41838 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

49 CFR Part 260

[Docket No. FRA 1999–5663]

RIN 2130–AB26

Railroad Rehabilitation and

Improvement Financing Program;

Revisions

AGENCY: Federal Railroad

Administration (FRA), Department of

Transportation (DOT).

ACTION: Final rule.

SUMMARY: The Department of

Transportation (DOT) is issuing a final

rule which implements the Railroad

Rehabilitation and Improvement

Financing Program (RRIF) to provide

direct loans and loan guarantees to State

and local governments, government

sponsored authorities and corporations,

railroads, and joint ventures that

include at least one railroad. Eligible

projects include: (1) acquisition,

improvement or rehabilitation of

intermodal or rail equipment or

facilities (including tracks, components

of tracks, bridges, yards, buildings, and

shops), (2) refinancing outstanding debt

incurred for these purposes, or (3)

development or establishment of new

intermodal or railroad facilities.

The aggregate unpaid principal

amounts of direct loans and loan

guarantees made under this program

cannot exceed $3.5 billion at any one

time and not less than $1 billion is to

be available solely for projects

benefitting freight railroads other than

Class I carriers.

EFFECTIVE DATE: The final rule is

effective September 5, 2000.

FOR FURTHER INFORMATION CONTACT:

JoAnne M. McGowan, Chief of Freight

Programs Division, RDV–12, Office of

Passenger and Freight Services, FRA,

1120 Vermont Avenue, NW, MailStop

20, Washington, D.C. 20590 (202–493–

6379), or Joseph R. Pomponio, Senior

Attorney, Office of Chief Counsel, FRA,

1120 Vermont Avenue, NW, MailStop

10, Washington, D.C. 20590 (202–493–

6065).

SUPPLEMENTARY INFORMATION:

Electronic Access

Internet users can access all

comments received by the U.S. DOT

Dockets, Room PL–401, by using the

universal resource locator (URL): http:/

/dms.dot.gov. It is available 24 hours

each day, 365 days each year. Please

follow the instructions online for more

information and help.

An electronic copy of this document

may be downloaded using a modem and

suitable communication software from

the Government Printing Office

Electronic Bulletin Board Service at

(202) 512–1661. Internet users may

reach the Federal Register’s home page

at: http://www.nara.gov/fedreg and the

Government Printing Office’s database

at: http://www.access.gpo.gov/nara.

Background

Prior to the enactment of the

Transportation Equity Act of the 21st

Century (‘‘TEA 21’’), Pub. L. No. 105–

178 (June 9, 1998), Title V of the

Railroad Revitalization and Regulatory

Reform Act of 1976, as amended (the

‘‘Act’’), 45 U.S.C. 821 et seq., authorized

FRA to provide railroad financial

assistance through the purchase of

preference shares (45 U.S.C. 825), and

the issuance of loan guarantees (45

U.S.C. 831). The FRA regulations

implementing the preference share

program were eliminated on February 9,

1996, due to the fact that the

authorization for the program expired

(28 FR 4937). The FRA regulations

implementing the loan guarantee

provisions of Title V of the Act are

contained in 49 C.F.R. Part 260.

Section 7203 of TEA 21 replaces the

existing Title V financing programs.

This final rule strikes the language in

existing part 260 and replaces it with

new procedures and requirements to

cover applications of financial

assistance in the form of direct loans

and loan guarantees consistent with the

changes made to Title V of the Act by

section 7203 of TEA–21.

The revised program is referred to in

TEA 21 as the Railroad Rehabilitation

and Improvement Financing Program

(‘‘RRIF Program’’). The Secretary has

delegated his authority under the RRIF

Program to the FRA Administrator.

NPRM

The FRA published a notice of

proposed rulemaking (NPRM) on May

20, 1999, in the Federal Register (64 FR

27488). Comments were filed by 92

commenters. FRA is now issuing this

final rule concerning administration of

the RRIF Program. This rule reflects the

FRA’s consideration of the comments

filed in response to the NPRM.

Discussion of Rulemaking Text

The following discussion summarizes

the comments submitted to the FRA by

commenters on the NPRM, notes where

and why changes have been made to the

rule, and, where relevant, states why

particular recommendations or

suggestions have not been incorporated

into the following regulations.

Paragraph references are as designated

in the NPRM.

Discussion of Comments and Responses

by Section

Section 260.9 Loan terms. Sixty-one

commenters urged that the interest rate

to be charged on direct loans made

under the RRIF Program be set at the

cost of money to the Government for

debt obligations with terms equal to the

term of the loan.

FRA Response: Although FRA

anticipated that direct loans would be

assessed interest rates equal to the cost

of money to the Government, as

determined by the rate on Treasury

securities of a similar term, the

proposed regulations did not so specify.

In order to clarify FRA’s intent in this

regard, section 260.9 has been changed

to specify the interest rate to be charged.

Section 260.23(o) Lender of last resort.

Seventy-two commenters suggested that,

as enacted by Congress, the RRIF

Program was not intended to provide

financial assistance only as a lender of

last resort. Commenters noted that

although in certain circumstances loans

may be available from the private sector,

the terms on which such loans are

offered are prohibitive. Railroad assets

typically have long economic lives (up

to 30 years) while private sector loans,

when available, offer no longer than a 7

year repayment period. Therefore,

private sector financing of most railroad

assets is not economically viable.

Also notably, comments submitted by

four members of the Committee on

Transportation and Infrastructure,

House of Representatives, including:

Bud Shuster, Chairman, James L.

Oberstar, Ranking Member, Thomas

Petri, Chairman, Ground Transportation

Subcommittee, and Nick J. Rahall, II,

Ranking Member, Ground

Transportation Subcommittee, suggest

that TEA–21 does not require that the

RRIF Program be a lender of last resort

and ask that this requirement be

deleted. Further, those comments

indicate that the ‘‘central purpose of the

program is to facilitate rail and railintermodal infrastructure improvements

that will confer public benefits beyond

simple considerations of commercial

lending, and may not be able to attract

sufficient private capital.’’

FRA Response: Consistent with the

intent of Congress FRA intends to

implement this program in a way that

will meet the needs of the rail industry

for long term financing which is not

available from the private sector. While

FRA need not be a lender of last resort,

it does not intend to replace private

funding sources already available to the

rail industry. Therefore, in order to

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41839

establish that private funding on terms

necessary to the viability of the

applicant’s project is not available, FRA

will require that railroad applicants

provide a letter from a commercial

lender denying funding for the project.

Section 260.23(o) has been amended

accordingly.

Sections 260.23, 25, & 29. Information

to be provided with applications. Sixty

commenters suggested that the amount

of information required to be submitted

with applications for assistance under

the RRIF Program will prove to be an

undue burden on small businesses.

Commenters have suggested that FRA

should limit the amount of information

required and eliminate the requirement

that financial statements be audited.

FRA Response: In an effort to reduce

the burden on applicants while still

assuring that adequate information is

available to accurately evaluate each

loan application and proposed project,

FRA has amended sections 260.23(h)

and 260.25(b)(1) of the regulation to

provide that audited financial

statements will only be required if they

are available. Further, FRA has

amended sections 260.25(b) and (c), and

eliminated section 260.29.

Section 260.31 Investigation charge.

Sixty commenters have suggested that

the investigation charge set by FRA at

1⁄2% as permitted by statute is too high

and may prove to be a burden on

smaller applicants. Commenters

suggested that the investigation charge

be assessed based on actual cost to FRA

to process each application.

FRA Response: In order to avoid any

unnecessary burden of future applicants

FRA will estimate the processing costs

and advise applicant at the preapplication meeting of the amount of

the charge. That charge will still be

payable in two installments, 1⁄2 at the

time the application is submitted and

the remaining 1⁄2 within 60 days

thereafter. Section 260.11 has been

amended accordingly. Further, in order

to provide applicant more flexibility in

controlling the total administrative costs

of each application, FRA has included

a new Section 260.29, which provides

applicants with the option of

contracting with a third party financial

consultant, with FRA approval, to

prepare a financial evaluation of the

project and the applicant. Cost savings

to FRA as a result of receiving such an

evaluation will be reflected as

reductions to the investigation charge.

