This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

10939 

Vol. 72, No. 47 

Monday, March 12, 2007 

1The Funding Corporation is the fiscal agent of 

the System established under section 4.9 of the 

Farm Credit Act of 1971, as amended (12 U.S.C. 

2160). 

2 12 U.S.C. 2153(d). 

3 12 U.S.C. 2153(c). 

4 12 U.S.C. 2155(a)(2)(A). 

5Section 5.55 of the Act (12 U.S.C. 2277a–4). 

6Section 5.60(c) of the Act (12 U.S.C. 2277a–9). 

7Section 4.4(a)(2)(F) of the Act requires the FCA 

to appoint a receiver upon making a joint and 

several call. 

FARM CREDIT ADMINISTRATION 

12 CFR Part 627 

RIN 3052-AC16 

Title IV Conservators, Receivers, and 

Voluntary Liquidations; Joint and 

Several Liability—Priority of Claims 

AGENCY: Farm Credit Administration. 

ACTION: Proposed rule. 

SUMMARY: The Farm Credit 

Administration (FCA, Agency, we), 

proposes to amend the priority of claims 

regulations to provide priority of claims 

rights to Farm Credit System (System, 

FCS, Farm Credit) banks if they make 

payments under a reallocation 

agreement to holders of consolidated 

and System-wide obligations on behalf 

of a defaulting System bank. We also 

propose to clarify that payments to a 

class of claims will be on a pro rata 

basis. 

DATES: You may send comments on or 

before May 11, 2007. 

ADDRESSES: We offer a variety of 

methods for you to submit comments. 

For accuracy and efficiency reasons, we 

encourage commenters to submit 

comments by e-mail or through the 

Agency’s Web site or the Federal 

eRulemaking Portal. You may also send 

comments by mail or by facsimile 

transmission. Regardless of the method 

you use, please do not submit your 

comment multiple times via different 

methods. You may submit comments by 

any of the following methods: 

• E-mail: Send us an e-mail at regcomm@fca.gov. 

• Agency Web site: http:// 

www.fca.gov. Once you are at the Web 

site, select ‘‘Legal Info,’’ then ‘‘Pending 

Regulations and Notices.’’ 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Gary K. Van Meter, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, VA 22102–5090. 

• Fax: (703) 883–4477. Posting and 

processing of faxes may be delayed. 

Please consider another means to 

comment, if possible. 

You may review copies of comments 

we receive at our office in McLean, 

Virginia, or from our Web site at 

http://www.fca.gov. Once you are in the 

Web site, select ‘‘Legal Info,’’ and then 

select ‘‘Public Comments.’’ We will 

show your comments as submitted, but 

for technical reasons we may omit items 

such as logos and special characters. 

Identifying information that you 

provide, such as phone numbers and 

addresses, will be publicly available. 

However, we will attempt to remove email addresses to help reduce Internet 

spam. 

FOR FURTHER INFORMATION CONTACT: 

Christopher D. Wilson, Policy Analyst, 

Office of Regulatory Policy, Farm Credit 

Administration, McLean, VA 22102– 

5090, (703) 883–4414, TTY (703) 883– 

4434, or Rebecca S. Orlich, Senior 

Counsel, Office of General Counsel, 

Farm Credit Administration, McLean, 

VA 22102–5090, (703) 883–4020, TTY 

(703) 883–4020. 

SUPPLEMENTARY INFORMATION: 

I. Objectives 

Our objectives in this proposed rule 

are to: 

• Provide System banks that make 

payments under a reallocation 

agreement to holders of consolidated 

and System-wide obligations of a 

defaulting bank the same priority of 

claims rights they would have for 

payments made under statutory joint 

and several calls by the FCA. 

• Clarify that claims in the same class 

will receive payments on a pro rata 

basis if there are insufficient assets in a 

receivership to pay the entire class in 

full. 

II. Background 

A. Joint and Several Liability Under the 

Act 

System associations obtain funding by 

means of direct loans from their 

affiliated Farm Credit banks. The banks 

in turn obtain their funding primarily by 

issuing System-wide obligations to 

investors through the Federal Farm 

Credit Banks Funding Corporation 

(Funding Corporation).1 The banks’ 

authority to issue System-wide 

obligations is provided in section 4.2(d) 

