier. The borrower must also specifically agree to the following limitation:

The borrower agrees that, for so long

as the Wholesale Power Contract shall

be in effect between the borrower and

the power supplier, the borrower will

not, without the approval in writing of

the power supplier and the Administrator, take or suffer to be taken any

steps for reorganization or to consolidate with or merge into any corporation or any other public power district,

or to sell, lease or transfer (or make

any agreement therefor) all or a substantial portion of its assets, whether

now owned or hereafter acquired. Notwithstanding the foregoing, the borrower may take or suffer to be taken

any steps for reorganization or to consolidate with or merge into any corporation or any other public power district, or to sell, lease or transfer (or

make any agreement therefor) all or a

substantial portion of its assets,

whether now owned or hereafter acquired, so long as the borrower shall

pay such portion of the outstanding indebtedness evidenced by the power supplier’s Notes at the time outstanding

as shall be determined by the power

supplier with the prior written consent

of the Administrator and shall otherwise comply with such reasonable

terms and conditions as the Administrator and the Power Supplier shall require.

§ 1786.100 Application procedure.

Any borrower seeking to prepay its

RUS Notes under this Subpart should

apply to the appropriate RUS Area Director not less than 60 days prior to

one year after the effective date of the

merger or consolidation by submitting:

(a) A board resolution that:

(1) Requests approval of the prepayment of the borrower’s outstanding

RUS Notes;

(2) States the intent of the borrower

to comply with all eligibility criteria

set forth in §1786.99 of this subpart; and

(3) Identifies the source of financing.

(b) A list of all RUS Notes together

with the outstanding amount on such

notes.

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

(d) Such additional information as

the Administrator will request.

§ 1786.101 Approval of application.

The applications will be reviewed

and, if satisfactory, approved. Closing

will be scheduled upon approval.

§ 1786.102 Prepayment agreement.

Upon approving an application for

prepayment under this subpart, the Administrator shall notify the borrower

and deliver to the borrower for its execution a prepayment agreement which

shall set forth and provide:

(a) The RUS Notes to be prepaid and

when the Discounted Present Value

will be calculated.

(b) The place, date and conditions for

closing.

(c) Agreement that the unadvanced

balance of RUS Notes shall be rescinded.

(d) Agreement that the borrower, or

its successors or assigns, shall pay to

the Government, as a condition of receiving additional loans or loan guarantees pursuant to titles I and III of

the Act, an amount equal to the aggregate of the difference with respect to

each of the RUS Notes between the

amount outstanding on the RUS Note

and the Discounted Present Value of

the prepaid RUS Note; with interest

accruing quarterly. The interest rates

shall be the rates provided in the respective RUS Notes.

(e) Assurances that the borrower will

meet its obligations to any power supplier financed pursuant to the Act.

1022

§ 1786.103 7 CFR Ch. XVII (1–1–00 Edition)

(f) Such other terms and conditions

as the Administrator deems appropriate.

§ 1786.103 Security.

If, after prepayment of RUS Notes,

the Government should continue to

hold liens on the borrower’s property,

the Administrator of RUS will consider

a request for the accommodation of

such liens for the purpose of providing

security for loans the proceeds of

which were used to prepay RUS Notes.

Such lien accommodations shall be

limited in amount to the Discounted

Present Value of the RUS Notes plus

such costs, as the Administrator shall

determine to be reasonable, incurred

by the borrower in obtaining such

loans.

§ 1786.104 Loan fund audit.

RUS shall have the right to audit

within 6 months of closing, transactions involving the RUS construction fund established and maintained

by the borrower pursuant to the terms

of the RUS Loan Agreement and to inspect all books, records, accounts and

other documents and papers of the borrower. Should RUS determine that the

borrower has made disbursements of

funds advanced pursuant to RUS Notes

which do not comply with the requirements of the RUS Loan Agreement, the

borrower shall be required to pay the

Government an amount equal to the

difference between the amount which

the borrower prepaid on such RUS

Notes evidencing RUS loans funds

which were improperly disbursed and

the amount which the borrower would

otherwise have been required to return

to the Government as a result of noncompliance if the borrower had not prepaid such RUS Notes. (See 7 CFR part

1721, Post-Loan Policies and Procedures for Insured Electric Loans.)

§ 1786.105 Closing.

(a) The borrower shall be responsible

for obtaining all approvals necessary to

consummate the transaction as required by the prepayment agreement,

including such approvals as may be required by regulatory bodies and other

lenders.

(b) The RUS Notes shall be prepaid at

a closing to be held in accordance with

the prepayment agreement. RUS shall

designate the date of closing which in

no event shall be later than one year

after the effective date of the merger

or consolidation. At closing, in addition to paying all current interest due

on the date of prepayment, a borrower

shall prepay the RUS Notes by paying

to the Government an amount equal to

the lesser of the outstanding balance or

the Discounted Present Value of the

RUS Notes. The closing shall otherwise

be conducted as prescribed in the prepayment agreement.

§ 1786.106 Other prepayments.

RUS loan documentation generally

permits borrowers to prepay RUS

Notes by paying the outstanding balance due thereon. Nothing in this subpart shall prohibit any borrower from

prepaying its outstanding RUS Notes

in accordance with the terms thereof.

The provisions of this subpart shall not

be applicable to such prepayment.

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.

1023

Rural Utilities Service, USDA Pt. 1786, Subpt. E, App. B

State Borrower name and address

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.

State Borrower name and address

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]

Instruments 1991 Jan.