General Comments

Fifty-six commenters asked that the

limitation imposed by section 260.53,

which provides that the Administrator

will only guarantee up to 80% of the

total obligation, be deleted so that 100%

of an obligation can be guaranteed.

FRA Response: The 80% limitation is

imposed on all Federal loan guarantees

by the Office of Management and

Budget, as iterated in circular A–129.

The FRA cannot guarantee more than

80%.

Sixty-four commenters requested that

the calculation of the Credit Risk

Premium be simplified so as to be easily

understood.

FRA Response: The calculation of the

Credit Risk Premium is based on a

process which evaluates many

indicators of the financial viability of

the applicant. In order to accurately

assess the risk of default associated with

each loan or loan guarantee FRA must

consider all aspects of the applicant’s

organization and business. Therefore,

this estimation process necessarily is

complex. However, FRA will provide

potential applicants with estimates of

the size of the Credit Risk Premium that

may be required based on discussions at

the preapplication meeting provided

under section 260.19.

One commenter requested that FRA

accept a note from an applicant as

payment of the Credit Risk Premium in

lieu of a cash payment.

FRA Response: Based on FRA’s

interpretation of the statutory language

this option is not permitted. Section

502(e)(3) provides that ‘‘the credit risk

premium under this section shall be

paid to the Secretary before the

disbursement of loan amounts’’.

Acceptance of a note would not

constitute payment.

Two commenters suggested that

priority consideration be given to

projects that would avoid the

abandonment of a rail line; one

commenter asked for priority for

projects benefitting railroad employees,

and one commenter requested that, FRA

provide priority for a project included

in a state transportation plan.

FRA Response: The types of projects

identified for priority consideration in

section 260.7 reflect the areas of priority

detailed by the enabling legislation.

FRA has elected not to add to these

criteria at this time.

Two commenters asked that the cost

of a right-of-way be made an eligible

cost of the project that receives financial

assistance under the RRIF Program.

FRA Response: The statutory language

does not clearly state whether the cost

of right-of-way acquisition may be

considered as part of the project. While

it is possible that in certain

circumstances such costs could be

considered eligible cost of the project, it

is also possible that in other situations

they would not. A determination

regarding whether the costs of rights-ofway may be considered eligible costs

will be made in each case after a careful

review of the circumstances.

Three commenters suggested that the

collection of a Credit Risk Premium is

too heavy a burden to be placed on

applicants and asked that FRA not

charge a Credit Risk Premium.

FRA Response: Before FRA can

disburse any direct loan or loan

guarantee it must set aside such

amounts as are necessary to offset

anticipated costs to the Federal

government of making such loans and

guarantees. Under this program such

funds may come from funds

appropriated for this purpose by

Congress, a Credit Risk Premium, or any

combination of appropriated funds and

Credit Risk Premium. Where no

Congressional appropriation exists, and

there is none for RRIF at this time, FRA

cannot approve a loan or loan guarantee

without collecting a Credit Risk

Premium.

One commenter requested that FRA

provide financial assistance under this

program for terms of up to 30 years.

FRA Response: Section 502(g)(1) of

the Act requires that the Administrator

(as the Secretary’s designee), shall not

make a loan or a loan guarantee unless

the Administrator has made a finding

that repayment of the obligation is

required to be made in a term of not

more than 25 years.

One commenter questioned our

consideration of the ‘‘size’’ of an

applicant in determining the credit risk,

and suggested that no application

should be denied solely because of the

applicant’s size.

FRA Response: FRA recognizes that

the RRIF Program is intended, in part,

to provide financial assistance to small

railroads and it will not use a small

applicant’s size as a basis to deny

financial assistance. However, the size

of the applicant is a significant factor

which must be considered along with

all other factors outlined in determining

the credit risk of providing financial

assistance. Size would also be important

if the applicant were large and the

amount of assistance sought by the

applicant together with all other

assistance already provided to large

applicants would result in less than $1

billion being available to small

railroads.

One commenter requested that the

term ‘‘common carrier’’ be removed

from the definition of a railroad

provided in section 260.3(r), in order to

permit railroad shortlines providing

only contract carrier services to a

limited number of small shippers to be

41840 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

eligible for financial assistance under

the RRIF Program.

FRA Response: Section 7203 of TEA–

21, which established the RRIF Program

by amending Title V of the Act, does not

define ‘‘railroad.’’ However, section 102

of the Act, as amended, provides that

‘‘as used in this Act’’ * * * ‘‘(7)

‘railroad’ means rail carrier subject to

part A of subtitle IV of title 49, United

States Code.’’ FRA has no discretion to

expand the definition provided by the

Act but clarify the definition by

incorporating the statutory definition.

One commenter asked that the term

‘‘equipment’’, as used in section 260.5,

‘‘Eligible purposes,’’ be defined to

clarify that it does include railroad cars

and locomotives.

FRA Response: The term ‘‘equipment’’

was not defined in the proposed

regulations because it includes a variety

of items which are used in the operation

of a railroad. While rail cars and

locomotives are certainly railroad

equipment, further determinations

regarding what will be considered

‘‘equipment’’ will be made as necessary.

One commentor suggests that the

inclusion of all loans and loan

guarantees into one cohort each fiscal

year is inappropriate because the default

of any obligation within that cohort will

reduce the likelihood that other

obligations will receive a rebate of their

credit risk premium.

FRA Response: A default of any

obligation in a cohort will produce

losses that must be covered by the credit

risk premiums collected from other

obligations within that cohort. The

fewer obligations a cohort contains, the

greater the likelihood that a default will

consume all the credit risk premiums

and that none will remain to be returned

to the borrowers. Similarly, a cohort

containing more obligations is more

likely to have sufficient credit risk

premiums to cover the losses and still

be able to provide a rebate. Therefore,

FRA has determined that it will not

necessarily limit cohorts to a one year

period. Rather each cohort will remain

open until FRA has determined that it

contains an adequate pool of

obligations, based on both size of the

obligations and the total credit risk

premiums collected, to increase the

possibility that a rebate will be available

upon the repayment of all the

obligations contained in the cohort.

Also, to that end separate cohorts will

be established for direct loans and loan

guarantees. Section 260.15 has been

amended accordingly.

Regulatory Impact

E.O. 12866, SBREFA and DOT

Regulatory Policies and Procedures

This final rule has been evaluated in

accordance with existing regulatory

policies and is considered to be

economically significant within the

meaning of Executive Order 12866 and

is a significant rule under DOT

regulatory policies and procedures (44

Fed. Reg., February 26, 1979).

Additionally, this is a major rule under

the Small Business Regulatory

Enforcement Fairness Act (5 U.S.C.

804(2)) because the rule may have an

annual effect on the economy of $100

million or more.

Executive Order 12866 requires that

for all economically significant

regulations, agencies provide an

assessment, including the underlying

analysis, of the costs and benefits

anticipated from the regulatory action.

In addition, the agency must analyze the

costs and benefits of potentially

effective and reasonably feasible

alternatives to the planned regulations.

While the agency has not produced a

quantified analysis of this rule, DOT has

produced the following qualitative

assessment:

Potential Benefits. The financing

made available through this final rule

may provide environmental and safety

benefits, and avoid increased highway

maintenance costs. Of the $3.5 billion

made available for direct loans and loan

guarantees, $1 billion is reserved for

projects benefitting small railroads.

Shortline and regional railroads are one

of the transportation modes that connect

rural America and small communities to

the national railroad system. A recent

survey by the American Association of

State Highway and Transportation

Officials has found that 200 small

railroads need more than $2 billion in

external financing to upgrade their track

to safely accommodate the 286,000

pound cars that major carriers are now

using. Shortline and regional railroads

that cannot safely handle these heavier

cars will lose traffic critical to their

viability and continued operation. If

these railroads are abandoned, the

traffic will be moved by less energy

efficient trucks. A 1991 FRA study

entitled Rail vs. Truck Fuel Efficiency

found that on routes typically served by

shortline railroads, trains were 5.93 to 9

times more energy efficient than trucks.

Additional truck traffic may increase

adverse health and environmental

effects. It is unclear how significant the

incremental changes in health and

environmental effects will be because

the agency has not estimated the

incremental pollution reductions that

may occur from this rule. In addition,

some of the reductions that do occur are

likely to be in sparsely populated areas.

