This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

46867

Vol. 62, No. 172

Friday, September 5, 1997

DEPARTMENT OF AGRICULTURE

Rural Telephone Bank

7 CFR Part 1610

Rural Utilities Service

7 CFR Parts 1735, 1737, 1739, and 1746

RIN 0572–AB32

Rural Telephone Bank and

Telecommunications Program Loan

Policies, Types of Loans, Loan

Requirements

AGENCY: Rural Utilities Service and

Rural Telephone Bank, USDA.

ACTION: Final rule.

SUMMARY: The Rural Utilities Service

(RUS) is amending its regulations to

incorporate changes to the

telecommunications loan program

required by the 1996 Farm Bill and the

regulatory reinvention initiative of the

Vice President’s National Performance

Review. RUS has reviewed the

regulations concerning the

telecommunications program and the

Rural Telephone Bank loan policies and

requirements to determine whether they

are necessary, impose the least possible

burden consistent with safety and

soundness, and are written in a clear,

straightforward manner. As a result of

this review, the RUS

telecommunications program is

updating and streamlining its

regulations and policy statements. In

addition, this regulation will eliminate

some policies and procedures that have

become obsolete.

EFFECTIVE DATE: This regulation is

effective on October 6, 1997.

FOR FURTHER INFORMATION CONTACT:

Jonathan Claffey, Acting Deputy

Director, Advanced

Telecommunications Services Staff,

Rural Utilities Service, 1400

Independence Ave., SW., STOP 1701,

Room 2919, South Building,

Washington, DC 20250–1701.

Telephone: (202) 720–0530. Facsimile:

(202) 720–2734.

SUPPLEMENTARY INFORMATION:

Classification

This final rule has been determined to

be not significant, and, therefore has not

been reviewed by the Office of

Management and Budget under

Executive Order 12866.

Civil Justice Reform

This final rule has been reviewed

under Executive Order 12988, Civil

Justice Reform. RUS has determined

that this final rule meets the applicable

standards provided in Sec. 3. of the

Executive Order.

Regulatory Flexibility Act Certification

Pursuant to § 605(b) of the Regulatory

Flexibility Act, 5 U.S.C. 605(b), RUS

certifies that this final rule will not have

a significant economic impact on a

substantial number of small entities. If

a rule has a significant economic impact

on a substantial number of small

entities, the Regulatory Flexibility Act

requires agencies to analyze regulatory

options that would minimize any

significant impact of a rule on small

entities. The application for loans under

the RUS telecommunications program

are discretionary, regulatory

requirements will, therefore, apply only

to those entities which choose to apply

for funding.

This action is being taken as part of

the National Performance Review

program to eliminate excess regulations

and to improve the quality of those that

remain in effect. This final rule reduces

the Times Interest Earned Ratio

requirement for all borrowers, simplifies

current cash distribution and

investment requirements for all

borrowers, and standardizes

determination of loan maturity. This

final rule is consistent with RUS’s

continuing effort to devolve, in

particular, cash management authority

to the borrowers. It is also consistent

with the goals of the regulatory

reinvention initiative of the National

Performance Review.

Information Collection and

Recordkeeping Requirements

The recordkeeping and reporting

burden contained in this rule under

OMB control number 0572–0079 is not

fully effective until approved by the

Office of Management and Budget

(OMB).

Send questions or comments

regarding this burden or any other

aspect of these collections of

information, including suggestions for

reducing the burden, to F. Lamont

Heppe, Jr., Director, Program Support

and Regulatory Analysis, Rural Utilities

Service, STOP 1522, Washington, DC

20250–1522.

National Environmental Policy Act

Certification

RUS has determined that this final

rule will not significantly affect the

quality of the human environment as

defined by the National Environmental

Policy Act of 1969 (42 U.S.C. 4321 et

seq.). Therefore, this action does not

require an environmental impact

statement or assessment.

Program Affected

The program described by this final

rule is listed in the Catalog of Federal

Domestic Assistance Programs under

10.851, Rural Telecommunications

Loans and Loan Guarantees, and 10.582,

Rural Telephone Bank Loans. This

catalog is available on a subscription

basis from the Superintendent of

Documents, the United States

Government Printing Office,

Washington, DC 20402.