of the Farm Credit Act of 1971, as 

amended (Act).2 Section 4.2(c) of the 

Act also authorizes the banks to obtain 

funding by issuing consolidated 

obligations with other banks operating 

under the same title of the Act, but all 

of the System’s joint funding at the 

present time is through System-wide 

obligations.3

Investors in consolidated and Systemwide obligations have three levels of 

repayment sources. Under section 

4.4(a)(2)(A) of the Act, each bank is 

primarily liable for the portion of any 

consolidated or System-wide obligation 

made on its behalf.4 If the bank that is 

primarily liable is unable to pay, 

payment must be made by the Farm 

Credit System Insurance Corporation 

(FCSIC), created in 1988. The FCSIC 

insures the timely payment of interest 

and principal on consolidated and 

System-wide obligations (these 

obligations are referred to as ‘‘insured 

obligations’’). The source of payments 

by the FCSIC is the Farm Credit 

Insurance Fund (Insurance Fund), 

whose assets consist primarily of 

premiums paid by the System banks (as 

well as earnings on the premiums).5 The 

Insurance Fund must be used to make 

payments on behalf of System banks 

defaulting on their insured obligations, 

but the FCSIC also has discretion to 

make other expenditures out of the 

Insurance Fund.6

If a System bank is unable to pay the 

portion of any insured obligations 

issued on its behalf and the Insurance 

Fund is exhausted, section 4.4(a)(2) of 

the Act provides that the other 

(nondefaulting) System banks are jointly 

and severally liable for such timely 

payments as follows: 

• The FCA will make calls on 

nondefaulting banks in proportion to 

each bank’s proportionate share of the 

aggregate available collateral held by all 

nondefaulting banks.7

• If the aggregate available collateral 

does not fully satisfy the insured 


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10940 Federal Register / Vol. 72, No. 47 / Monday, March 12, 2007 / Proposed Rules 

8 12 U.S.C. 2277a–10(c). 

9We note that part 627 of FCA’s regulations does 

not apply to the Federal Agricultural Mortgage 

Corporation, also known as Farmer Mac. 

Regulations applicable to Farmer Mac are in part 

650 of FCA’s regulations. 

obligations of the defaulting bank, the 

FCA will make calls on all 

nondefaulting banks in proportion to 

each bank’s remaining assets. 

A bank’s ‘‘available collateral’’ is 

defined in section 4.4(a)(2)(C) as ‘‘the 

amount (determined at the close of the 

last calendar quarter ending before such 

call) by which a bank’s collateral * * * 

exceeds the collateral required to 

support the bank’s outstanding notes, 

bonds, debentures, and other similar 

obligations.’’

Furthermore, the Act provides 

subrogation rights to both the banks and 

the FCSIC for payments of insured 

obligations made on behalf of a 

defaulting bank. With respect to FCSIC, 

section 5.61(c)(1) and (2) of the Act 

provides: 

[O]n the payment to an owner of an 

insured obligation issued on behalf of an 

insured System bank in receivership, the 

[FCSIC] shall be subrogated to all rights of 

the owner against the bank to the extent of 

the payment * * * Subrogation * * * shall 

include the right on the part of the [FCSIC] 

to receive the same dividends from the 

proceeds of the assets of the bank as would 

have been payable to the owner on a claim 

for the insured obligation.8

With respect to System banks, section 

4.4(a)(2)(E) provides: 

Any System bank that, pursuant to a call 

by the [FCA], makes a payment of principal 

or interest to the holder of any consolidated 

or System-wide obligations issued on behalf 

of another System bank shall be subrogated 

to the rights of the holder against such other 

bank to the extent of such payment. 

B. FCA Priority of Claims Regulations 

Part 627 of our regulations governs 

the conduct of System institution 

conservatorships and receiverships. 

Section 627.2750 sets forth the priority 

of claims in the distribution of the assets 

of a bank in liquidation. After payment 

of certain receivership expenses and 

secured claims, paragraph (h) provides 

for the payment of ‘‘[a]ll claims of 

holders of consolidated and Systemwide 

bonds and claims of the other Farm 

Credit banks arising from their 

payments pursuant to [joint and several 

calls by the FCA under] 12 U.S.C. 2155’’

before payments are made to general 

creditors. Section 627.2755 requires the 

receiver to pay in full all the claims of 

a class of claims of the same priority (or 

make provision for such payment) 

before paying the claims of classes of 

lesser priority. That regulation further 

provides that the receiver must pay such 

claims on a pro rata basis if there are 

insufficient funds to pay in full any 

class of claims against a System 

association in receivership. However, 

the regulation does not address how the 

receiver must pay claims against a 

System bank or institution other than an 

association in the case of insufficient 

funds to pay a class of claims in full. 

C. System Banks’ Petition To Amend 

Regulations 

At the present time, the System banks 

and associations are well capitalized, 

and no bank or association has been 

placed in receivership since 1989. The 

FCA has never made joint and several 

calls on System banks to pay 

consolidated and System-wide 

bondholders, and monies from the 

Insurance Fund have never been used 

for that purpose. Nonetheless, the 

potential effect of a joint and several call 

based on banks’ aggregate available 

collateral has caused System banks to 

consider possible alternative 

methodologies based on an agreement 

among the banks. 

