50486 Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations

§ 1138.7 [Suspended in part]

2. In § 1138.7, paragraph (a)(1), the

words ‘‘including producer milk

diverted from the plant,’’ are suspended;

3. In § 1138.7, paragraph (c), the

words ‘‘35 percent or more of the

producer’’ are suspended; and

§ 1138.13 [Suspended in part]

4. In § 1138.13, paragraphs (d) (1), (2),

and (5) are suspended.

Dated: September 22, 1997.

Lon Hatamiya,

Administrator, Agricultural Marketing

Service.

[FR Doc. 97–25620 Filed 9–25–97; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1717

RIN 0572–AB26

Settlement of Debt Owed by Electric

Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

SUMMARY: The Administrator of the

Rural Utilities Service (RUS) hereby

establishes policies and standards for

the settlement of debts and claims owed

by rural electric borrowers. In addition

to establishing policies and standards

for debt settlement, the rule establishes

RUS policy on subsequent loans to

borrowers whose debt has been

restructured.

DATES: This rule is effective September

26, 1997.

FOR FURTHER INFORMATION CONTACT: Mr.

Blaine D. Stockton, Jr., Assistant

Administrator—Electric, U.S.

Department of Agriculture, Rural

Utilities Service, Stop 1560, 1400

Independence Avenue, SW.,

Washington, DC 20250–1560.

Telephone: 202–720–9545.

SUPPLEMENTARY INFORMATION: This

regulatory action has been determined

to be significant for the purposes of

Executive Order 12866, Regulatory

Planning and Review, and therefore has

been reviewed by the Office of

Management and Budget (OMB). The

Administrator of the Rural Utilities

Service (RUS) has determined that a

rule relating to the RUS electric loan

program is not a rule as defined in the

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

et seq.), for which RUS published a

general notice of proposed rulemaking

pursuant to 5 U.S.C. 553(b). Therefore,

the Regulatory Flexibility Act does not

apply to this rule. The Administrator of

RUS has determined that this 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. This rule is excluded from

the scope of Executive Order 12372,

Intergovernmental Consultation, which

may require consultation with State and

local officials. A Notice of final rule

titled Department Programs and

Activities Excluded from Executive

Order 12372 (50 FR 47034) exempts

RUS electric loans and loan guarantees

from coverage under this Order. This

rule has been reviewed under Executive

Order 12988, Civil Justice Reform. RUS

has determined that this rule meets the

applicable standards provided in Sec. 3

of the Executive Order.

The program described by this rule is

listed in the Catalog of Federal Domestic

Assistance Programs under number

10.850 Rural Electrification Loans and

Loan Guarantees. This catalog is

available on a subscription basis from

the Superintendent of Documents, the

United States Government Printing

Office, Washington, DC 20402–9325.

Information Collection and

Recordkeeping Requirements: The

recordkeeping and reporting burdens

contained in this rule were approved by

the Office of Management and Budget

(OMB) pursuant to the Paperwork

Reduction Act of 1995 (44 U.S.C.

Chapter 35, as amended) under control

number 0572–0116.

Background

On April 4, 1996, Public Law 104–127

(110 Stat. 888) amended section 331(b)

of the Consolidated Farm and Rural

Development Act (Con Act) to extend to

RUS loans and loan guarantees the

Secretary of Agriculture’s authority to

compromise, adjust, reduce, or chargeoff debts or claims owed to the

government (collectively, debt

settlement). The amendment also

extended to the security instruments,

leases, contracts, and agreements

administered by RUS, the Secretary’s

authority to adjust, modify, subordinate,

or release the terms of those documents.

The Secretary of Agriculture, in 7 CFR

2.47, has delegated authority under

section 331(b) to the Administrator of

RUS, with respect to loans made or

guaranteed by RUS.

The proposed rule to implement this

new authority was published in the

Federal Register on March 3, 1997 at 62

FR 9382. Comments were received from

42 different individuals or

organizations, including the National

Rural Electric Cooperative Association

(NRECA), the National Rural Utilities

Cooperative Finance Corporation (CFC),

the Edison Electric Institute (EEI), the

Office of Inspector General of the U.S.