Intergovernmental Review

This program is excluded from the

scope of Executive Order 12372,

Intergovernmental Consultation. A

Notice of Final Rule entitled

Department Programs and Activities

Excluded from Executive Order 12372

(50 FR 47034) exempts RUS and Rural

Telephone Bank loans and loan

guarantees to governmental and nongovernmental entities from coverage

under this Order.

Unfunded Mandate

This rule contains no Federal

mandates (under the regulatory

provisions of Title II of the Unfunded

Mandate Reform Act) for State, local,

and tribal governments or the private

sector. Thus today’s rule is not subject

to the requirements of sections 202 and

205 of the Unfunded Mandate Reform

Act.
46868 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Rules and Regulations

Background

On March 7, 1997, at 62 FR 10483,

RUS published a proposed rule to

incorporate changes to the

telecommunications loan program

required by the Federal Agriculture

Improvement and Reform Act of 1996

(Pub. L. 104–127) (1996 Farm Bill) and

the regulatory reinvention initiative of

the Vice President’s National

Performance Review. The amendments

as proposed would reduce regulatory

burdens on RUS telecommunications

program borrowers and simplify

existing procedures and policies.

RUS received 7 comments regarding

the proposed rule, which were taken

into consideration in preparing the final

rule. Overall, respondents generally

expressed support for the proposed rule,

but made specific comments. A list of

the commenters and comment

summaries and responses follows:

1. Joint comments submitted by:

Eastern Rural Telecom Association;

United States Telephone Association;

Western Rural Telephone Association;

and National Rural Telecom

Association, Washington, DC.

2. Organization for the Promotion and

Advancement of Small

Telecommunications Companies,

Washington, DC.

3. National Telephone Cooperative

Association, Washington, DC.

4. Associated Communications &

Research Services, Oklahoma City, OK.

5. Lackawaxen Telephone Company,

Rowland, PA.

6. TDS Telecom, Madison, WI.

7. Kiesling Associates, LLP, West Des

Moines, IA.

Sections 1610.6 and 1735.31 Concurrent

Bank and RUS Cost-of-Money Loans

Comment Summary: One commenter

objected to the proposal to limit the size

of cost-of-money and Rural Telephone

Bank (Bank) loans to no more than 10

percent of lending authority from

appropriations in any fiscal year. The

commenter believes no authority exists

in the Rural Electrification Act of 1936,

as amended (RE Act), for RUS to make

loans for less than 100 percent of the

borrowers needs. If there is a shortage of

cost-of-money and Bank loan funds the

solution is to increase loan levels, not

ration available credit among borrowers.

Response: The proposed revision to

the regulations reflects the government’s

current fiscal and budgetary constraints.

To continue fulfilling RUS’s mission of

ensuring that rural telecommunications

providers have the means to modernize

their networks, to fully effect the

mandated area coverage provision of the

RE Act, and to achieve maximum use of

funds available, RUS will limit the loan

amount to any single borrower in a

fiscal year to, generally, no more than 10

percent of the lending authority from

appropriations in any fiscal year.

Section 1610.11 Prepayments

Comment Summary: RUS was asked

to clarify how new terms of the loan and

remaining economic life will be

determined for borrowers requesting

refunding notes. One commenter asked

if a borrower prepays 100 percent of the

amount outstanding whether or not the

equipment originally financed is no

longer in service, would this be possible

under the new provisions without

penalty?

Response: The principal balance of

the refunding notes would be the

unpaid principal balance of the original

notes associated with the loan. The term

of the refunding notes would match the

remaining composite economic life of

the facilities financed, as determined by

the original feasibility study prepared in

connection with that particular loan. All

other payment terms, including the rate

of interest on the refunding notes,

would remain unchanged. Only those

Bank borrowers subject to the funded

reserve or net plant to secured debt ratio

requirements electing to issue refunding

notes will not be required to pay a

prepayment premium, if such

requirement is contained in the original

note. Barring this, Bank borrowers with

notes containing prepayment premium

provisions will still be bound by those

provisions if prepaying a loan.

Section 1735.2 Definitions

Comment Summary: One commenter

inquired about the definitions of total

assets and net worth and how existing

borrowers (e.g., those under an older

form of mortgage with RUS) that elect to

follow the new allowable distribution

calculation under § 1735.46 determine

total assets and net worth.

Response: The definitions for total

assets and net worth have been added to

§ 1735.2. The new allowable

distribution calculation under § 1735.46

will be based on the total assets and net

worth of the borrower, and not on a

consolidated basis.