This rule may also provide safety

benefits by reducing track-related

accidents. From 1986 through 1991,

small railroads experienced over 3

track-related accidents for every million

miles operated. During the same period,

major railroads had only 1.45 trackrelated accidents for every million miles

operated. Since 1991, the situation has

worsened. From 1992 through 1996,

shortline and regional railroads

experienced more than 5 track-related

accidents per million miles operated

while major railroads had only 1.28. On

the other hand, it is not clear that

trucking the traffic carried by shortline

and regional railroads would be less

safe.

Potential Costs. There are

administrative costs associated with this

rule. Prospective borrowers will be

required to file an application

containing certain financial information.

This information collection has been

approved by the Office of Management

and Budget. The approved control

number is 2130–0548. The estimated

annual burden hours are 5,881 hours

and the annual costs are $543,866. The

total estimated administrative costs to

the Federal government are $325,000.

Default costs also may occur as a

result of this rule. If the cost of

borrowers’ defaults exceeds the credit

risk premiums collected there will be a

cost to the federal government.

There are also opportunity costs

associated with this rule, since it may

reallocate finite resources to railroads

that necessarily would have been spent

elsewhere absent this rule. FRA has

observed that the private sector will not

provide funds to many railroads on

terms that will support long term

improvement projects. Under the

assumption that private markets are

working properly, this rule will displace

more valuable investments and will

result in costs to society. Because the

private credit market generally allocates

resources (including credit) efficiently

to meet societal demand, only under

certain circumstances (see examples

below) may government intervention in

the credit market increase societal

benefits.

If one assumes that the private sector

is not providing credit to railroads

because an economic market failure

exists, then government intervention

may improve the outcome. Reasons for

economic market failure of the credit

market include information failures,

externalities, economic disequilibrium,

failure of competition and incomplete

markets. Under these circumstances,

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41841

government intervention may generate

positive net societal benefits through a

combination of private and social

benefits, taking into account the factors

identified in the discussion of potential

benefits above.

Cost-Benefit Comparison. Under

Executive Order 12866, agencies may

propose or adopt a regulation only upon

a reasoned determination that the

benefits of the regulation justify the

costs. Based on numerous project

benefit-cost analyses completed by State

Departments of Transportation, DOT

believes that the rule can lead to

carefully selected projects that will

generate benefits sufficient to outweigh

the costs of this rule.

Future Analysis of this Program. FRA

will periodically review the public

benefits and costs of the RRIF program

to ensure that there is a net societal

benefit from this program. FRA

recognizes that only under certain

circumstances will government

intervention in the credit market

generate net societal benefits. Therefore,

FRA will the reason for the failure of the

market to provide credit to rail projects,

and will assess the private and social

costs and benefits of these projects to

determine if they are likely to result in

net societal benefits.

The Office of Management and Budget

Circular A–94 establishes guidelines for

analysis of the expected benefits and

costs to society of Federal programs.

The purpose of A–94 is to promote

efficient resource allocation through

well-informed decision-making by the

Federal Government.

Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980

(5 U.S.C. 601 et seq.) requires a review

of rules to assess their impact on small

entities. FRA has conducted a regulatory

flexibility assessment of this final rule

and FRA certifies that it does not have

a significant impact on a substantial

number of small entities.

It is not likely that small

governmental entities will seek financial

assistance under the RRIF Program. In

response to a public notice on the

enactment of the program, only large

metropolitan areas, like the City of

Indianapolis and the Memphis and

Shelby County Port Commission,

indicated an interest in RRIF financing.

The cost to governmental entities of

applying for the program would be

minimal since borrowers will normally

have available the information needed

to prepare applications for funding.

In addition to small governmental

entities, the small entities directly

affected by this rule are class III

railroads. The cost to small railroads

will be minimal since the information

needed to complete applications will

normally be available. Moreover,

participation in the RRIF Program is

strictly voluntary. Therefore, FRA has

concluded that there are no substantial

economic impacts for small units of

government, business, or other

organizations.

Paperwork Reduction Act

This information collection has been

approved by the Office of Management

and Budget. The approved control

number is 2130–0548. FRA cannot

impose a penalty on persons for

violating information collection

requirements which do not display a

current OMB control number.

Environmental Impact

FRA has evaluated this regulation in

accordance with its procedures for

ensuring full consideration of the

potential environmental impacts of FRA

actions, as required by the National

Environmental Policy Act (42 U.S.C.

4321 et seq.), other environmental

statutes, Executive Orders, and related

directives. This regulation meets the

criteria that establish this as a non-major

action for environmental purposes.

Federalism Implications

This rule will not have a substantial

effect on the States, on the relationship

between the Federal Government and

the States, or on the distribution of

power and responsibilities among the

various levels of government. Thus,

input by state and local officials, under

Executive Orders 13132, is not

warranted.

Compliance With the Unfunded

Mandates Reform Act of 1995

Pursuant to the Unfunded Mandates

Reform Act of 1995 (Public Law 104–4)

each federal agency ‘‘shall, unless

otherwise prohibited by law, assess the

effects of Federal Regulatory actions on

State, local, and tribal governments, and

the private sector (other than to the

extent that such regulations incorporate

requirements specifically set forth in

law).’’ Sec. 201. Section 202 of the

Unfunded Mandates Reform Act further

requires that ‘‘before promulgating any

general notice of proposed rulemaking

that is likely to result in promulgation

of any rule that includes any Federal

mandate that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100,000,000 or more

(adjusted annually for inflation) in any

1 year, and before promulgating any

final rule for which a general notice of

proposed rulemaking was published,

the agency shall prepare a written

statement * * *’’ detailing the effect on

State, local and tribal governments and

the private sector. The final rules issued

today will not result in the expenditure,

in the aggregate, of $100,000,000 or

more in any one year, and thus

preparation of a statement was not

required.

List of Subjects in 49 CFR Part 260

Loan programs—Transportation;

Railroads.

The Final Rule

In consideration of the foregoing, Part

260 of Title 49, Code of Federal

Regulations, is revised to read as

follows:

PART 260—REGULATIONS

GOVERNING LOANS AND LOAN

GUARANTEES UNDER THE RAILROAD

REHABILITATION AND IMPROVEMENT

FINANCING PROGRAM

Subpart A—Overview

Sec.

260.1 Program authority.

260.3 Definitions.

260.5 Eligible purposes.

260.7 Priority consideration.

260.9 Loan terms.

260.11 Investigation charge.

260.13 Credit reform.

260.15 Credit risk premium.

Subpart B—FRA Policies and Procedures

for Evaluating Applications for Financial

Assistance

260.17 Credit risk premium analysis.

260.19 Preapplication meeting.

Subpart C—Applications for Financial

Assistance

260.21 Eligibility.

260.23 Form and content of application

generally.

260.25 Additional information for

applicants not having a credit rating.

260.27 Additional information for loan

guarantees.

260.29 Third party consultants.

260.31 Execution and filing of application.

260.33 Information requests.

260.35 Environmental assessment.

Subpart D—Standards for Maintenance of

Facilities Involved in the Project

260.37 Applicability.

260.39 Maintenance standards.

260.41 Inspection and reporting.

260.43 Impact on other laws.

Subpart E—Procedures To Be Followed in

the Event of Default

260.45 Events of default for guaranteed

loans.

260.47 Events of default for direct loans.

260.49 Avoiding defaults.

Subpart F—Loan Guarantees—Lenders

260.51 Conditions of guarantees.

260.53 Lender’s functions and

responsibilities.

41842 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

260.55 Lender’s loan servicing.

Authority: 45 U.S.C. 821, 822, 823; 49 CFR

1.49.

Subpart A—Overview

§ 260.1 Program authority.

Section 502 of the Railroad

Revitalization and Regulatory Reform

Act of 1976, as amended, 45 U.S.C. 821

et seq., authorizes the Secretary of

Transportation to provide direct loans

and loan guarantees to State and local

governments, government sponsored

authorities and corporations, railroads,

and joint ventures that include at least

one railroad. The Secretary’s authority

has been delegated to the Administrator

of the Federal Railroad Administration,

an agency of the Department of

Transportation.