Department of Agriculture, an ad hoc

group of 6 investor-owned utilities

(IOUs), 9 power supply borrowers, 16

distribution borrowers, and 12 other

individuals or organizations. Two of the

power supply borrowers submitted

identical comments, which were

supported by identical or supporting

comments from 9 of their members. Five

other distribution borrowers and one

state-wide borrower association

submitted comments identical to their

power supplier’s comments.

In general, comments from NRECA,

CFC, and most borrowers supported a

more expansive use of debt relief under

section 331(b) of the Con Act, more

flexibility and discretion for the

Administrator to grant debt relief, no

limitation on the debt relief measures,

such as the proposed 5 percent floor on

interest rates, and other changes in

support of more generous terms and

conditions for defaulting borrowers and

other borrowers facing financial or

competitive problems. In contrast, 2

distribution borrowers opposed

settlement of borrowers’ debts, stating

that debt forgiveness is unfair to the

majority of cooperatives who exercise

fiscal responsibility and presents an

undesirable public image for all electric

cooperatives. EEI, the ad hoc group of 6

IOUs, and 2 individual IOUs generally

favored strict limitation of the

Administrator’s debt settlement

authority to borrowers in default or

where default is imminent; more

specific and more restrictive standards

for determining eligibility for relief and

the amount of relief provided; referral of

most cases to the Department of Justice

for settlement under the Attorney

General’s settlement authority; more

extensive documentation of the need for

relief, the amount of relief provided,

and the underlying justification; and

greater congressional and public

oversight of RUS’ debt settlement

activities.

All comments received were

considered in drafting this final

regulation. The more common and more

significant comments are discussed

below.

Information Collection and

Recordkeeping Requirements

Several commenters expressed

concern that the estimate of 2 responses

per year from the public, in the from of

borrowers seeking debt settlement, was

too low and might impose an artificial

limit on the number of applications for
Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations 50487

debt relief RUS would consider. The

estimate is nothing more than an

estimate of the average number of

responses over a period of several years.

More applications may be received in

some years than in others. This estimate

does not place any limit on the number

of legitimate applications RUS would

consider.

Expansion of Use of Debt Settlement

Authority

As indicated above, NRECA and

several borrowers urged that the rule be

expanded to authorize the use of debt

relief to lower the costs of borrowers

that, although not in default and not

expected to face default within the

foreseeable future, nevertheless face

serious financial or competitive

problems. They argued that Congress

intended the new debt settlement

authority to be used in this expansive

way. EEI and the ad hoc group of 6 IOUs

argued just the opposite. They argued

that Congress intended the authority to

be used only in cases where a borrower

has defaulted or where default is

imminent. They further argued that

providing debt relief to non-defaulting

borrowers would give an unfair

competitive advantage to cooperatives at

the expense of IOUs and other utilities,

which they and other taxpayers would

be required to pay for. They also said

that such expanded use of debt relief

would constitute a federal program of

stranded cost recovery (avoidance) for

cooperatives, at taxpayer expense,

without any direction from Congress on

stranded cost recovery for the electric

industry as a whole.

RUS does not believe that the

language of section 331(b) or the

legislative history of the section

supports the expansive use of debt

settlement to lower the costs and

improve the competitive positions of

borrowers that are not in default nor

expected to default in the foreseeable

future. Furthermore, RUS does not

believe it would be good policy to

accept applications with respect to

defaults projected far into the future.

There would be too many uncertainties

with respect to a borrower’s particular

circumstances and the competitive and

regulatory environment within the

industry as a whole. It would be too

difficult to accurately assess the

borrower’s problems, the likelihood of

default, effective remedial actions, and

the actual need for and appropriateness

of debt settlement.

NRECA and several borrowers also

urged that debt relief be used to

encourage mergers between borrowers,

regardless of whether or not any of the

parties to the merger are in default or

are expected to default in the

foreseeable future. RUS agrees that our

policies and programs ought to support

mergers and consolidations between

borrowers that will likely result in

economies of scale and lower operating

costs, better management, and improved

opportunities for innovation,

technological development, market

expansion, and better customer service.

This past December, with publication of

7 CFR 1717 subpart D, RUS instituted

several new forms of transitional

assistance for borrowers entering into

economically beneficial mergers and

consolidations. While such assistance is

appropriate and strongly supported by

RUS, RUS does not believe it is

appropriate to use debt relief under

section 331(b) of the Con Act to

encourage mergers or consolidations in

the absence of default or the likelihood

of default in the foreseeable future.