Section 1735.17 Facilities Financed

Comment Summary: Many

commenters objected to RUS adopting

the policy that it will finance only

buried plant for all loans unless RUS

determines that buried plant is not

economically feasible. Commenters

believe that it is preferable to remain

flexible in this uncertain

telecommunications environment.

Commenters suggested that, if RUS

determines that it is necessary to

implement this proposal, that RUS

define the term economically feasible,

and, to conform to its intended purpose,

refer solely to outside plant and not

cover all facilities.

Response: The proposed rule reflects

the extensive experience of RUS and

consequently does not impose any new

requirement on borrowers. To impose

this requirement when the costs would

be exorbitant would be burdensome to

borrowers and counterproductive to

achieving the objectives of the RE Act.

RUS will only finance those system

designs or facilities that can withstand

or are designed to minimize damage

caused by storms and other natural

catastrophes, unless an alternate design

or facility is more economically or

technically feasible. Economic and

technical feasibility will be determined

using total long range economic costs

and risk analysis.

Section 1735.43 Payments on Loans

Comment Summary: Several

commenters expressed concern that the

proposal to tie the amortization period

for loans to the depreciated life of

facilities financed may not be in the best

interest of RUS borrowers. Commenters

believe that there will be many

circumstances in which borrowers will

require loan terms that extend 3 years

beyond the expected composite

economic life of the facilities financed.

In those circumstances, current RUS

regulations are substantially adequate to

protect the interest of the government,

and that the proposal to require the

borrower provide additional security

(i.e., funded reserve) for a loan that

exceeds the expected composite

economic life of the facilities by more

than 3 years is unwarranted and

unnecessary. One commenter felt that

the additional security in the form of a

funded reserve should be replaced by a

requirement to maintain a net plant to

secured debt ratio of 1.2. Borrowers

could certify they have maintained a 1.2

net plant ratio if they opted for loan

amortization periods different than the

standard; thus, simplifying the process

and reducing paperwork and costs to

the borrower and RUS.

Response: The final rule establishes

that the repayment period will be based

on the expected composite economic

life of the facilities financed. Collateral

for RUS loans rests on the value of the

facilities financed. RUS relies on the

revenues produced by the facilities

financed for repayment of the loans.

Therefore, RUS will continue to require

borrowers electing maturities of more

than the depreciated life plus 3 years

maintain a funded reserve to ensure
Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Rules and Regulations 46869

adequate security over the life of the

loan.

The RE Act sets no minimum length

for amortization of loans, presumably to

allow RUS to determine a prudent

amortization period. There are several

benefits to tying the amortization period

to expected composite economic life of

facilities financed. First, earnings of the

company are based on, among other

things, the economic life of the facilities

(depreciation). Second, total interest

expense is reduced. Finally, the

government’s loan security is enhanced

by the loan life approximating plant life;

the economic life of the mortgaged

assets declines at approximately the

same pace as the principal balance of

the loan.

It is general practice for lenders

making loans for capital assets to set the

amortization period of the loan equal to

or less than the expected economic life

of the items financed. Consequently,

RUS is not seeking to establish a unique

requirement in this area. This option is

intended to allow the borrower

flexibility of extending loan maturity

while allowing the government to

maintain adequate security for its loan.

This requirement is also consistent with

OMB Circular A–129, Managing Federal

Credit Programs, which in part states

that the maturity offered should be

shorter than the estimated economic life

of the asset financed. With

telecommunications borrowers facing

increasing competition and the potential

for regulatory changes, adequate

security is of critical concern to RUS.

Section 1735.46 Loan Security

Documents

Comment Summary: All commenters

overwhelmingly supported the

proposed simplification of RUS’s policy

for determining a borrower’s allowable

level of distributions and investments.

Several commenters requested RUS

clarify some minor technical aspects of

the proposed formula. One commenter,

however, in principle, believes that RUS

borrowers should be able to dividend

100 percent of net earnings subsequent

to loan approval. This would be more in

line with private lenders without

adversely affecting loan security.

Response: RUS’s new policy regarding

investments and distributions of assets

by borrowers will be in all mortgages for

loans approved after the effective date of

this final rule. Borrowers that have not

received a loan after the effective date

of the final rule may request the

Administrator to apply the new

requirements to them; however, once

the decision is made to switch to the

new requirements, borrowers may not

revert back to the old method. This new

policy is not an alternative method for

borrowers to choose between from year

to year.