28

1991 Jan.

29

1991 Jan.

30

1991 Jan.

31

1991 Feb.

1 This week Last week 1991 Jan.

Federal Funds (effective) 123 ........ 7.61 7.16 6.96 8.18 6.30 7.46 6.88 6.91

Commercial

paper 345

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 346

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) 347

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

1024

§ 1786.150 7 CFR Ch. XVII (1–1–00 Edition)

SELECTED INTEREST RATES—Continued

[Yields in percent per annum]

Instruments 1991 Jan.

28

1991 Jan.

29

1991 Jan.

30

1991 Jan.

31

1991 Feb.

1 This week Last week 1991 Jan.

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

(longterm) 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:

1The daily effective federal funds rate is a weighted average of rates on trades through N.Y. brokers.

2Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month. 3Annualized using a 360-day year or bank interest.

4Quoted on a discount basis.

5An average of offering rates on commercial paper placed by several leading dealers for firms whose bond rating is AA or the

equivalent. 6An average of offering rates on paper directly placed by finance companies.

7 Representative closing yields for acceptances of the highest rated money center banks.

8An average of dealer offering rates on nationally traded certificates of deposit.

9Bid rates for Eurodollar deposits at 11 a.m. London time.

10One of several base rates used by banks to price short-term business loans. 11 Rate for the Federal Reserve Bank of New York. 12Auction date for daily data; weekly and monthly averages computed on an issue-date basis. 13Yields 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. 15Estimate 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. 16Bond 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.

§ 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)

1025

Rural Utilities Service, USDA § 1786.151

of the RE Act as amended by Public

Law 102–428, 106 Stat. 2183, adopted October 21, 1992.

§ 1786.151 Definitions and rules of construction.

(a) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities Service

(RUS).

Borrower means any organization

which has an outstanding note(s) evidencing electric loans made by RUS, or

has previously prepaid such notes

under subparts C and E of this part.

Business day means any day on which

both the RUS and the Federal Reserve

Bank of New York are open for business.

Construction Fund Account means the

Cash—Construction Fund—Trustee Account, maintained by the borrower pursuant to the terms of the outstanding

RUS Loan Contract.

Closing shall mean one of the several

contemplated closings of the prepayment of the Qualified Notes prescribed

by the Prepayment agreement.

Closing date shall mean any business

day identified as such by the Government in its preclosing notice delivered

to the Company pursuant to §1786.158.

Closing request shall mean a request

by the borrower of the Government to

schedule a closing for certain Qualified

Notes on the date requested therein.

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

Discounted present value shall have

the meaning set forth in §1786.153.

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

Electric loan means a Direct loan or

an Insured loan made for the purpose of

furnishing electric energy to persons in

rural areas.

Final maturity means the final date

on which all outstanding principal and

accrued interest on an electric loan is

due and payable.

Government means the United States

of America, acting through the Administrator of the Rural Utilities Service.

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

Lien accommodation means the sharing of the Government’s (RUS’s) lien

on property, usually all property, covered by the lien of the RUS Mortgage.

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

Power supply borrower means a borrower that sells or intends to sell electric power at wholesale to distribution

or power supply borrowers pursuant to

RUS wholesale power contracts.

Preclosing notice shall mean a notice

delivered by the Government to the

borrower in response to a closing request, identifying the closing date, the

Qualified Notes to be prepaid at such

closing and documents to be delivered

by the borrower to the Government

prior to the closing date.

Prepayment agreement shall have the

meaning set forth in §1786.158.

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

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

901 et seq.).

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

RUS Loan Contract means the agreement, as amended, supplemented, or restated from time to time, between a

borrower and RUS providing for loans

or loan guarantees pursuant to the RE

Act.

RUS Mortgage means collectively

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

Rural development loans means loans

or grants made pursuant to Rural development programs.

Rural development programs means

loan or grant programs under the authority of the Administrator pursuant

to sections 313, 501, and 502 of the RE

Act.

Supplemental lender means a private

lender whose loan to the borrower is

secured by the RUS mortgage.

Tax exempt financing means borrowing evidenced by bonds, notes and

other evidence of indebtedness the income of which is excluded from gross

income for the purposes of Chapter 1 of

the Internal Revenue Code of 1986 (26

U.S.C. ch. 1).

1026

§ 1786.152 7 CFR Ch. XVII (1–1–00 Edition)

(b) Rules of construction. Unless the

context shall otherwise indicate, the

terms defined in paragraph (a) of this

section include the plural as well as

the singular, and the singular as well

as the plural.

§ 1786.152 Prepayments of RUS loans.

An electric loan made under the RE

Act shall not be sold or prepaid at a

value that is less than the outstanding

principal balance, except that, on request of a borrower, an electric loan

made under the RE Act, or a portion of

such a loan, that was advanced before

May 1, 1992, or has been advanced for

not less than 2 years, shall be prepaid

by the borrower at the lesser of the

outstanding principal balance of the

loan or the discounted present value

thereof.

§ 1786.153 Discounted present value.

(a) The discounted present value

shall be calculated by summing the

present values of all remaining payments on all Qualified Notes to be prepaid according to the following formula and adjusted as provided in paragraph (b) of this section if tax exempt

financing is used.

Present Value =

+ + 











 



 =

= ∏

∑ P

D D I

k

i i

i

k

k

n

1 0 1

365

2

366 1

1 .

Where:

The Greek letter, Sigma (Σ) means the sum

of the following terms.