Some borrowers also argued that, in

support of the objectives of the RE Act,

mergers between borrowers in

connection with debt settlement should

be given preference to mergers with or

acquisitions by nonborrowers. While as

a general proposition, RUS is very

supportive of economically beneficial

mergers that will strengthen both loan

security and service to rural electric

consumers, and is happy to provide

transitional assistance for such mergers

under 7 CFR part 1717 subpart D, RUS

does not believe it is appropriate to give

preference to mergers between

borrowers in connection with debt

settlements if granting such preference

would in any material way reduce debt

recovery by the government in

comparison with any other debt

settlement alternative.

Reports to Congress and the Public

The ad hoc group of 6 IOUs

recommended that the findings of the

in-depth analysis used to determine the

need for and amount of debt settlement

be published in the Federal Register in

each case, with notice and comment

from the public; that RUS be required to

report periodically to Congress (also

supported by EEI) on borrowers seeking

settlement, the amount of money at risk,

the timetable for acting on requests, and

the status of settlements under

consideration, with the information

being made available to the public; and

that RUS publish written orders in the

Federal Register on final debt

settlements, detailing the basis for the

debt settlement decision, and providing

opportunity for public comment. The

commenters argued that these

procedures would keep Congress better

informed; improve the information

available to the Administrator in making

debt settlement decisions; and give

interested taxpayers and competitors of

co-ops a chance to provide input on the

co-ops’ financial and competitive

positions and their need for debt

settlement, and explain how alternative

workout solutions would affect them.

Regarding the recommendation that

RUS be required to report periodically

to Congress, it should be noted that RUS

does report to Congress on its debt

settlement activities as part of the

budget process, in testifying before

congressional oversight committees, and

in responding to special requests from

Congress. Since Congress always has the

prerogative to request status reports and

hearings, RUS does not believe it is

necessary to require such reporting in

this regulation.

Publishing the findings of the indepth analyses of borrowers’ needs for

debt settlement and the justification for

the amount of settlement provided, and

providing opportunity for public

comment, presents several problems. It

could risk divulging the government’s

strategy and internal deliberations on

debt settlements, thus damaging the

government’s ability to achieve

maximum recovery in other debt

settlement cases. In addition, much of

the information about a borrower and

alternative workout scenarios contained

in an in-depth analysis could be used by

the borrower’s competitors, other

creditors or other parties, to the

disadvantage of both the borrower and

the government. Such information

should not be made routinely available

to the public at large. Also, allowing the

normal 30 to 60 days for public

comment on the in-depth analyses

could cause delays in some cases, such

that certain opportunities with a limited

timeframe could be missed, to the

detriment of both the borrower and the

government.

Moreover, development of the indepth analyses, whether supervised by

RUS or an independent consultant,

would include the gathering of all

relevant information from sources likely

to have information bearing on the

question of a borrower’s need for debt

settlement and the alternatives that will

likely maximize the government’s debt

recovery. For example, in many cases,

RUS will require that a competitive bid

be conducted for the borrower’s system

to determine its value. Relevant

information would be expected to be

obtained from bidders and other parties

as part of that process and other

information collection efforts. To ask for

public comments on what would have

to be, for reasons of confidentiality,

rather heavily summarized versions of

the in-depth analyses, after the analyses
50488 Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations

have been completed, is not likely to

produce much additional useful

information in most cases.

As to the last point, on publishing

written orders in the Federal Register

on final debt settlements and providing

opportunity for public comment, the

purpose of such a procedure isn’t clear.

If the main purpose is to inform the

public of decisions reached on debt

settlements, it would be more efficient

and timely to continue to rely on the

trade press and general media. If the

primary purpose is to provide

evaluation and supervision of RUS’ debt

settlement activities, that function is

more appropriately and effectively

provided by the traditional program

planning, evaluation, and budgeting

processes at the RUS, USDA, Office of

Management and Budget, and

congressional levels.