In recent years, the banks have 

discussed the benefits and feasibility of 

using a methodology for joint and 

several calls based on the proportion of 

total System-wide debt on which each 

nondefaulting bank is primarily liable. 

The banks have explored the possibility 

of entering into a reallocation agreement 

among themselves to pay a defaulting 

bank’s maturing insured obligations as 

the Insurance Fund is nearing 

exhaustion but before statutory joint and 

several calls are triggered. The banks 

have informed us that, while they are in 

general agreement on the outlines of an 

agreement for payment based on 

individual banks’ outstanding Systemwide debt, a key to an agreement is that 

payments made under the banks’

agreement would be entitled to the same 

payment rights as if the banks had made 

the payments under a statutory joint and 

several call. 

The System banks have petitioned the 

FCA to amend our priority of claims 

regulations to provide the same 

subrogation rights to banks under a 

reallocation agreement to make joint 

and several payments on insured 

obligations that the banks would receive 

if they made payments under section 

4.4(a)(2) of the Act. We have reviewed 

the banks’ petition and believe there is 

merit in the banks’ efforts to create an 

alternative methodology that they 

perceive has the potential benefit to 

increase funds available to pay a 

defaulting bank’s insured obligations. 

Such an agreement would be subject to 

Agency approval. Therefore, we are 

proposing to amend our regulations to 

allow for such a reallocation agreement 

and to provide priority of claims rights 

equivalent to those granted to the banks 

for payments under section 4.4(a)(2) of 

the Act. 

The proposed rule is described more 

fully below. 

III. Description of Proposed Rule 

Section 627.2750—Priority of Claims— 

Banks 

Section 627.2750 sets forth the 

priority of claims for banks in 

liquidation. Each paragraph describes a 

class of claims. Existing paragraph (h) 

provides for payment of claims of 

holders of consolidated and Systemwide obligations and of other System 

banks arising from their payments made 

under statutory joint and several calls. 

We propose to add to this paragraph all 

claims of other System banks arising 

from their payments of consolidated and 

System-wide obligations under a 

reallocation agreement. The agreement 

must be in writing and approved by the 

FCA. 

Section 627.2755—Payment of Claims 

Existing § 627.2755 contains several 

provisions that apply to some or all 

types of System institutions that may be 

placed in receivership by the FCA under 

part 627 of our regulations.9 We propose 

to amend paragraph (a) by deleting 

language limiting the pro rata 

requirement to association 

receiverships. This will clarify that, in 

all System institution receiverships, if 

there are insufficient funds to pay a 

class of claims in full, payments to such 

class must be on a pro rata basis. 

IV. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

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

et seq.), the FCA hereby certifies that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. Each of the 

banks in the System, considered 

together with its affiliated associations, 

has assets and annual income in excess 

of the amounts that would qualify them 

as small entities. Therefore, System 

institutions are not ‘‘small entities’’ as 

defined in the Regulatory Flexibility 

Act. 

List of Subjects in 12 CFR Part 627 

Agriculture, Banks, Banking, Claims, 

Rural areas. 

For the reasons stated in the 

preamble, we propose to amend part 

627 of chapter VI, title 12 of the Code 


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Federal Register / Vol. 72, No. 47 / Monday, March 12, 2007 / Proposed Rules 10941 

of Federal Regulations to read as 

follows: 

PART 627—TITLE IV CONSERVATORS, 

RECEIVERS, AND VOLUNTARY 

LIQUIDATIONS 

1. The authority citation for part 627 

continues to read as follows: 

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 

5.58, 5.61 of the Farm Credit Act (12 U.S.C. 

2183, 2243, 2244, 2252, 2277a, 2277a–7, 

2277a–10). 

Subpart B—Receivers and 

Receiverships 

2. Revise § 627.2750(h) to read as 

follows: 

§ 627.2750 Priority of claims—banks. 

* * * * * 

(h) All claims of holders of 

consolidated and System-wide bonds 

and all claims of the other Farm Credit 

banks arising from their payments on 

consolidated and System-wide bonds 

pursuant to 12 U.S.C. 2155 or pursuant 

to an agreement among the banks to 

reallocate the payments, provided the 

agreement is in writing and approved by 

the Farm Credit Administration. 

* * * * * 

§ 627.2755 [Amended] 

3. Amend § 627.2755(a) by removing 

the words ‘‘described in § 627.2745’’ in 

the last sentence. 

Dated: March 7, 2007. 

Roland E. Smith, 

Secretary, Farm Credit Administration Board. 

[FR Doc. E7–4427 Filed 3–9–07; 8:45 am] 

BILLING CODE 6705–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. NM362 Special Conditions No. 