The Greek letter, Pi (Π) means the product

of the following terms.

Pk=Total payment, including interest due on

the Kth payment date following the prepayment date.

n=Total number of remaining payment dates

to final maturity.

D1i=Number of days in the ith payment period

that are in a non-leap year (365-day year).

D2i=Number of days in the ith payment period

that are in a leap year (366-day year).

I=The discount rate applied to each transaction ascertained by using data specified

in the ‘‘Federal Reserve Statistical Release’’ (H.15 (519)), which is published each

Monday. The availability of this Release

will be announced when the information is

available by telephone on (202) 452–3206. See

adjustment for tax exempt refinancing at

paragraph (b) of this section. The specific

discount rate will be based on the discount

rate(s) specified in the ‘‘Treasury Constant

Maturities’’ section of this publication 8

business days prior to the closing and will

be interpolated from that information as

follows:

Remaining final maturity of RUS loan:

Treasury constant maturities

At least But less

than

# years # years

0 ................................................. 2 1-year.

2 ................................................. 3 2-year.

Remaining final maturity of RUS loan:

Treasury constant maturities

At least But less

than

# years # years

3 ................................................. 4 3-year.

4 ................................................. 5 (1)

5 ................................................. 6 5-year.

6 ................................................. 7 (2)

7 ................................................. 8 7-year.

8 ................................................. 9 (3)

9 ................................................. 10 (3)

10 ............................................... 11 10-year.

11 ............................................... 20 (4)

20 ............................................... 21 20-year.

21 ............................................... 30 (5)

30 ............................................... 36 30-year.

Notes: 1The 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%. 2The arithmetic mean between the 5-year and 7-year

Treasury Constant Maturities computed as above. 3A straight line interpolated rate between the 7-year rate

and the 10-year rate. (See formula below) 4A straight line interpolated rate between the 10-year note

and the 20-year Bond rate. (See formula below) 5A straight line interpolated rate between the 20-year bond

and the 30-year bond using the following formula:

I B

CE AB

F E

= +

−×−

−

(( ) ( ))

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)

1027

Rural Utilities Service, USDA § 1786.155

which is greater than the borrower’s remaining term (in years) to final maturity;

i.e., (if the note to be prepaid has a final

maturity of more than 10 years then this

rate is the 20-year Treasury rate)

B=The Treasury interest rate for the most

recently published maturity (in years) that

is the longest Treasury term (in years)

which is less than the borrower’s remaining term (in years) to final maturity; i.e.,

(if the note to be prepaid has a final maturity of more than 10 years but less than 20

years then this term is the 10-year Treasury rate)

C=The remaining number of full years to the

final maturity of the borrower’s note. Drop

all fractions of a year and use the remaining full years.

E=The published Treasury term (in years) to

maturity which is the longest term to maturity for the published term that is less

than the remaining term (in years) to final

maturity of the borrower’s note; i.e., (if

the note to be prepaid has remaining years

to maturity between 11 and 20 years then

this term would be 10 or if the note to be

prepaid has remaining years to maturity

between 21 years and 30 years then this

term would be 20).

F=The published Treasury term (in years) to

maturity which is the shortest term to maturity for the published term that is greater than the remaining term (in years) to

maturity of the borrower’s note; i.e., (if

the note to be prepaid has remaining years

to maturity between 11 and 20 years then

this term would be 20 or if the remaining

years to maturity is between 21 and 30

years then this term would be 30).

NOTE: The percentage terms used in the

above formula will be truncated to two decimal places. For the purpose of the terms A,

B, E, and F above the published Treasury

rate and term shall mean the Treasury Constant Maturities from the Federal Reserve

Statistical Release for 7 years, 10 years, 20

years, and 30 years.

(b)(1) In the event that the borrower

prepays a loan under paragraph (a) of

this section using, directly or indirectly, tax exempt financing, the discount shall be adjusted to ensure that

the borrower receives a benefit that is

no greater than the benefit the borrower would receive if the borrower

used financing that was not tax exempt. The borrower shall certify in

writing whether the financing will be

tax exempt.

(2) The discount rate established in

paragraph (a) of this section shall be

adjusted for a tax exempt financing by

substituting for the ‘‘I’’ term in the

discount rate formula, a discount rate

equal to the interest rate(s) published

pursuant to 7 CFR 1714.5, determination of interest rates on municipal rate

loans. This is the interest rate established for the new RUS loan program

which is based on municipal interest

rates for issues of comparable maturity. No interpolation or average will

be used. If a note is to be prepaid under

this subpart and is subject to this tax

exempt adjustment, the discount rate

will be determined from the published

table in the FEDERAL REGISTER. For example, if the note to be discounted matures in the year 1999 then the discount

rate will be the interest rate for the

year 1999. RUS will publish a schedule

of interest rates for municipal rate

loans in the FEDERAL REGISTER at the

beginning of each calendar quarter.

The published rates in effect eight

business days prior to closing will be

used for the discount rates. All notes

to be prepaid that have remaining

years to maturity of more than 20

years will be discounted at the interest

rate in effect for new RUS municipal

rate loans of comparable maturity at

the time of closing.

§ 1786.154 Qualified Notes.

An eligible borrower may prepay

Qualified Notes under this subpart at

the discounted present value. A Qualified Note is a note evidencing an RUS

electric loan, all advances of which

were made prior to May 1, 1992, or not

less than 2 years prior to the date of

prepayment closing. See §§1786.155(a)(3)

and 1786.158 (h) and (j).