§ 260.3 Definitions.

As used in this part—

(a) Act means the Railroad

Revitalization and Regulatory Reform

Act of 1976, as amended, 45 U.S.C. 821

et seq.

(b) Administrator means the Federal

Railroad Administrator, or his or her

representative.

(c) Applicant means any State or local

government, government sponsored

authority or corporation, railroad, or

group of two or more entities, at least

one of which is a railroad, participating

in a joint venture, that submits an

application to the Administrator for a

direct loan or the guarantee of an

existing obligation under which it is an

obligor or for a commitment to

guarantee a new obligation.

(d) Borrower means an Applicant that

has been approved for, and has

received, financial assistance under this

part.

(e) Credit risk premium means that

portion of the total subsidy cost to the

Government of a direct loan or loan

guarantee that is not covered by Federal

appropriations and which must be paid

by Applicant or its non-Federal

infrastructure partner before that direct

loan can be disbursed or loan guarantee

can be issued.

(f) Direct loan means a disbursement

of funds by the Government to a nonfederal borrower under a contract that

requires the repayment of such funds.

(g) FRA means the Federal Railroad

Administration.

(h) Financial assistance means a

direct loan, or a guarantee of a new loan

issued under this part.

(i) Holder means the current owner of

an obligation or the entity retained by

the owner to service and collect an

obligation which is guaranteed under

the provisions of this part.

(j) Including means including but not

limited to.

(k) Infrastructure partner means any

non-Federal source of the Credit Risk

Premium which must be paid to the

Administrator in lieu of, or in

combination with, an appropriation in

connection with financial assistance

provided under this part.

(l) Intermodal means of or relating to

the connection between rail service and

other modes of transportation, including

all parts of facilities at which such

connection is made.

(m) Lender means the non-Federal

entity making a loan to an Applicant for

which a loan guarantee under this part

is sought.

(n) Loan guarantee means any

guarantee, insurance, or other pledge

with respect to the payment of all or a

part of the principal or interest on any

debt obligation of a non-Federal

borrower to a non-Federal Lender, but

does not include the insurance of

deposits, shares, or other withdrawable

accounts in financial institutions.

(o) Obligation means a bond, note,

conditional sale agreement, equipment

trust certificate, security agreement, or

other obligation.

(p) Obligor means the debtor under an

obligation, including the original obligor

and any successor or assignee of such

obligor.

(q) Project means the purpose for

which financial assistance is requested.

(r) Railroad means a rail carrier

subject to part A of subtitle IV of title

49, United States Code.

(s) Subsidy cost of a direct loan means

the net present value, at the time when

the direct loan is disbursed, of the

following estimated cash flows:

(1) Loan disbursements;

(2) Repayments of principal; and

(3) Payments of interest and other

payments by or to the Government over

the life of the loan after adjusting for

estimated defaults, prepayments, fees,

penalties, and other recoveries;

including the effects of changes in loan

terms resulting from the exercise by the

borrower of an option included in the

loan contract.

(t) Subsidy cost of a loan guarantee

means the net present value, at the time

when the guaranteed loan is disbursed,

of the following estimated cash flows:

(1) Payments by the Government to

cover defaults, delinquencies, interest

subsidies, or other payments; and

(2) The payments to the Government

including origination and other fees,

penalties and recoveries.

§ 260.5 Eligible purposes.

(a) Financial assistance under this

part is available solely to:

(1) Acquire, improve, or rehabilitate

intermodal or rail freight or passenger

equipment or facilities, including track,

components of track, bridges, yards,

buildings, and shops;

(2) Refinance outstanding debt

incurred for purposes described in

paragraph (a)(1) of this section; or

(3) Develop or establish new

intermodal or railroad facilities.

(b) Financial assistance under this

part cannot be used for railroad

operating expenses.

§ 260.7 Priority consideration.

When evaluating applications, the

Administrator will give priority

consideration (but not necessarily in the

following order) to projects that:

(a) Enhance public safety;

(b) Enhance the environment;

(c) Promote economic development;

(d) Enable United States companies to

be more competitive in international

markets;

(e) Are endorsed by the plans

prepared under section 135 of title 23,

United States Code, by the State or

States in which they are located; or

(f) Preserve or enhance rail or

intermodal service to small

communities or rural areas.

§ 260.9 Loan terms.

The maximum repayment period for

direct loans and guaranteed loans under

this part is 25 years from the date of

execution. The interest rate on direct

loans will be equal to the rate on

Treasury securities of a similar term. In

general, the financial assistance

provided will be required to be repaid

prior to the end of the useful life of the

project it is used to fund.

§ 260.11 Investigation charge.

(a) Applicants for financial assistance

under this part may be required to pay

an investigation charge of up to one-half

of one percent of the principal amount

of the direct loan or portion of the loan

to be guaranteed.

(b) When an investigation charge is

assessed, one-half of the investigation

charge shall be paid by Applicant at the

time a formal application is submitted

to FRA.

(c) Within 60 days after the date of

filing of the application, Applicant shall

pay to the Administrator the balance of

the investigation charge.

§ 260.13 Credit reform.

The Federal Credit Reform Act of

1990, 2 U.S.C. 661, requires Federal

agencies to set aside the subsidy cost of

new credit assistance provided in the

form of direct loans or loan guarantees.

The subsidy cost will be the estimated

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41843

long term cost to the Government of the

loan or loan guarantee. The subsidy cost

associated with each direct loan or loan

guarantee, which the Administrator

must set aside, may be funded by

Federal appropriations, direct payment

of a Credit Risk Premium by the

Applicant or a non-Federal

infrastructure partner on behalf of the

Applicant, or any combination thereof.

§ 260.15 Credit risk premium.

(a) Where available Federal

appropriations are inadequate to cover

the subsidy cost, a non-Federal

infrastructure partner may pay to the

Administrator a Credit Risk Premium

adequate to cover that portion of the

subsidy cost not covered by Federal

appropriations. Where there is no

Federal appropriation, the Credit Risk

Premium must cover the entire subsidy

cost.

(b) The amount of the Credit Risk

Premium required for each direct loan

or loan guarantee, if any, shall be

established by the Administrator. The

Credit Risk Premium shall be

determined based on the credit risk and

anticipated recovery in the event of

default, including the recovery of

collateral.

(c) The Credit Risk Premium must be

paid before the disbursement of a direct

or guaranteed loan. Where the borrower

draws down the direct or guaranteed

loan in several increments, the borrower

may pay a portion of the total Credit

Risk Premium for each increment equal

to the proportion of that increment to

the total amount of the direct or

guaranteed loan.

(d) Each direct loan and loan

guarantee made by the Administrator

will be included in one cohort of direct

loans or one cohort of loan guarantees,

respectively, made during that same

fiscal year, or longer period, as may be

determined by the Administrator. When

all obligations in a cohort have been

satisfied or liquidated, the amount of

Credit Risk Premiums, paid by

applicants or infrastructure partners,

remaining in the cohort, after

deductions made to mitigate losses from

any loan or loan guarantee in the cohort,

together with interest accrued thereon,

will be repaid on a pro rata basis to each

original payor of a Credit Risk Premium

for any obligation which was fully

satisfied. If the Administrator’s estimate

of the default risk cost of each loan is

accurate, the aggregate of Credit Risk

Premiums associated with each cohort

of loans will fully offset all losses in the

cohort and none will remain to be

returned to the payees.

Subpart B—FRA Policies And

Procedures For Evaluating

Applications For Financial Assistance

§ 260.17 Credit risk premium analysis.

(a) When Federal appropriations are

not available to cover the total subsidy

cost, the Administrator will determine

the Credit Risk Premium necessary for

each direct loan or loan guarantee by

estimating the credit risk and the

potential recovery in the event of a

default of each project evaluating the

factors described in paragraphs (b) and

(c) of this section.

(b) Establishing the credit risk.

(1) Where an Applicant has received

a recent credit rating from one or more

nationally recognized rating agencies,

that rating will be used to estimate the

credit risk.

(2) Where an Applicant has not

received a credit rating from a credit

rating agency, the Administrator will

determine the credit risk based on an

evaluation of the following factors:

(i) Business risk, based on

Applicant’s:

(A) Industry outlook;

(B) Market position;

(C) Management and financial

policies;

(D) Capital expenditures; and

(E) Operating efficiency.