Further, unlike the former method for

determining allowable distributions

whereby adjustments were made to net

worth and total assets based upon,

among other things, a borrower’s

investments in affiliates, no such

adjustments will be factored into the

new method for determining allowable

distributions. RUS also modified the

definition of cash distributions to

include dividend and capital credit

distributions.

A technical correction not published

in the proposed rule will be made in the

final rule to § 1735.32, Guaranteed

loans. Presently, to qualify for a

guaranteed loan, among other things, a

borrower must have a projected TIER

(including the proposed loan or loans)

of at least 1.5 as determined by the

feasibility study prepared in connection

with the loan. To be consistent with

RUS’s previously proposed policy to

reduce the maximum TIER maintenance

requirement to no more than 1.5 for all

borrowers receiving any type of loan

after the effective date of the final rule,

the TIER eligibility requirement for

guaranteed loans will be reduced to a

minimum of 1.2.

List of Subjects

7 CFR Part 1610

Accounting, Loan programs—

communications, Reporting and

recordkeeping requirements, Rural

areas, Telecommunications.

7 CFR Part 1735

Accounting, Loan programs—

communications, Reporting and

recordkeeping requirements, Rural

areas, Telecommunications.

7 CFR Part 1737

Accounting, Loan programs—

communications, Reporting and

recordkeeping requirements, Rural

areas, Telecommunications.

7 CFR Part 1739

Accounting, Guaranteed program,

Loan programs—communications,

Reporting and recordkeeping

requirements, Rural areas,

Telecommunications.

7 CFR Part 1746

Accounting, Guaranteed program,

Loan programs—communications,

Reporting and Recordkeeping

requirements, Rural areas,

Telecommunications.

For the reasons set forth in the

preamble, and under the authority of 7

U.S.C. 901 et seq., chapters XVI and

XVII of Title 7 of the Code of Federal

Regulations are amended as follows:

CHAPTER XVI

PART 1610—LOAN POLICIES

1. The authority citation for part 1610

continues to read as follows:

Authority: 7 U.S.C. 941 et seq.; Pub. L.

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

seq.).

2. In § 1610.6, new paragraph (d) is

added to read as follows:

§ 1610.6 Concurrent Bank and RUS costof-money loans.

* * * * *

(d) Generally, no more than 10

percent of lending authority from

appropriations in any fiscal year for

Bank and RUS cost-of-money loans may

be loaned to a single borrower. The

Bank will publish by notice in the

Federal Register the dollar limit that

may be loaned to a single borrower in

that particular fiscal year based on

approved Bank and RUS lending

authority.

3. In § 1610.11, a new paragraph (c) is

added to read as follows:

§ 1610.11 Prepayments.

* * * * *

(c) Borrowers that qualify to issue a

refunding note or notes in accordance

with 7 CFR 1735.43, Payments on loans,

shall not be required to pay a

prepayment premium on all payments

made in accordance with the new

payment schedule.

CHAPTER XVII

PART 1735—GENERAL POLICIES,

TYPES OF LOANS, LOAN

REQUIREMENTS—

TELECOMMUNICATIONS PROGRAM

1. The part heading for part 1735 is

revised as set forth above.

1a. The authority citation for part

1735 is revised to read as follows:

Authority: 7 U.S.C. 901 et seq., 1921 et

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

U.S.C. 6941 et seq.).

2. In § 1735.2, the definition of

Construction fund is amended by

removing the reference ‘‘See 7 CFR part

1758.’’, the definitions for Adjusted

assets and Adjusted net worth are

removed, and new definitions Cash

distribution, Net worth, and Total assets

are added in alphabetical order to read

as follows:

§ 1735.2 Definitions.

* * * * *

Cash distribution means investments,

guarantees, extensions of credit,
46870 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Rules and Regulations

advances, loans, non-affiliated company

joint ventures, affiliated company

investments, and dividend and capital

credit distributions. Not included in this

definition are qualified investments (see

7 CFR part 1744, subpart D).

* * * * *

Net worth means the sum of the

balances of the following accounts of

the borrower:

Account names Number

(1) Capital stock ............................ 4510

(2) Additional paid-in capital ......... 4520

(3) Treasury stock ......................... 4530

(4) Other capital ............................ 4540

(5) Retained earnings ................... 4550

Note: For nonprofit organizations, owners’

equity is shown in subaccounts of 4540 and

4550. All references regarding account numbers are to the Uniform System of Accounts

(47 CFR part 32).