§ 1786.155 Eligible borrower.

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

following:

(1) The borrower shall be current on

all payment obligations on outstanding

loans made or guaranteed by RUS. For

the purpose of determining eligibility

for prepayment, a default by a power

supply borrower from which a distribution borrower purchases wholesale

power shall not be considered a default

by the distribution borrower;

(2) There shall exist no material defaults under the borrower’s RUS Loan

Contract and Mortgage;

(3) The borrower shall have expended

all funds advanced pursuant to the

1028

§ 1786.156 7 CFR Ch. XVII (1–1–00 Edition)

RUS Loan Contract for the purposes

for which such funds were advanced. A

borrower will not be eligible to prepay

under this subpart if it has any funds

advanced pursuant to the RUS Loan

Contract in its Construction Fund Account; and

(4) The borrower shall be current on

all obligations under any wholesale

power contract with an RUS financed

power supply borrower.

(b) The eligibility of borrowers that

have had any indebtedness representing loans made or guaranteed by

RUS restructured shall be determined

on a case by case basis considering the

terms and conditions of the restructuring agreement.

§ 1786.156 Application procedure.

Any borrower seeking to prepay

Qualified Notes under this subpart

should apply to the appropriate RUS

Regional Director or the Director of

the Power Supply Division. The application shall provide the following:

(a) Borrower’s RUS designation;

(b) Borrower’s name and address;

(c) A certified copy of a resolution of

the board of directors of the borrower

that the borrower wishes to enter into

a prepayment agreement providing for

the prepayment of all or a portion of

its Qualified Notes;

(d) Listing of each Qualified Note to

be prepaid by loan designation, RUS

account number, advance date, maturity date, original amount, and outstanding principal balance;

(e) Evidence that the borrower has

the ability to obtain the financing necessary to prepay its Qualified Notes

listed in paragraph (d) of this section

and identification of the source of financing and the need if any of obtaining a lien accommodation from RUS;

and

(f) Such additional information as

the Administrator may request.

§ 1786.157 Approval of applications.

(a) Ordinarily, within 30 days of receipt, an application will be reviewed

and the borrower will be notified as to

whether the application has been approved. If the application has not been

approved, the borrower will be informed as to the reasons. If the application is approved the borrower shall

thereafter be provided with a prepayment agreement for execution.

(b) The Administrator may limit the

number of applications approved and

closings scheduled from time to time,

taking into account, among other matters, administrative considerations of

the RUS.

§ 1786.158 Terms and conditions of

prepayment agreement.

Upon receipt of a satisfactory application, RUS shall provide to the borrower for its execution a prepayment

agreement, in form and substance satisfactory to RUS, which may include

the following:

(a) Provide for the prepayment of one

or more Qualified Notes from time to

time, but no more than two closings

may be scheduled in any calendar year

unless a third closing is for the prepayment of all outstanding electric loans

of the borrower;

(b) Set forth procedures and forms

through which the borrower will notify

the Government of each election it

makes to prepay certain Qualified

Notes upon a requested closing date

and the Government will notify the

borrower of the established closing

date and prepayment amount for the

Qualified Notes for each closing;

(c) Reserve to the Administrator the

right to reschedule closing dates to

meet administrative considerations;

(d) Set forth closing requirements

identifying the location and manner of

payment, and all documentation and

information to be delivered prior to or

at closing, including opinions of counsel and certificates from the borrower;

(e) Provide for notice by either telephone or facsimile to be given by RUS

to the borrower not more than 8 nor

less than 3 business days before a

scheduled closing date of the amount

to be paid at closing which shall include all accrued interest and the discounted present value of the Qualified

Notes to be prepaid;

(f) Provide for notice of the 120

month period during which the borrower’s eligibility for direct or insured

loans will be restricted;

(g) Set forth representations and

warranties;

(h) Require the borrower to prepay

each Qualified Note specified in full;

1029

Rural Utilities Service, USDA § 1786.163

(i) Require the borrower to identify

the source of the financing that will be

used directly or indirectly to refinance

the Qualified Notes. If the source is

other than internally generated funds,

the borrower must certify in writing

whether such financing will be tax exempt, and if tax exempt financing will

be used, furnish all information on the

terms and conditions of the financing

as RUS may require;

(j) Require the borrower to rescind

the unadvanced balance of all outstanding electric loans as of the date of

initial closing;

(k) Require the borrower, if it is a

party to a wholesale power contract

with a power supply borrower, to provide the Administrator with such assurances as the Administrator may require that it is in compliance with and

will continue to comply with its obligation to such power supply borrower;

(l) Provide RUS, if the Administrator

determines it necessary, with security

for all outstanding rural development

loans and amendments to any outstanding rural development loan agreements in form and substance, and on

terms and conditions, satisfactory to

RUS;

(m) Prescribe remedies for violating

the terms and conditions of the prepayment agreement;

(n) Provide for termination by RUS

of the right for the borrower to prepay

thereunder;

(o) Provide evidence that any approvals required from any supplemental

lender have been obtained; and

(p) Set forth such other terms and

conditions as the Administrator shall

deem appropriate.

§ 1786.159 Initial closing.

(a) Upon receipt of the prepayment

agreement, the borrower may submit,

pursuant to the terms of the prepayment agreement, a closing request

which shall request a closing date no

less than 30 business days from the

date of the request.