(ii) Financial risk, based on

Applicant?s past and projected:

(A) Profitability;

(B) Liquidity;

(C) Financial strength;

(D) Size; and

(E) Level of capital expenditures; and

(iii) Project risk, based on the

proposed project’s:

(A) Potential for improving revenues,

profitability and cash flow from

operations; and

(B) Reliance on third parties for

success.

(c) The potential recovery in the event

of a default will be based on:

(1) The nature of the Applicant’s

assets; and

(2) Liquidation value of the collateral

offered, including the terms and

conditions of the lien securing the

collateral.

§ 260.19 Preapplication meeting.

Potential Applicants may request a

meeting with the FRA Associate

Administrator for Railroad Development

to discuss the nature of the project being

considered. Applicants must be

prepared to provide at least the

following information:

(a) Applicant’s name, address, and

contact person;

(b) Name of the proposed

infrastructure partner(s), if any,

including the identification of potential

amounts of funding from each;

(c) Amount of the direct loan or loan

guarantee request, and a description of

the technical aspects of the project

including a map of the existing railroad

lines with the location of the project

indicated;

(d) Brief description and estimate of

the economic impact, including future

demand for service, improvements that

can be achieved, the project’s relation to

the priorities listed in § 260.7, along

with any feasibility, market or other

studies that may have been done as

attachments;

(e) Amount of Applicant’s equity and

a description of collateral offered, with

estimated values, including the basis of

such, to be offered as security for the

loan;

(f) If applicable, the names and

addresses of the Applicant’s parent,

affiliates, and subsidiary corporations, if

any, and a description of the ownership

relationship and the level of guarantee,

if any, to be offered;

(g) For existing companies, a current

balance sheet and an income statement

not more than 90 days old and financial

statements for the borrower and any

parent, affiliates, and subsidiaries for at

least the four most recent years; and

(h) Information relevant to the

potential environmental impacts of the

project in the context of applicable

Federal law.

Subpart C—Applications for Financial

Assistance

§ 260.21 Eligibility.

The Administrator may make a direct

loan to an Applicant, or guarantee the

payment of the principal balance and

any interest of an obligation of an

Applicant prior to, on, or after the date

of execution or the date of disbursement

of such obligation, if the proceeds of

such direct loan or obligation shall be,

or have been, used by the Applicant for

the eligible purposes listed in

§ 260.5(a)(1), (2), and (3).

§ 260.23 Form and content of application

generally.

Each application shall include, in the

order indicated and identified by

applicable paragraph numbers and

letters corresponding to those used in

this section, the following information:

(a) Full and correct name and

principal business address of the

Applicant;

(b) Date of Applicant’s incorporation,

or organization if not a corporation, and

name of the government, State or

territory under the laws of which it was

incorporated or organized. If Applicant

41844 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

is a partnership, association, or other

form of organization other than a

corporation, a full description of the

organization should be furnished;

(c) Name, title, and address of the

person to whom correspondence

regarding the application should be

addressed.

(d) A statement of whether the project

involves another railroad or other

participant, through joint execution,

coordination, or otherwise; if so,

description of the relative participation

of Applicant and such other railroad or

participant, including financial

statements (if applicable) and financing

arrangements of each participant,

portion of the work to be performed by

each participant, and anticipated level

of usage of the equipment or facility of

each participant when the work is

completed, along with a statement by a

responsible officer or official of the

other railroad or participant that the

information provided reflects their

agreement on these matters;

(e) A detailed description of the

amount and timing of the financial

assistance that is being requested and its

purpose or purposes, including:

(1) Detailed description of the project

and its purpose or purposes;

(2) A description of all facilities or

equipment and the physical condition

of such facilities or equipment included

in or directly affected by the proposed

project;

(3) Each part or sub-part into which

the project may reasonably be divided

and the priority and schedule of

expenditure for each part or sub-part;

and

(4) Proposed dates of commencement

and completion of the project and

estimated timing of the expenditure of

the proceeds of the obligation;

(5) A map of Applicant’s existing

railroad with location of project

indicated, if appropriate.

(f) A listing and description of the

collateral to be offered the

Administrator in connection with any

financial assistance provided;

Applicant’s opinion of the value of this

security and the basis for such opinion;

in the case of leased equipment to be

rehabilitated or improved with the

proceeds of the obligation proposed to

be guaranteed, Applicant shall state, in

addition to the above, whether the lease

provides for, or the lessor will permit,

encumbrance of the leasehold or

subordination of the lessor’s interest in

the equipment to the Administrator;

(g) A statement, in summary form,

showing financial obligations to or

claims against the United States or

obligations for which the United States

is guarantor, if any, by Applicant or any

affiliated corporate entity of the

Applicant or the Applicant’s parent as

of the date of the application, including:

(1) Status of any claims under

litigation; and

(2) Any other debits or credits existing

between the Applicant and the United

States, showing the department or

agency involved in such loans, claims

and other debts;

(h) To the extent such information is

available, an analysis that includes:

(1) a statement, together with

supporting evidence including copies of

all market analyses and studies that

have been performed to determine

present and future demand for rail

services or facilities, that the financing

is justified by present and future

probable demand for rail services or

facilities, will meet existing needs for

such services or facilities, and will

provide shippers or passengers with

improved service;

(2) Description of the impact of the

project upon the projected freight or

passenger traffic to be originated,

terminated, or carried by the Applicant

for at least the five years immediately

following completion of the project;

(3) Explanation of the manner in

which the project will increase the

economical and efficient utilization of

equipment and facilities; and

(4) Description of cost savings or any

other benefit which would accrue to the

Applicant from the project;

(i) A statement as to how the project

will contribute to, or enhance, the safe

operation of the railroad, considering

such factors as the occupational safety

and health of the employees and the

improvement of the physical and other

conditions that have caused or may

cause serious injury or loss of life to the

public or significant property damage;

(j) A statement of the Applicant’s

maintenance program for its entire rail

system and planned maintenance

program for the equipment or facilities

financed by the proceeds of the

financial assistance;

(k) A certified statement in the form

contained in § 260.31(d) that Applicant

will pay to the Administrator, in

accordance with § 260.11, the

investigation charge with respect to the

application.

(l) Information relevant to the

potential environmental impacts of the

project in the context of applicable

Federal laws;

(m) Any additional information that

the Applicant deems appropriate to

convey a full and complete

understanding of the project, the

project’s relations to the priorities listed

in § 260.7, and its impact, or to assist

the Administrator in making the

statutorily prescribed findings; and

(n) Any other information which the

Administrator may deem necessary

concerning an application filed under

this part.

(o) Railroad applicants must also

submit a copy of application for

financing for the project in the private

sector, including terms requested, from

at least one commercial lender, and its

response refusing to provide such

financing.

§ 260.25 Additional information for

Applicants not having a credit rating.

Each application submitted by

Applicants not having a recent credit

rating from one or more nationally

recognized rating agencies shall include,

in the order indicated and identified by

applicable numbers and letters

corresponding to those used in this

section, the following information:

(a) A narrative statement detailing

management’s business plan to enhance

Applicant’s ability to provide rail

services including a discussion of the

following:

(1) Applicant’s current and

prospective traffic base, including by

commodity and geographic region,

major markets served, major interchange

points, and market development plans;

(2) Applicant’s current operating

patterns, and plans, if any, to enhance

its ability to serve its current and

prospective traffic base;

(3) System-wide plans to maintain

equipment and rights-of-way at current

or improved levels; and

(4) Specific plans for rationalization

of marginal or uneconomic services;

(b) Detailed financial information,

including:

(1) Financial statements prepared by a

Certified Public Accountant (audited, if

available), for the four calendar years

immediately preceding the date of filing

of the application, including:

(i) A copy of Applicant’s most recent

year-end general balance sheet and a

copy of Applicant’s most recent

unaudited general balance sheet; and

(ii) Applicant’s most recent annual

income statement and a spread sheet

showing unaudited monthly and yearto-date income statement data up to the

date the application is filed;

(2) Projected financial statements,

including spread sheets showing for

each of the four years subsequent to the

year in which the application is filed,

both before and after giving effect to the

proceeds of the assistance requested in

the application:

(i) Forecasted annual income

statement;

(ii) Forecasted year-end balance

sheets. These spread sheets shall be

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41845

accompanied by a statement setting

forth the bases for such forecasts; and

(iii) A spread sheet showing changes

in financial position for the year in

which the application is filed, including

the period ending on the date of the

application based upon actual data and

the period from the date of the

application to the end of the year, based

upon estimated and forecasted data;

(c) Capital spending plans for the next

five years;

(d) Cash flow projections;

(e) Contingency plans for termination

of the project before completion, if

necessary; and

(f) A narrative description of

Applicant’s management team,

including:

(1) Rail experience of top

management;

(2) Management’s plans for achieving

growth and its long-term capital

spending plan; and

(3) A narrative description of

Applicant’s workforce and the historical

rate of employee turnover.