* * * * *

Total assets means the sum of the

balances of the following accounts of

the borrower:

Account names Number

(1) Current assets ..... 1100s through 1300s.

(2) Noncurrent Assets 1400s through 1500s.

(3) Total telecommunications

plant.

2001 through 2007.

(4) Less: Accumulated depreciation.3100 through 3300s.

(5) Less: Accumulated amortization.3400 through 3600s.

Note: All references regarding account numbers are to the Uniform System of Accounts

(47 CFR part 32).

3. In § 1735.3, the first sentence is

revised to read as follows:

§ 1735.3 Availability of forms.

Single copies of RUS forms and

publications cited in this part are

available from Program Support

Regulatory Analysis, Rural Utilities

Service, STOP 1522, 1400 Independence

Ave., SW., Washington, DC 20250–1522.

* * *

4. In § 1735.17, paragraph (c) is

revised to read as follows:

§ 1735.17 Facilities financed.

* * * * *

(c) RUS will not make any type of

loan to finance the following items:

(1) Station apparatus (including PBX

and key systems) not owned by the

borrower and any associated inside

wiring;

(2) Certain duplicative facilities, see

§ 1735.12;

(3) Facilities to serve subscribers

outside the local exchange service area

of the borrower unless those facilities

are necessary to furnishing or improving

telecommunications service within the

borrower’s service areas;

(4) Facilities to provide service other

than 1-party; and

(5) System designs or facilities to

provide service that cannot withstand or

are not designed to minimize damage

caused by storms and other natural

catastrophes, including, but not limited

to hurricanes, floods, tornadoes,

mudslides, lightning, windstorms, hail,

fire, and smoke, unless an alternate

design or facility for modern

telecommunications is more

economically or technically feasible.

Economic and technical feasibility will

be determined using total long range

economic costs and risk analysis.

* * * * *

5. In § 1735.22, paragraph (g) is

redesignated as new paragraph (i),

paragraph (f) is revised, and new

paragraphs (g) and (h) are added to read

as follows:

§ 1735.22 Loan security.

* * * * *

(f) For purposes of determining

compliance with TIER requirements,

unless a borrower whose existing

mortgage contains TIER maintenance

requirements notifies RUS in writing

differently, RUS will apply the

requirements described in paragraph (g)

of this section to the borrower regardless

of the provisions of the borrower’s

existing mortgage.

(g) For loans approved after October 6,

1997 loan contracts and mortgages

covering hardship loans, RUS cost-ofmoney loans, RTB loans, and

guaranteed loans will contain a

provision requiring the borrower to

maintain a TIER of at least 1.0 during

the Forecast Period. At the end of the

Forecast Period, the borrower shall be

required to maintain, at a minimum, a

TIER at least equal to the projected TIER

determined by the feasibility study

prepared in connection with the loan,

but at least 1.0 and not greater than 1.5.

(h) Nothing in this section shall affect

any rights of supplemental lenders

under the RUS mortgage, or other

creditors of the borrower, to limit a

borrower’s TIER requirement to a level

above that established in paragraph (g)

of this section.

* * * * *

6. In § 1735.31, paragraphs (d) and (e)

are redesignated as new paragraphs (e)

and (f), and new paragraph (d) is added

to read as follows:

§ 1735.31 RUS cost-of-money and RTB

loans.

* * * * *

(d) Generally, no more than 10

percent of lending authority from

appropriations in any fiscal year for

RUS cost-of-money and RTB loans may

be loaned to a single borrower. RUS will

publish by notice in the Federal

Register the dollar limit that may be

loaned to a single borrower in that

particular fiscal year based on approved

RUS and RTB lending authority.

* * * * *

7. In § 1735.32, the first sentence of

paragraph (b), and paragraph (c) are

revised to read as follows:

§ 1735.32 Guaranteed loans.

* * * * *

(b) Requirements. To qualify for a

guaranteed loan, a borrower must have

a projected TIER (including the

proposed loan or loans) of at least 1.2

as determined by the feasibility study

prepared in connection with the loan.

* * *

(c) Net worth requirements. RUS

generally requires that borrowers

seeking guaranteed loans have a net

worth in excess of 20 percent of assets.

RUS will, however, consider loan

guarantees for borrowers with a net

worth less than 20 percent.

* * * * *

8. Section 1735.33 is added to read as

follows:

§ 1735.33 Variable interest rate loans.