25–06–15–SC] 

Special Conditions: Boeing Model 787–

8 Airplane; Interaction of Systems And 

Structures, Electronic Flight Control 

System—Control Surface Awareness, 

High Intensity Radiated Fields (HIRF) 

Protection, Limit Engine Torque Loads 

for Sudden Engine Stoppage, and 

Design Roll Maneuver Requirement 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed special 

conditions. 

SUMMARY: This notice proposes special 

conditions for the Boeing Model 787–8 

airplane. This airplane will have novel 

or unusual design features when 

compared to the state of technology 

envisioned in the airworthiness 

standards for transport category 

airplanes. These design features include 

electronic flight control systems and 

high bypass engines. These special 

conditions also pertain to the effects of 

such novel or unusual design features, 

such as effects on the structural 

performance of the airplane. Finally, 

these special conditions pertain to 

effects of certain conditions on these 

novel or unusual design features, such 

as the effects of high intensity radiated 

fields (HIRF). Additional special 

conditions will be issued for other novel 

or unusual design features of the Boeing 

Model 787–8 airplanes. 

DATES: Comments must be received on 

or before April 26, 2007. 

ADDRESSES: Comments on this proposal 

may be mailed in duplicate to: Federal 

Aviation Administration, Transport 

Airplane Directorate, Attention: Rules 

Docket (ANM–113), Docket No. NM362, 

1601 Lind Avenue, SW., Renton, 

Washington 98057–3356; or delivered in 

duplicate to the Transport Airplane 

Directorate at the above address. All 

comments must be marked Docket No. 

NM362. Comments may be inspected in 

the Rules Docket weekdays, except 

Federal holidays, between 7:30 a.m. and 

4 p.m. 

FOR FURTHER INFORMATION CONTACT: 

Meghan Gordon, FAA, Standardization 

Branch, ANM–113, Transport Airplane 

Directorate, Aircraft Certification 

Service, 1601 Lind Avenue, SW., 

Renton, Washington 98057–3356; 

telephone (425) 227–2138; facsimile 

(425) 227–1149. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

The FAA invites interested persons to 

participate in this rulemaking by 

submitting written comments, data, or 

views. The most helpful comments 

reference a specific portion of the 

special conditions, explain the reason 

for any recommended change, and 

include supporting data. We ask that 

you send us two copies of written 

comments. 

We will file in the docket all 

comments we receive as well as a report 

summarizing each substantive public 

contact with FAA personnel concerning 

these proposed special conditions. The 

docket is available for public inspection 

before and after the comment closing 

date. If you wish to review the docket 

in person, go to the address in the 

ADDRESSES section of this notice 

between 7:30 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

We will consider all comments we 

receive on or before the closing date for 

comments. We will consider comments 

filed late if it is possible to do so 

without incurring expense or delay. We 

may change the proposed special 

conditions based on comments we 

receive. 

If you want the FAA to acknowledge 

receipt of your comments on this 

proposal, include with your comments 

a pre-addressed, stamped postcard on 

which the docket number appears. We 

will stamp the date on the postcard and 

mail it back to you. 

Background 

On March 28, 2003, Boeing applied 

for an FAA type certificate for its new 

Boeing Model 787–8 passenger airplane. 

The Boeing Model 787–8 airplane will 

be an all-new, two-engine jet transport 

airplane with a two-aisle cabin. The 

maximum takeoff weight will be 

476,000 pounds, with a maximum 

passenger count of 381 passengers. 

Type Certification Basis 

Under provisions of 14 CFR 21.17, 

Boeing must show that Boeing Model 

787–8 airplanes (hereafter referred to as 

‘‘the 787’’) meet the applicable 

provisions of 14 CFR part 25, as 

amended by Amendments 25–1 through 

25–117, except §§ 25.809(a) and 25.812, 

which will remain at Amendment 25–

115. If the Administrator finds that the 

applicable airworthiness regulations do 

not contain adequate or appropriate 

safety standards for the 787 because of 

a novel or unusual design feature, 

special conditions are prescribed under 

provisions of 14 CFR 21.16. 

In addition to the applicable 

airworthiness regulations and special 

conditions, the 787 must comply with 

the fuel vent and exhaust emission 

requirements of 14 CFR part 34 and the 

noise certification requirements of part 

36. In addition, the FAA must issue a 

finding of regulatory adequacy pursuant 

to section 611 of Public Law 92–574, the 

‘‘Noise Control Act of 1972.’’

Special conditions, as defined in 

§ 11.19, are issued in accordance with 

§ 11.38 and become part of the type 

certification basis in accordance with 

§ 21.17(a)(2). 

Special conditions are initially 

applicable to the model for which they 

are issued. Should the type certificate 

for that model be amended later to 

include any other model that 

incorporates the same or similar novel 

or unusual design feature, the special 

conditions would also apply to the other 

model under the provisions of § 21.101. 


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