§ 260.27 Additional information for loan

guarantees.

Applications for a loan guarantee

shall also include in the order indicated

and identified by applicable numbers

and letters corresponding to those used

in this section, the following

information:

(a) With respect to each existing

obligation to be refinanced or proposed

obligation:

(1) A certified copy of proposed or

executed obligation agreements;

(2) A detailed description of the

obligation, and a description of the

series or issue of which the obligation

is, or will be, a part, including:

(i) Effective date, or anticipated

effective date;

(ii) Where a guarantee is sought for an

outstanding obligation being refinanced,

actual effective rate of interest; or where

the obligation is new, the terms of the

proposed obligation including the

proposed effective rate of interest; and

(iii) All related documents, whether

executed or proposed;

(3) For an existing obligation, the

Applicant’s payment history on that

obligation; and

(b) With respect to each existing

Lender, Holder, or prospective Lender,

a statement as to:

(1) Full and correct name and

principal business address;

(2) Reference to applicable provisions

of law and the charter or other

governing instruments conferring

authority to do business on the Lender,

Holder, or prospective Lender;

(3) Brief statement of the

circumstances and negotiations leading

to the agreement by the Lender, Holder,

or prospective Lender to make the loan;

(4) Brief statement of the nature and

extent of any affiliation or business

relationship between the Lender,

Holder, or prospective Lender and the

Applicant or any of Applicant’s

directors, partners, or principal

executive officers; and.

(5) Full and complete statement of all

sums to be provided by the Lender or

Holder, or to be provided by the

prospective Lender in connection with

the proposed obligation including:

(i) Name and address of each person

to whom the payment has been made or

will be made and nature of any

affiliation, association, or prior business

relationship between any person named

in this paragraph and the Lender,

Holder or prospective Lender or any of

its directors, partners, or officers; and

(ii) Amount of the cash payment, or

the nature and value of other

consideration.

§ 260.29 Third party consultants.

Applicants may utilize independent

third-party consultants to prepare a

financial evaluation of the proposed

project and the applicant, if approved

by FRA. Providing such an evaluation

would greatly assist FRA in the

evaluation of the application and would

significantly reduce the time necessary

for FRA to process the application. We

encourage the use of third party

consultants.

§ 260.31 Execution and filing of the

application.

(a) The original application shall bear

the date of execution, be signed in ink

by or on behalf of the Applicant, and

shall bear the corporate seal in the case

of an Applicant which is a corporation.

Execution shall be by all partners if a

partnership, unless satisfactory

evidence is furnished of the authority of

a partner to bind the partnership, or if

a corporation, an association or other

similar form of organization, by its

president or other executive officer

having knowledge of the matters therein

set forth. Persons signing the

application on behalf of the Applicant

shall also sign a certificate in form as

follows:

(Name of official) certifies that he or she is

the (Title of official) of the (Name of

Applicant); that he or she is authorized on

the part of the Applicant to sign and file with

the Administrator this application and

exhibits attached thereto; that the consent of

all parties whose consent is required, by law

or by binding commitment of the Applicant,

in order to make this application has been

given; that he or she has carefully examined

all of the statements contained in such

application and the exhibits attached thereto

and made a part thereof relating to the

aforesaid (Name of Applicant); that he or she

has knowledge of the matters set forth therein

and that all such statements made and

matters set forth therein are true and correct

to the best of his or her knowledge,

information, and belief; and that Applicant

will pay the balance of the investigation

charge in accordance with § 260.11.

(Signature of official)

(Date)

(b) There shall be made a part of the

original application the following

certificate by the Chief Financial Officer

or equivalent officer of the Applicant:

(Name of officer) certifies that he or she is

(Title of officer) of (Name of Applicant); that

he or she has supervision over the books of

accounts and other financial records of the

affected Applicant and has control over the

manner in which they are kept; that such

accounts are maintained in good faith in

accordance with the effective accounting

practices; that such accounts are adequate to

assure that proceeds from the financing being

requested will be used solely and specifically

for the purposes authorized; that he or she

has examined the financial statements and

supporting schedules included in this

application and to the best of his or her

knowledge and belief those statements

accurately reflect the accounts as stated in

the books of account; and that, other than the

matters set forth in the exceptions attached

to such statements, those financial statements

and supporting schedules represent a true

and complete statement of the financial

position of the Applicant and that there are

no undisclosed assets, liabilities,

commitments to purchase property or

securities, other commitments, litigation in

the courts, contingent rental agreements, or

other contingent transactions which might

materially affect the financial position of the

Applicant.

(Signature of official)

(Date)

(c) The Applicant shall pay the

investigation charge in accordance with

§ 260.11.

(d) The application shall be

accompanied by a transmittal letter in

form as follows:

Federal Railroad Administrator, c/o

Associate Administrator for Railroad

Development, Federal Railroad

Administration, Washington, D.C. 20590

Re: Application for financial assistance

under the Railroad Rehabilitation and

Improvement Financing Program.

Dear Sir or Madam: Being duly authorized

by (jointly and severally/if more than one)

(the ‘‘Applicant’’) to convey the

understandings hereinafter set forth, I

respectfully submit this application and

remit its investigation fee in the amount

equal to one-half the total investigation fee

established by the Administrator. By this

filing, Applicant requests the Administrator

to investigate the application and make the

necessary findings upon which Applicant’s

eligibility for a direct loan or loan guarantee

may be determined. Applicant understands

41846 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

that neither the acceptance of this filing, the

deposit of the investigation charge, nor the

commencement of an investigation

acknowledges the sufficiency of the

application’s form, content or merit.

Furthermore, Applicant understands that the

Administrator will incur numerous expenses

by this filing with respect to the investigation

of the application, the appraisal of security

being offered, and the making of the

necessary determinations and findings, and

promises to pay, within 60 days, the

remainder of the investigation fee required by

the Administrator. Applicant understands

that the Administrator will establish the

amount of Credit Risk Premium due from

Applicant, if any, as provided in § 260.15.

Applicant agrees to pay such Credit Risk

Premium prior to the disbursement of direct

or guaranteed loan, as appropriate. Such

Credit Risk Premium may be refunded as

provided in § 260.15.

Respectfully submitted.

Applicant(s)

Seal(s) by Its(Their).

(e) The original application and

supporting papers, and two copies

thereof for the use of the Administrator,

shall be filed with the Associate

Administrator for Railroad Development

of the Federal Railroad Administration,

1120 Vermont Ave., NW., MailStop 20,

Washington, DC 20590. Each copy shall

bear the dates and signatures that

appear in the original and shall be

complete in itself, but the signatures in

the copies may be stamped or typed.

§ 260.33 Information requests.

If an Applicant desires that any

information submitted in its application

or any supplement thereto not be

released by the Administrator upon

request from a member of the public, the

Applicant must so state and must set

forth any reasons why such information

should not be released, including

particulars as to any competitive harm

which would probably result from

release of such information. The

Administrator will keep such

information confidential to the extent

permitted by law.

§ 260.35 Environmental assessment.

(a) The provision of financial

assistance by the Administrator under

this Part is subject to a variety of

environmental and historic preservation

statutes and implementing regulations

including the National Environmental

Policy Act (‘‘NEPA’’) (42 U.S.C. 4332 et

seq.), Section 4(f) of the Department of

Transportation Act (49 U.S.C. 303(c)),

the National Historic Preservation Act

(16 U.S.C. 470(f)), the Coastal Zone

Management Act (16 U.S.C. 1451), and

the Endangered Species Act (16 U.S.C.