(b) The Government will respond to

the borrower’s closing request by delivering a preclosing notice to the borrower not less than 10 business days

prior to the date which the Government, after reviewing the borrower’s

closing request, selects as a closing

date.

§ 1786.160 Subsequent closings.

(a) Each subsequent prepayment

after the initial closing shall be facilitated with the submission of an additional closing request by the borrower.

Each closing request must request a

closing date no less than 30 business

days from the date of the request.

(b) The Government will respond to

each subsequent closing request by delivering a preclosing notice to the borrower not less than 10 business days

prior to the date which the Government, after reviewing the borrower’s

closing request, selects as a closing

date in each case.

§ 1786.161 Return of Qualified Notes

and release of lien.

Upon payment to RUS at closing of

the full amount specified in the notice

delivered by RUS to the borrower pursuant to the terms of the prepayment

agreement (see §1786.158(e)), RUS will

deliver to the borrower at closing those

Qualified Notes which have been paid

in full at such closing, and upon payment and discharge of all outstanding

RUS debt obligations by the borrower,

RUS will deliver to the borrower at the

final closing a release of lien prepared

by the borrower pursuant to the terms

of the prepayment agreement.

§ 1786.162 Outstanding loan documents.

(a) Except as expressly provided in

this subpart, the borrower shall comply

with all provisions of its RUS Loan

Contract, its outstanding notes issued

to RUS, and the RUS Mortgage.

(b) Nothing in this subpart shall affect any rights of supplemental lenders

under the RUS Mortgage, or other

creditors of the borrower.

(c) Nothing in this subpart shall prohibit a borrower from making prepayments of any loans pursuant to the RE

Act in accordance with the terms of

such loans.

§ 1786.163 Existing wholesale power

contracts.

(a) If the borrower is a party to a

wholesale power contract with a power

supply borrower financed pursuant to

1030

§ 1786.164 7 CFR Ch. XVII (1–1–00 Edition)

the RE Act, the Administrator may require that the borrower and the power

supply borrower enter into a supplement to the outstanding wholesale

power contract providing substantially

as follows:

SAMPLE CONTRACT TERMS

So long as any of the notes evidencing secured loans of the power supply borrower are

outstanding, the borrower will not, without

the approval in writing of the power supply

borrower and the Administrator, take or suffer to be taken any steps for reorganization

or dissolution, or to consolidate with or

merge into any corporation, or to sell, lease

or transfer (or make any agreement therefor)

all or a substantial portion of its assets,

whether now owned or hereafter acquired.

The power supply borrower will not unreasonably withhold or condition its consent to

any such, reorganization, dissolution, consolidation, or merger, or to any such sale,

lease or transfer (or any agreement therefor)

of assets. The power supply borrower will not

withhold or condition such consent except in

cases where to do otherwise would result in

rate increases for the other members of the

power supply borrower or impair the ability

of the power supply borrower to repay its secured loans in accordance with their terms,

or adversely affect system performance in a

material way. Notwithstanding the foregoing, the borrower may take or suffer to be

taken any steps for reorganization or dissolution or to consolidate with or merge into

any corporation or to sell, lease or transfer

(or make any agreement therefor) all or a

substantial portion of its assets, whether

now owned or hereafter acquired without the

power supply borrower’s consent, so long as

the borrower shall pay such portion of the

outstanding indebtedness on the power supply borrower’s notes or other obligations as

shall be determined by the power supply borrower with the prior written consent of the

Administrator and shall otherwise comply

with such reasonable terms and conditions

as the Administrator and power supply borrower may require either: (1) To eliminate

any adverse effect that such action seems

likely to have on the rates of the other members of the power supply borrower, or

(2) To assure that the power supply borrower’s ability to repay the secured loans

and other obligations of the power supply

borrower in accordance with their terms is

not impaired.

The Administrator may require, among

other things, that any payment owed under

(2) of the preceding sentence that represents

a portion of the power supply borrower’s indebtedness on Notes shall be paid by the borrower in the manner necessary to accomplish

a defeasance of those obligations in accordance with the loan documents relating thereto, or be paid directly to the holders of the

Notes for application by them as prepayments in accordance with the provisions of

such documents, or be paid to the power supply borrower and held and invested in a manner satisfactory to the Administrator.

[End of sample contract terms]

(b) The Administrator may exempt a

borrower from the requirement to

enter into a supplement to its outstanding wholesale power contract if

the Administrator determines that

such requirement is burdensome and

unnecessary in light of the provisions

of the existing wholesale power contract, other security arrangements of

the power supply borrower, and any

other relevant facts and circumstances.

Normally such exemption will be

granted only with the concurrence of

the power supply borrower.

§ 1786.164 Loan fund audit.

In the event that a borrower shall

prepay all its outstanding electric

loans RUS shall have the right to audit

within six (6) months of closing transactions involving the RUS Construction Fund Account established and

maintained by the borrower pursuant

to the terms of the RUS Loan Contract

and to inspect all books, records, accounts, and other documents and papers of the borrower. Should RUS determine that the borrower has made

disbursements of funds advanced pursuant to the RUS Loan Contracts which

do not comply with the requirements

thereof, the borrower shall be required

to pay the RUS an amount equal to the

difference between the amount which

the borrower prepaid under this subpart with respect to such advances, and

the amount which the borrower would

otherwise have been required to return

to the RUS as a result of noncompliance if the borrower had not prepaid

such advances, plus interest. (See 7

CFR part 1721, Post-Loan Policies and

Procedures for Insured Electric Loans.)