After June 10, 1991, and prior to

November 1, 1993, RUS made certain

variable rate loans at interest rates less

than 5 percent but not less than 2

percent. For those borrowers that

received variable rate loans, this section

describes the method by which interest

rates are adjusted. The interest rate used

in determining feasibility is the rate

charged to the borrower until the end of

the Forecast Period for that loan. At the

end of the Forecast Period, the interest

rate for the loan may be annually

adjusted by the Administrator upward

to a rate not greater than 5 percent, or

downward to a rate not less than the

rate determined in the feasibility study

on which the loan was based, based on

the borrower’s ability to pay debt

service and maintain a minimum TIER

of 1.0. Downward and upward

adjustments will be rounded down to

the nearest one-half or whole percent.

To make this adjustment, projections set

forth in the loan feasibility study will be

revised annually by RUS (beginning

within four months after the end of the

Forecast Period) to reflect updated

revenue and expense factors based on

the borrower’s current operating

condition. Any such adjustment will be

effective on July 1 of the year in which

the adjustment was determined. If the

Administrator determines that the

borrower is capable of meeting the
Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Rules and Regulations 46871

minimum TIER requirements of

§ 1735.22(f) at a loan interest rate of 5

percent on a loan made as described in

this section, then the loan interest rate

shall be fixed, for the remainder of the

loan repayment period, at the standard

interest rate of 5 percent.

9. In § 1735.43, the section heading is

revised, paragraph (a) is revised,

paragraph (b) is redesignated as new

paragraph (f), and new paragraphs (b)

through (e) are added to read as follows:

§ 1735.43 Payments on loans.

(a) Except as described in this

paragraph (a), RUS loans approved after

October 6, 1997 must be repaid with

interest within a period that, rounded to

the nearest whole year, equals the

expected composite economic life of the

facilities to be financed, as calculated by

RUS; expected composite economic life

means the depreciated life plus three

years. The expected composite

economic life shall be based on the

depreciation rates for the facilities

financed by the loan. In states where the

borrower must obtain state regulatory

commission approval of depreciation

rates, the depreciation rates used shall

be the rates currently approved by the

state commission or rates for which the

borrower has received state commission

approval. In cases where a state

regulatory commission does not approve

depreciation rates, the expected

composite economic life shall be based

on the most recent median depreciation

rates published by RUS for all borrowers

(see 7 CFR 1737.70). Borrowers may

request a repayment period that is

longer or shorter than the expected

composite economic life of the facilities

financed. If the Administrator

determines that a repayment period

based on the expected composite

economic life of the facilities financed

is likely to cause the borrower to

experience hardship, the Administrator

may agree to approve a period longer

than requested. A shorter period may be

approved as long as the Administrator

determines that the loan remains

feasible.

(b) Borrowers with RTB loans

approved after October 6, 1997 with a

maturity that exceeds the expected

composite economic life of the facilities

to be financed by the loan by a period

of more than three years, release of

funds included in the loan shall be

conditioned upon the borrower

establishing and maintaining, pursuant

to a plan approved by RUS, a funded

reserve in such an amount that the

balance of the reserve plus the value of

the facilities less depreciation shall at

all times be at least equal to the

remaining principal payments on the

loan. Funding of the reserve must begin

within one year of approval of release of

funds and must continue regularly over

the expected composite economic life of

the facilities financed.

(c) Borrowers that have demonstrated

to the satisfaction of the Administrator

an inability to maintain the funded

reserve or net plant to secured debt ratio

requirements, if any, contained in their

mortgage, may elect to replace notes

with an original maturity that exceeded

the composite economic life of the

facilities financed with notes bearing a

shorter maturity approximating the

expected composite economic life of the

facilities financed, if this will result in

a shorter maturity for the loan. The

principal balance of the notes

(hereinafter in this section called the

‘‘refunding notes’’) issued to refund and

substitute for the original notes would

be the unpaid principal balance of the

original notes. The refunding notes

would mature at a date no later than the

remaining economic life of the facilities

financed by the loan, plus three years,

as determined by the original feasibility

study prepared in connection with the

loan. Interest on the original note must

continue to be paid through the closing

date. All other payment terms,

including the rate of interest on the

refunding notes, would remain

unchanged. Disposition of funds in the

funded reserve will be determined by

RUS at the closing date. RUS will notify

the borrower in writing of the

amendment of loan payment

requirements and the terms and

conditions thereof.