1531). Appropriate environmental/

historic preservation documentation

must be completed and approved by the

Administrator prior to a decision by the

Administrator on the applicant’s

financial assistance request. FRA’s

‘‘Procedures for Considering

Environmental Impacts’’ (‘‘FRA’s

Environmental Procedures’’) (65 FR

28545 (May 26, 1999)) or any

replacement environmental review

procedures that the FRA may later issue

and the NEPA regulation of the Council

on Environmental Quality (‘‘CEQ

Regulation’’) (40 CFR Part 1500) will

govern the FRA’s compliance with

applicable environmental/historic

preservation review requirements.

(b) The Administrator, in cooperation

with the applicant, has the

responsibility to manage the preparation

of the appropriate environmental

document. The role of the applicant will

be determined by the Administrator in

accordance with the CEQ Regulation

and Environmental Procedures.

(c) Depending on the type, size and

potential environmental impact of the

project for which the applicant is

seeking financial assistance, FRA will

need to determine whether the project is

categorically excluded from detailed

environmental review under FRA’s

Environmental Procedures and, if not, to

prepare or have prepared an

Environmental Assessment leading to

an Environmental Impact Statement

(EIS) or a Finding of No Significant

Impact. At the discretion of the

Administrator, Applicants may be

required to prepare and submit an

environmental assessment of the

proposed project or to submit adequate

documentation to support a finding that

the project is categorically excluded

from detailed environmental review. If

the applicant is a public agency that has

statewide jurisdiction or is a local unit

of government acting through a

statewide agency, and meets the

requirements of section 102(2)(D) of

NEPA, the applicant may be requested

to prepare the EIS and other

environmental documents under the

Administrator’s guidance.

(d) Applicants are strongly urged to

consult with the Associate

Administrator for Railroad Development

at the earliest possible stage in project

development in order to assure that the

environmental/historic preservation

review process can be completed in a

timely manner.

(e) Applicants may not initiate any

activities that would have an adverse

environmental impact or limit the

choice of reasonable alternatives in

advance of the completion of the

environmental review process. This

does not preclude development by

applicants of plans or designs or

performance of other work necessary to

support the application for financial

assistance.

Subpart D—Standards for Maintenance

of Facilities Involved in the Project

§ 260.37 Applicability.

This subpart prescribes standards

governing the maintenance of facilities

that are being, or have been, acquired,

rehabilitated, improved, or constructed

with the proceeds of a direct loan or a

guaranteed loan issued under this part

for the period during which any portion

of the principal or interest of such

obligation remains unpaid.

§ 260.39 Maintenance standards.

(a) When the proceeds of a direct loan

or an obligation guaranteed by the

Administrator under this part are, or

were, used to acquire, rehabilitate,

improve or construct track, roadbed,

and related structures, Borrower shall,

as long as any portion of the principal

or interest of such obligation remains

unpaid, maintain such facilities in at

least the highest track class, as defined

by FRA Track Safety Standards in part

213 of this chapter, specified in the

Application at which the rehabilitated,

improved, acquired, or constructed

track is to be operated upon completion

of the project.

(b) When the proceeds of a direct loan

or an obligation guaranteed by the

Administrator under this part are, or

were, used for equipment or facilities,

the Borrower shall, during the period in

which any portion of the principal or

interest in such obligation remains

unpaid, maintain such equipment or

facilities in a manner consistent with

sound engineering and maintenance

practices and in a condition that will

permit the level of use that existed upon

completion of the acquisition,

rehabilitation, improvement or

construction of such equipment or

facilities.

§ 260.41 Inspection and reporting.

(a) Equipment or facilities subject to

the provisions of this subpart may be

inspected at such times as the

Administrator deems necessary to

assure compliance with the standards

set forth in § 260.39. Each Borrower

shall permit representatives of the FRA

to enter upon its property to inspect and

examine such facilities at reasonable

times and in a reasonable manner. Such

representatives shall be permitted to use

such testing devices as the

Administrator deems necessary to

insure that the maintenance standards

imposed by this subpart are being

followed.

(b) Each Borrower shall submit

annually to the Administrator financial

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41847

records and other documents detailing

the maintenance and inspections

performed which demonstrate that the

Borrower has complied with the

standards in § 260.39.

§ 260.43 Impact on other laws.

Standards issued under this subpart

shall not be construed to relieve the

Borrower of any obligation to comply

with any other Federal, State, or local

law or regulation.

Subpart E—Procedures To Be

Followed in the Event of Default

§ 260.45 Events of default for guaranteed

loans.

(a) If the Borrower is more than 30

days past due on a payment or is in

violation of any covenant or condition

of the loan documents and such

violation constitutes a default under the

provisions of the loan documents,

Lender must notify the Administrator in

writing and must continue to submit

this information to the Administrator

each month until such time as the loan

is no longer in default; and the

Administrator will pay the Lender of the

obligation, or the Lenders’s agent, an

amount equal to the past due interest on

the guaranteed portion of the defaulted

loan. This payment will in no way

reduce the Borrower’s obligation to the

Lender to make all payments of

principal and interest in accordance

with the note. If the loan is brought

current, the Lender will repay to the

Agency any interest payments made by

the Agency, plus accrued interest at the

note rate.

(b) If the default has continued for

more than 90 days, the Administrator

will pay to the Lender, or the Lender’s

agent, 90 percent of the unpaid

guaranteed principal. If, subsequent to

this payment being made, the default is

cured and liquidation is no longer

appropriate, the Lender will repay such

funds to the Administrator, plus interest

at the note rate.

(c) After the default has continued for

more than 90 days, the Lender shall

expeditiously submit to the

Administrator, in writing, its proposed

detailed plan to resolve the default by

liquidating the collateral or by any other

means. If the resolution will require the

liquidation of the collateral, then the

Lender’s plan shall include:

(1) Proof adequate to establish that the

Lender is legally in possession of the

obligation, or is the agent for a Holder

who is legally in possession of the

obligation, and a statement of the

current loan balance and accrued

interest to date and the method of

computing the interest;

(2) A full and complete list of all

collateral, including any personal and

corporate guarantees;

(3) The recommended liquidation

methods for making the maximum

collection possible and the justification

for such methods, including

recommended action for acquiring and

disposing of all collateral and collecting

from any guarantors;

(4) Necessary steps for preservation of

the collateral;

(5) Copies of the Borrower’s latest

available financial statements;

(6) Copies of any guarantor’s latest

available financial statements;

(7) An itemized list of estimated

liquidation expenses expected to be

incurred along with justification for

each expense;

(8) A schedule to periodically report

to the FRA on the progress of

liquidation;

(9) Proposed protective bid amounts

on collateral to be sold at auction and

a breakdown to show how the amounts

were determined;

(10) If a voluntary conveyance is

considered, the proposed amount to be

credited to the guaranteed debt;

(11) Legal opinions, as appropriate;

(12) The Lender will obtain an

independent appraisal on all collateral

securing the loan which will reflect the

fair market value and potential

liquidation value. In order to formulate

a liquidation plan that maximizes

recovery, the appraisal shall consider

the presence of hazardous substances,

petroleum products, or other

environmental hazards, which may

adversely impact the market value of the

collateral; and

(13) The anticipated expenses

associated with the liquidation will be

considered a cost of liquidation.

(d) The Administrator will inform the

Lender in writing whether the

Administrator concurs in the Lender’s

liquidation plan. Should the

Administrator and the Lender not agree

on the liquidation plan, negotiations

will take place between the

Administrator and the Lender to resolve

the disagreement. When the liquidation

plan is approved by the Administrator,

the Lender will proceed expeditiously

with liquidation. The liquidation plan

may be modified when conditions

warrant. All modifications must be

approved in writing by the

Administrator prior to implementation.

(e) Lender will account for funds

during the period of liquidation and

will provide the Administrator with

reports at least quarterly on the progress

of liquidation including disposition of

collateral, resulting costs, and

additional procedures necessary for

successful completion of the

liquidation.