§ 1786.165 Reporting.

Borrowers that no longer have any

loans made or guaranteed by RUS and

are considering applying for other financial assistance pursuant to the RE

Act are encouraged to file the end-ofyear operating report, RUS Form 7.

1031

Rural Utilities Service, USDA § 1786.168

§ 1786.166 Approvals.

The borrower shall be responsible for

obtaining all approvals necessary to

consummate the transaction as required by the prepayment agreement,

including such approvals as may be required by regulatory bodies and other

lenders.

§ 1786.167 Restrictions to additional

RUS financing.

(a) No borrower that prepays an electric loan at a discount as provided

under this subpart may apply for or receive direct or insured loans during the

120 months from the most recent closing date, except at the discretion of the

Administrator. During the 120 month

period the Administrator may consider

providing an insured loan if, among

other matters, it is necessary to assure

repayment of, or protect the Government’s security for any outstanding

loans or loan guarantees, or the borrower’s system has suffered severe

physical plant related damage due to

conditions beyond its control and the

borrower is unable to obtain financing

at reasonable terms to restore the system from non-RUS sources, including

the Federal Emergency Management

Agency, and from private sources.

Upon expiration of the 120 months,

such borrowers may apply for direct or

insured loans in the same manner as

other borrowers provided that such

borrowers may not apply for direct or

insured loans for facilities, construction of which commenced prior to the

expiration of the 120 months. 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]

§ 1786.168 Borrowers who prepaid

under this part prior to October 21,

1992.

(a) A borrower that had prepaid,

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

(1) Shall not be eligible except at the

discretion of the Administrator as stated in paragraph §1786.167(a), to apply

for or receive direct or insured loans

during the 180-month period beginning

on the date of the prepayment; and

(2) Shall not be eligible to apply for

or receive direct or insured loans from

RUS until the borrower has repaid to

the RUS the sum of:

(i) The amount (if any) by which the

discount the borrower received by reason of the prepayment exceeds the discount the borrower would have received had the discount been based on

the cost of funds to the Department of

the Treasury as calculated at §1786.153

at the time of the prepayment; and

(ii) Interest on the amount described

in paragraph (a)(2)(i) of this section for

the period beginning on the date of the

prepayment and ending on the date of

the repayment, at a rate equal to the

average annual cost of borrowing by

the Department of the Treasury. This

rate will be calculated first on the date

of prepayment and at one year intervals from that date based on the same

U.S. Treasury issues published in the

Federal Reserve Statistical Release

closest to that date. The Treasury rate

of interest to be applied for each year

will be the rate for the Treasury issue

of comparable maturity to the number

of years from the prepayment date to

the repayment date and at one year intervals thereafter.

(b) If a borrower and the Administrator have entered into an agreement

with respect to a prepayment occurring

before October 21, 1992, this section

shall supersede any provision in the

agreement relating to the restoration

of eligibility for loans under the RE

Act.

(c) Borrowers who prepaid prior to

October 1, 1987, are eligible for assistance under the RE Act in the same

manner as other borrowers with respect to loan guarantees and the rural

development loans.

(d) During the 180 month period described in paragraph (a)(1) of this section the Administrator may consider

providing an insured loan, if the conditions described in §1786.167(a) exist.

1032

§ 1786.169 7 CFR Ch. XVII (1–1–00 Edition)

(e) Borrowers may not apply for direct or insured loans for facilities, construction of which commenced prior to

the expiration of the 180 month period

described in paragraph (a)(1) of this

section.

§ 1786.169 Liability.

It is the intent of this subpart that

any failure on the part of RUS to comply with any provisions of this subpart,

including without limitation, those

provisions setting forth specified timeframes for action by RUS on applications for prepayments or closing requests, shall not give rise to liability of

any kind on the part of the Government or any employees of the Government including, without limitation, liability for damages, fees, expenses or

costs incurred by or on behalf of a borrower, private lender or any other

party.

§ 1786.170 Prepayment of loans approved after December 20, 1993.

[Reserved]

§§ 1786.171—1786.199 [Reserved]

Subpart G—Refinancing and Prepayment of RUS Guaranteed

FFB Loans Pursuant to Section

306(C) of the RE Act

AUTHORITY: 7 U.S.C. 901 et seq.; Pub. L. 103–

354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.); sec.

1201(b) of subtitle B of title 1 of Pub. L. 103–

66, 107 Stat. 312.

SOURCE: 58 FR 51008, Sept. 30, 1993, unless

otherwise noted.

§ 1786.200 Purpose.

This subpart sets forth the policies

and procedures of RUS through the existing FFB program, whereby borrowers may prepay and refinance, outstanding FFB Notes evidencing electric

or telephone loans with FFB, pursuant

to the provisions of section 306(C) of

the RE Act as added by Public Law 103–

66, 107 Stat. 312, enacted August 10,

1993.

§ 1786.201 Definitions and rules of construction.

(a) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities Service

(RUS).

Borrower means any organization

which has an outstanding note(s) evidencing electric or telephone loans

guaranteed by RUS, from FFB.

Business day means any such day on

which both the Federal Financing

Bank and Federal Reserve Bank—New

York are open for business.

Electric loan means a loan made by

FFB and guaranteed by RUS under section 306 of the RE Act for electric service.

FFB means the Federal Financing

Bank, an instrumentality and wholly

owned corporation of the United

States.

Government means the United States

of America, acting through the Administrator of the Rural Utilities Service.