(d) A borrower qualifying under

paragraph (c) of this section shall not be

required to pay a prepayment premium

on such portion of the payments under

its new notes as exceeds the payments

required under the notes being replaced.

(e) To apply for refunding notes,

borrowers must send to the Area Office

the following:

(1) A certified copy of a board

resolution requesting an amendment of

loan payment requirements and that

certain notes be replaced;

(2) If applicable, evidence of approval

by the regulatory body with jurisdiction

over the telecommunications service

provided by the borrower to issue

refunding notes; and

(3) Such other documents as may be

required by the RUS.

* * * * *

10. In § 1735.46, paragraphs (b), (c)

and (d) are revised, paragraphs (e) and

(f) are removed, and paragraphs (g) and

(h) are redesignated as paragraphs (e)

and (f) to read as follows:

§ 1735.46 Loan security documents.

* * * * *

(b) Loan security documents of

borrowers with loans approved after

October 6, 1997 will provide limits on

allowable cash distributions in any

calendar year as follows:

(1) No more than 25 percent of the

prior calendar year’s net earnings or

margins if the borrower’s net worth is at

least 1 percent of its total assets after the

distribution is made;

(2) No more than 50 percent of the

prior calendar year’s net earnings or

margins if the borrower’s net worth is at

least 20 percent of its total assets after

the distribution is made;

(3) No more than 75 percent of the

prior calendar year’s net earnings or

margins if the borrower’s net worth is at

least 30 percent of its total assets after

the distribution is made; or

(4) No limit on distributions if the

borrower’s net worth is at least 40

percent of its total assets after the

distribution is made.

(c) Borrowers that have not received

a loan after October 6, 1997 may request

the Administrator to apply these

requirements to them. Borrowers may

request in writing that RUS substitute

the new requirements described in

paragraphs (b)(1) through (b)(4) of this

section. Upon request by the borrower,

the provisions of the borrower’s loan

documents restricting cash distributions

or investments shall not be enforced to

the extent that such provisions are

inconsistent with this section.

(d) Rural development investments

meeting the criteria set forth in 7 CFR

part 1744, subpart D, will not be

counted against a borrower’s allowable

cash distributions in any calendar year

(7 U.S.C. 926).

* * * * *

§ 1735.60 [Amended]

11. § 1735.60, paragraph (a)

introductory text is amended by

removing the reference ‘‘(see 7 CFR part

1758)’’ and paragraph (a)(3) is removed.

§ 1735.76 [Amended]

12. § 1735.76, the second ‘‘or’’ is

removed and the word ‘‘of’’ is added in

its place.

PART 1737—PRE-LOAN POLICIES

AND PROCEDURES COMMON TO

GUARANTEED

TELECOMMUNICATIONS LOANS

13. The part heading for part 1737 is

revised as set forth above.

14. The authority citation for part

1737 is revised to read as follows:

Authority: 7 U.S.C. 901 et seq., 1921 et

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

U.S.C. 6941 et. seq.).
46872 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Rules and Regulations

§ 1737.70 [Amended]

15. In § 1737.70, paragraph (d) is

removed and reserved.

PART 1739—[REMOVED]

16. Part 1739 is removed.

PART 1746—[REMOVED]

17. Part 1746 is removed.

Dated: August 28, 1997.

Inga Smulkstys,

Acting Under Secretary, Rural Development.

[FR Doc. 97–23580 Filed 9–4–97; 8:45 am]

BILLING CODE 3410–15–P

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 936

[No. 97–56]

RIN 3069–AA35

Technical Amendment to the

Community Support Requirement

AGENCY: Federal Housing Finance

Board.

ACTION: Final rule.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is amending its

regulation on the community support

requirement to allow every Federal

Home Loan Bank (FHLBank) member to

provide all of the information necessary

to apply to the Finance Board to remove

restrictions on access to long-term

advances that may adversely affect the

member’s safety and soundness.

EFFECTIVE DATE: The final rule will

become effective October 6, 1997.