(f) Within 30 days after final

liquidation of all collateral, the Lender

will prepare and submit to the

Administrator a final report in which

the Lender must account for all funds

during the period of liquidation,

disposition of the collateral, all costs

incurred, and any other information

necessary for the successful completion

of liquidation. Upon receipt of the final

accounting and report of loss, the

Administrator may audit all applicable

documentation to confirm the final loss.

The Lender will make its records

available and otherwise assist the

Administrator in making any

investigation.

(g) The Administrator shall be

subrogated to all the rights of the

Lender, or if Lender is agent for a

Holder then to all of the rights of the

Holder, with respect to the Borrower to

the extent of the Administrator’s

payment to the Lender under this

section.

(h) When the Administrator finds the

final report to be proper in all respects:

(1) All amounts recovered in

liquidation shall be paid to the

Administrator; and

(2) The remaining obligation of the

Administrator to the Lender under the

guarantee, if any, will be paid directly

to Lender by the Administrator.

(i) The Administrator shall not be

required to make any payment under

paragraphs (a) and (b) of this section if

the Administrator finds, before the

expiration of the periods described in

such subsections, that the default has

been remedied.

(j) The Administrator shall have the

right to charge Borrower interest,

penalties and administrative costs,

including all of the United States’

legally assessed or reasonably incurred

expenses of its counsel and court costs

in connection with any proceeding

brought or threatened to enforce

payment or performance under

applicable loan documents, in

accordance with OMB Circular A–129

(www.whitehouse.gov/omb.), as it may

be revised from time to time.

§ 260.47 Events of default for direct loans.

(a) Upon the Borrower’s failure to

make a scheduled payment, or upon the

Borrower’s violation of any covenant or

condition of the loan documents which

constitutes a default under the

provisions of the loan documents, the

Administrator, at the Administrator’s

discretion may:

(1) Exercise any and all remedies

available under the provisions of the

loan agreement and other loan

41848 Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations

documents, including any guarantees, or

inherent in law or equity;

(2) Terminate further borrowing of

funds;

(3) Take possession of assets pledged

as collateral; and

(4) Liquidate pledged collateral.

(b) The Administrator shall have the

right to charge Borrower interest,

penalties and administrative costs,

including all of the United States’

legally assessed or reasonably incurred

expenses of its counsel and court costs

in connection with any proceeding

brought or threatened to enforce

payment or performance under

applicable loan documents, in

accordance with OMB Circular A–129,

as it may be revised from time to time.

§ 260.49 Avoiding defaults.

Borrowers are encouraged to contact

the Administrator prior to the

occurrence of an event of default to

explore possible avenues for avoiding

such an occurrence.

Subpart F—Loan Guarantees—

Lenders

§ 260.51 Conditions of guarantee.

(a) The percentage of the obligation

for which Applicant seeks a guarantee is

a matter of negotiation between the

Lender and the Applicant, subject to the

Administrator’s approval. The

maximum percentage of the total

obligation that the Administrator will

guarantee is 80 percent. The amount of

guarantee allowed will depend on the

total credit quality of the transaction

and the level of risk believed to be

assumed by the Administrator.

(b) A guarantee under this part

constitutes an obligation supported by

the full faith and credit of the United

States and is incontestable except for

fraud or misrepresentation of which a

Lender or Holder has actual knowledge

at the time it becomes such Lender or

Holder or which a Lender or Holder

participates in or condones. In addition,

the guarantee will be unenforceable by

the Lender or the Holder to the extent

any loss is occasioned by the violation

of usury laws, negligent servicing, or

failure to obtain the required security

regardless of the time at which the

Administrator acquires knowledge

thereof. Any losses occasioned will be

unenforceable to the extent that loan

funds are used for purposes other than

those specifically approved by FRA in

its guarantee.

(c) The Administrator may guarantee

an Applicant’s obligation to any Lender

provided such Lender can establish to

the satisfaction of the Administrator that

it has the legal authority and sufficient

expertise and financial strength to

operate a successful lending program.

Loan guarantees will only be approved

for Lenders with adequate experience

and expertise to make, secure, service,

and collect the loans.

(d) The Lender may sell all of the

guaranteed portion of the loan on the

secondary market, provided the loan is

not in default, or retain the entire loan.

(e) When a guaranteed portion of a

loan is sold to a Holder, the Holder shall

succeed to all rights of the Lender under

the loan guarantee to the extent of the

portion purchased. The Lender will

remain bound to all obligations under

the loan guarantee and the provisions of

this part. In the event of material fraud,

negligence or misrepresentation by the

Lender or the Lender’s participation in

or condoning of such material fraud,

negligence or misrepresentation, the

Lender will be liable for payments made

by the Agency to any Holder.

§ 260.53 Lenders’ functions and

responsibilities.

Lenders have the primary

responsibility for the successful delivery

of the program consistent with the

policies and procedures outlined in this

part. All Lenders obtaining or requesting

a loan guarantee from the Administrator

are responsible for:

(a) Loan processing. Lender shall be

responsible for all aspects of loan

processing, including:

(1) Processing applications for the

loan to be guaranteed;

(2) Developing and maintaining

adequately documented loan files;

(3) Recommending only loan

proposals that are eligible and

financially feasible;

(4) Obtaining valid evidence of debt

and collateral in accordance with sound

lending practices;

(5) Supervising construction, where

appropriate;

(6) Distributing loan funds;

(7) Servicing guaranteed loans in a

prudent manner, including liquidation

if necessary; and

(8) Obtaining the Administrator’s

approval or concurrence as required in

the loan guarantee documentation;

(b) Credit evaluation. Lender must

analyze all credit factors associated with

each proposed loan and apply its

professional judgment to determine that

the credit factors, considered in

combination, ensure loan repayment.

The Lender must have an adequate

underwriting process to ensure that

loans are reviewed by other than the

originating officer. There must be good

credit documentation procedures;

(c) Environmental responsibilities.

Lender has a responsibility to become

familiar with Federal environmental

requirements; to consider, in

consultation with the prospective

borrower, the potential environmental

impacts of their proposals at the earliest

planning stages; and to develop

proposals that minimize the potential to

adversely impact the environment.

Lender must alert the Administrator to

any controversial environmental issues

related to a proposed project or items

that may require extensive

environmental review. Lender must

assist borrowers as necessary to comply

with the environmental requirements

outlined in this part. Additionally,

Lender will assist in the collection of

additional data when the Agency needs

such data to complete its environmental

review of the proposal; and assist in the

resolution of environmental problems;

(d) Loan closing. The Lender will

conduct or arrange for loan closings;

and

(e) Fees and Charges. The Lender may

establish charges and fees for the loan

provided they are similar to those

normally charged other Applicants for

the same type of loan in the ordinary

course of business.

§ 260.55 Lender’s loan servicing.

(a) The lender is responsible for

servicing the entire loan and for taking

all servicing actions that are prudent.

This responsibility includes but is not

limited to the collection of payments,

obtaining compliance with the

covenants and provisions in the loan

documents, obtaining and analyzing

financial statements, verification of tax

payments, and insurance premiums,

and maintaining liens on collateral.

(b) The lender must report the

outstanding principal and interest

balance on each guaranteed loan

semiannually.

(c) At the Administrator’s request, the

Lender will periodically meet with the

Administrator to ascertain how the

guaranteed loan is being serviced and

that the conditions and covenants of the

loan documents are being enforced.

(d) The Lender must obtain and

forward to the Administrator the

Borrower’s annual financial statements

within 120 days after the end of the

Borrower’s fiscal year and the due date

of other reports as required by the loan

documents. The Lender must analyze

the financial statements and provide the

Agency with a written summary of the

Lender’s analysis and conclusions,

including trends, strengths, weaknesses,

extraordinary transactions, and other

indications of the financial condition of

the Borrower.

(e) Neither the Lender nor the Holder

shall alter, nor approve any

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules and Regulations 41849

amendments of, any loan instrument

without the prior written approval of

the Administrator.

Issued in Washington, DC on June 27.

Jolene M. Molitoris,

Administrator.

[FR Doc. 00–16778 Filed 7–5–00; 8:45 am]

BILLING CODE 4910–06–P