Loan guarantee means RUS’s guarantee under section 306 of the RE Act

of a loan from FFB.

Payment date means the date that

payment is due and is the last day in a

calendar quarter.

Prepayment penalty means the same

as prepayment premium.

Prepayment premium shall have the

meaning set forth at §1786.207.

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

901 et seq.).

REA means the Rural Electrification

Administration formerly an agency of

the United States Department of Agriculture and predecessor agency to RUS

with respect to administering certain

electric and telephone loan programs.

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

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

pursuant to Section 232 of the Federal

Crop Insurance Reform and Department of Agriculture Reorganization

Act of 1994 (Pub. L. 103–354, 108 Stat.

3178), successor to REA with respect to

administering certain electric and telephone programs. See 7 CFR 1700.1.

RUS loan contract means the agreement, as amended, supplemented, or restated from time to time, between a

borrower and RUS providing for loans

or loan guarantees pursuant to the RE

Act.

1033

Rural Utilities Service, USDA § 1786.205

RUS mortgage means collectively

those mortgages and security agreements made by and between the borrower and the Government, securing

indebtedness evidencing electric and

telephone loans or loan guarantees

made pursuant to RE Act. The term includes such mortgages regardless

whether third parties are mortgagees

with RUS.

Supplemental lender means a private

lender whose loan to the borrower is

secured under an RUS mortgage.

Telephone loan means a loan made by

FFB and guaranteed by RUS under section 306 of the RE Act for telephone

service.

(b) Rules of construction. Unless the

context shall otherwise indicate, the

terms defined in paragraph (a) of this

section include the plural as well as

the singular, and the singular as well

as the plural. The words ‘‘herein,’’

‘‘hereof’’ and ‘‘hereunder’’, and words

of similar import, refer to this subpart

as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59

FR 66440, Dec. 27, 1994]

§ 1786.202 Prepayment and refinancing of RUS guaranteed FFB

loans.

The borrower of an electric or telephone loan made by the FFB and guaranteed by RUS under section 306 of the

RE Act may, at the option of the borrower, refinance or prepay a loan or an

advance on the loan, or any portion of

the loan or advance in accordance with

section 306C of the RE Act, after meeting certain conditions using the procedures prescribed in the note. After refinancing existing notes under this section, additional prepayments or

refinancings will be governed by the

terms of the refinancing note(s).

§ 1786.203 Special considerations.

Generally all FFB borrowers with

loans guaranteed by RUS whose FFB

notes have not been accelerated are eligible to prepay or refinance under this

part. All requests for prepayment or refinancing will be processed in accordance with this subpart except that

some requests for refinancing and prepayments are more complicated and

thus will involve special considerations. These requests will have to be

handled on a case by case basis and include:

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

indenture;

(b) Borrowers who have amended

their old form note or have already repriced prior to September 30, 1993;

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

(d) Borrowers whose obligations to

RUS, FFB notes, or security instruments differ from those normally used;

(e) A request to prepay or refinance

an amount of less than $100,000 or an

amount of less than the full amount of

an advance outstanding; or

(f) A request to prepay or refinance a

note that includes unadvanced loan

funds.

§ 1786.204 Limitations.

(a) No more than three refinancing

notes will be executed for any borrower

per calendar year.

(b) The borrower may not select a

term for the refinanced advance that

ends after the maturity date set for

that advance.

§ 1786.205 Application procedure.

(a) Any borrower seeking to prepay

or refinance an advance from the FFB

under this subpart should apply by letter to the appropriate RUS Regional

Director or, in the case of power supply

borrowers, to the Director of the Power

Supply Division. The borrower will be

required to submit applications and

elections in a digital format to be supplied by RUS. The application letter

shall provide the following:

(1) Borrower’s RUS designation;

(2) Borrower’s name and address;

(3) Listing of each note to be prepaid

by loan designation, RUS note number,

RUS account number, advance date,

maturity date, original amount, outstanding balance, and date(s) of any

substitute FFB note(s) amending the

original FFB Note;

(4) A statement of the borrower’s intention to finance the premium by an

addition to principal balance or to pay

the premium in cash or with unsecured

debt;

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

1034

§ 1786.206 7 CFR Ch. XVII (1–1–00 Edition)

(6) Such additional information as

the Administrator may request.

(b) Requests for refinancing or prepayment will ordinarily be processed in

the order that they are received. Borrower’s may withdraw an application

by notifying the appropriate RUS office in which they filed the application.

(c) When the request for prepayment

or refinancing is approved for processing the borrower will be provided

with appropriate instructions, documents and forms which may include

but are not limited to the following:

(1) An FFB refinancing note;

(2) Resolution of Board of Directors;

(3) Legal Opinion;

(4) Certificate of Secretary;

(5) Waiver of Notice;

(6) Notice to borrower electing an effective date other than a scheduled

quarterly payment date (if applicable);

(7) Documentation of obligations secured pursuant to section 1786.208 if

any; and

(8) Security instrument.

(Approved by the Office of Management and

Budget under control number 0572–0032)

§ 1786.206 Refinancing note.

(a) RUS will issue a replacement

guaranty for refinancing notes delivered to FFB to replace and substitute

for existing FFB notes in connection

with any refinancing by FFB pursuant

to section 306C of the RE Act.

(b) Generally, refinancing notes will,

to the extent practicable, consolidate

all of a borrower’s existing FFB notes

which have been guaranteed by RUS

and containing terms and conditions as

FFB may require and RUS and the borrower may accept.