FOR FURTHER INFORMATION CONTACT:

Penny S. Bates, Program Analyst,

Community Support Program, Office of

Policy, 202/408–2574, or Janice A. Kaye,

Attorney-Advisor, Office of General

Counsel, 202/408–2505, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10(g)(1) of the Federal Home

Loan Bank Act (Bank Act) requires the

Finance Board to promulgate

regulations establishing standards of

community investment or service that

FHLBank members must meet in order

to maintain access to long-term

advances. See 12 U.S.C. 1430(g)(1). The

regulations promulgated by the Finance

Board must take into account factors

such as the FHLBank member’s

performance under the Community

Reinvestment Act of 1977 (CRA), 12

U.S.C. 2901, et seq., and record of

lending to first-time homebuyers. See 12

U.S.C. 1430(g)(2). In May 1997, the

Finance Board published a final

community support requirement rule

establishing uniform standards and

review criteria for determining

compliance with section 10(g) of the

Bank Act. See 62 FR 28983 (May 29,

1997). The streamlined community

support requirement rule became

effective on June 30, 1997. See id.

II. Analysis of the Technical

Amendment

Section 936.5(d)(1)(i) of the

community support requirement

regulation authorizes the Finance Board,

in its sole discretion, to remove a

restriction on access to long-term

advances imposed under this part if it

determines that application of the

restriction may adversely affect the

safety and soundness of the member.

See 12 CFR 936.5(d)(1)(i). The rule

permits a member to submit a detailed

written request to the Finance Board to

remove a restriction. See id. The

member’s request must include a

statement from its appropriate federal

financial supervisory agency that

application of the restriction may

adversely affect the safety and

soundness of the member. For purposes

of the community support requirement

rule, the term ‘‘appropriate federal

financial supervisory agency’’ means the

Office of the Comptroller of the

Currency for national banks; the Board

of Governors of the Federal Reserve

System for state chartered banks that are

members of the Federal Reserve System

and bank holding companies; the

Federal Deposit Insurance Corporation

for state chartered banks and savings

banks that are not members of the

Federal Reserve System and the

deposits of which are insured by the

Federal Deposit Insurance Corporation;

and the Office of Thrift Supervision for

savings associations the deposits of

which are insured by the Federal

Deposit Insurance Corporation and

savings and loan holding companies. Id.

§ 936.1(e).

Since the regulatory definition is the

same as the one provided for purposes

of the CRA, see 12 U.S.C. 2902(1), it

does not include the primary regulators

of a federally insured credit union

member that is not subject to the CRA

or a FHLBank member that is subject to

supervision only by a state regulator.

Thus, such members would be unable to

provide all of the information required

to make a request to the Finance Board

for removal of a restriction on access to

long-term advances based on safety and

soundness concerns. In order to correct

this oversight, the Finance Board is

amending § 936.5(d)(1)(i) to permit a

FHLBank member that is not subject to

supervision by an appropriate federal

financial supervisory agency to submit a

statement concerning the adverse affects

on safety and soundness of a restriction

on long-term advances from the

National Credit Union Administration

or its primary state regulator, as

appropriate.

III. Notice and Public Participation

The notice and comment procedure

required by the Administrative

Procedure Act is unnecessary in this

instance because the final rule makes

only a minor technical change to a

recently promulgated rule. See 5 U.S.C.

553(b)(3)(B).

IV. Regulatory Flexibility Act

The Finance Board is adopting this

technical amendment in the form of a

final rule and not as a proposed rule.

Therefore, the provisions of the

Regulatory Flexibility Act do not apply.

See id. 601(2), 603(a).

V. Paperwork Reduction Act

This final rule does not contain any

collections of information pursuant to

the Paperwork Reduction Act of 1995.

See 44 U.S.C. 3501 et seq. Consequently,

the Finance Board has not submitted

any information to the Office of

Management and Budget for review.

List of Subjects in 12 CFR Part 936

Credit, Federal home loan banks,

Housing, Reporting and recordkeeping

requirements.

Accordingly, the Federal Housing

Finance Board hereby amends title 12,

chapter IX, part 936 of the Code of

Federal Regulations to read as follows:

PART 936—COMMUNITY SUPPORT

REQUIREMENTS

1. The authority citation for part 936

continues to read as follows:

Authority: 12 U.S.C. 1422a(a)(3)(B),

1422b(a)(1), 1429, and 1430.

2. Revise § 936.5(d)(1)(i) to read as

follows:

§ 936.5 Restrictions on access to longterm advances.

* * * * *

(d) * * *

(1) * * *

(i) If the Finance Board determines

that application of the restriction may

adversely affect the safety and

soundness of the member. A member

may submit a written request to the

Finance Board to remove a restriction

on access to long-term advances under

this paragraph (d)(1)(i). Such written