(c) Notwithstanding any contrary

provision contained in this subpart,

RUS will give preference to processing

refinancings that utilize a generic form

of refinancing note in the event that

FFB prescribes one.

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

3, 1993]

§ 1786.207 Prepayment premium.

(a) A premium shall be assessed

against a borrower that refinances or

prepays a loan or loan advance, or any

portion of a loan or advance, under this

section. RUS will collect the prepayment premium as calculated by FFB.

FFB will calculate this premium as described in this section. Except as provided in paragraph (b) of this section,

the premium shall be equal to the lesser of:

(1) The difference between the outstanding principal balance of the loan

being refinanced and the present value

of the loan discounted at a rate equal

to the then current cost of funds to the

Department of the Treasury for obligations of comparable maturity to the

loan being refinanced or prepaid;

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

the ratio that:

(i) The number of quarterly payment

dates between the date of the refinancing or prepayment and the maturity date for the loan advance; bears to

(ii) The number of quarterly payment

dates between the first quarterly payment date that occurs 12 years after

the end of the year in which the

amount being refinanced was advanced

and the maturity date of the loan advance; and

(3)(i) The present value of 100 percent

of the amount of interest for 1 year on

the outstanding principal balance of

the loan or loan advance, or any portion of the loan or advance, being refinanced or prepaid; plus

(ii) For the interval between the date

of the refinancing or prepayment and

the first quarterly payment date that

occurs 12 years after the end of the

year in which the amount being refinanced or prepaid was advanced, the

present value of the difference between:

(A) Each payment scheduled for the

interval on the loan amount being refinanced or prepaid; and

(B) The payment amounts that would

be required during the interval on the

amounts being refinanced or prepaid if

the interest rate on the loan were

equal to the then current cost of funds

to the Department of the Treasury for

obligations of comparable maturity to

the loan being refinanced or prepaid.

(b)(1) Except as provided in paragraph (b)(2) of this section, the premium provided by paragraph (a)(1) of

1035

Rural Utilities Service, USDA § 1788.1

this section shall be required for refinancing or prepayment under this section.

(2) In the case of a loan advanced

under an agreement that permits the

refinancing or prepayment of the loan

advance based on the payment of 1 year

of interest on the outstanding principal

balance of the loan advance, a borrower

may, in lieu of the premium required

by paragraph (a)(1) of this section, pay

a premium as provided by:

(i) Paragraph (a)(2) of this section, if

the loan advance has reached the 12-

year maturity required under the loan

agreement for the refinancing or prepayment; or

(ii) Paragraph (a)(3) of this section, if

the loan advance has not reached the

12-year maturity required under the

loan agreement for the refinancing or

prepayment.

§ 1786.208 Increased principal.

A borrower can meet the premium requirements by increasing the outstanding principal balance of the loan

advance that is being refinanced. If it

does so the borrower shall make a payment at the time of the refinancing

equal to 2.5 percent of the amount of

the premium that is added to the outstanding principal balance of the loan.

§ 1786.209 Outstanding loan documents.

(a) Except as expressly provided in

this subpart, the borrower shall comply

with all provisions of its RUS loan contract, its outstanding notes issued to

RUS, and the RUS mortgage.

(b) Nothing in this subpart shall affect any rights of supplemental lenders

under the RUS mortgage or the rights

of any other creditors of the borrower.

(c) Nothing in this subpart shall prohibit a borrower from making prepayments on any loans pursuant to the RE

Act in accordance with the terms

thereof or as may be otherwise permitted by law.

§ 1786.210 Approvals.

The borrower shall be responsible for

obtaining all approvals necessary to

consummate the transaction as required by the refinancing note, including such approvals as may be required

by regulatory bodies and other lenders.

PART 1788—RUS FIDELITY AND INSURANCE REQUIREMENTS FOR

ELECTRIC AND TELECOMMUNICATIONS BORROWERS

Subpart A—Borrower Insurance

Requirements

Sec.

1788.1 General and definitions.

1788.2 General insurance requirements.

1788.3 Flood insurance.

1788.4 Disclosure of irregularities and illegal acts.

1788.5 RUS endorsement required.

1788.6 RUS right to place insurance.

1788.7–1788.10 [Reserved]

Subpart B—Insurance for Contractors, Engineers, and Architects, Electric Borrowers

1788.11 Minimum insurance requirements

for contractors, engineers, and architects.

1788.12 Contractors’ bonds.

Subpart C—Insurance for Contractors, Engineers, and Architects, Telecommunications Borrowers

1788.46 General.

1788.47 Policy requirements.

1788.48 Contract insurance requirements.

1788.49 Contractors’ bond requirements.

1788.50 Acceptable sureties.

1788.51–1788.53 [Reserved]

1788.54 Compliance with contracts.

1788.55 Providing RUS evidence.

AUTHORITY: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921

et seq.; 7 U.S.C. 6941 et seq.

SOURCE: 64 FR 2, Jan. 4, 1999, unless otherwise noted.

Subpart A—Borrower Insurance

Requirements

§ 1788.1 General and definitions.

(a) The standard forms of documents

covering loans made or guaranteed by

the Rural Utilities Service contain provisions regarding insurance and fidelity coverage to be maintained by each

borrower. This part implements those

provisions by setting forth the requirements to be met by all borrowers.

(b) As used in this part:

Borrower means any entity with any

outstanding loan made or guaranteed

by RUS.

Irregularity has the meaning found in

§1773.2.