Confidentiality of Information and the

Deliberative Process

NRECA and several borrowers

expressed concerns that privileged or

confidential information about

borrowers gathered by RUS be held in

strict confidence. They expressed

concerns that such information, if not

held in strict confidence, could be used

by competitors, other creditors, or

litigants to gain financial or competitive

advantage over them. RUS agrees that

privileged or confidential information

should be held in strictest confidence

and should not be released beyond RUS

and its consultants and advisors except

when release of the information is

necessary to determine the value of a

borrower’s system and the need for and

appropriate type of debt settlement. For

example, it would be necessary to

provide certain information about a

borrower when conducting a

competitive bid for the borrower’s

system.

RUS also believes that commercial or

financial information obtained from

borrowers that is privileged or

confidential, as well as agency

documents and other information, such

as inter-agency or intra-agency

memoranda, letters, or papers, that are

predecisional or deliberative in nature,

should be withheld from the public

under the exemptions in the Freedom of

Information Act, such as Exemption 4.

Disclosure of this information would

allow other financially troubled

borrowers to learn the general strategic

and tactical approaches of RUS and DOJ

in dealing with financially troubled

borrowers. Disclosure would harm the

deliberative process of RUS and DOJ in

negotiating, settling, and compromising

debts.

Section 1717.1201 Definitions

One commenter suggested that the

definition of debt (outstanding debt) be

augmented by adding several specific

items, such as deferred principal and

deferred interest. RUS believes that

deferred principal and deferred interest

ordinarily would be considered as being

included as part of ‘‘principal’’ and

‘‘accrued interest,’’ which are listed as

elements of outstanding debt. It was not

RUS’ intention that the specific items

listed in the definition be all inclusive

of every conceivable element and

variation of nomenclature that may

make up the outstanding debt of a

borrower. Rather than trying to list

every conceivable element, the

definition has been amended to indicate

that the items listed are not necessarily

the only elements included in

outstanding debt.

Section 1717.1202 General Policy

Several comments were received

regarding paragraph (d) of this section,

which sets forth several general factors

(but not an exclusive list of factors) the

Administrator will consider in

structuring debt settlements and

determining the amount of debt

recovery that is possible. NRECA and

several borrowers recommended that

regulatory and legislative actions by

states be added to the list since such

actions can affect a borrower’s ability to

meet its financial obligations. EEI and

the ad hoc group of 6 IOUs criticized

paragraph (d) for failing to list, as one

of the factors, the ability of the borrower

to repay its debts.

Paragraph (d) is intended to set out

some of the more important general

factors the Administrator will consider

in structuring debt settlements and

determining the amount of debt a

borrower can repay. These general

factors relate either to public policy or

the competitive positions of borrowers

and their ability to meet their financial

obligations. They are not intended to

have priority over other factors that

affect a borrower’s ability to repay debt.

Nor are they intended in any way to

modify or diminish the policy set forth

in paragraph (a) of this section that

‘‘wherever possible, all debt owed shall

be collected in full in accordance with

the terms of the borrower’s loan

documents,’’ or the policy in paragraph

(c) that the Administrator’s authority to

settle debts will be limited to cases

where ‘‘settlement will maximize the

recovery of debts and claims owed to

the government.’’ This fact is

particularly relevant with respect to one

IOU’s comment that listing market and

nonmarket forces that affect competition

in the electric utility industry

introduces a vague and overbroad

provision that could result in RUS

providing borrowers an unfair

advantage in competitive electric

markets. That is not the intent. Market

and nonmarket forces are included in

simple recognition of the fact that they

do affect a borrower’s ability to generate

revenue to meet its financial obligations

to the government and other creditors.

Paragraph (d) has been amended to try

to allay concerns that the factors listed

might somehow override the central

consideration of a borrower’s ability to

repay debt. Also, whereas legislative

and regulatory actions by the states was

assumed to be included under ‘‘other

market and nonmarket forces as to their

effects on competition * * *,’’ they are

now explicitly listed as one of the

general factors that will be considered.

While explicitly recognizing that state

regulatory and legislative actions may

affect the ability of borrowers to meet

their financial obligations, RUS believes

state legislators and regulators should

give due consideration to the effects of

their actions on the ability of rural

electric systems to recover their costs

and meet their financial obligations to

the federal government and other

creditors.

In related comments, EEI and the ad

hoc group of 6 IOUs criticized the

proposed rule for failing to set out

detailed standards for deciding when a

borrower is unable to meet its financial

obligations and the amount of debt relief

that is appropriate. These commenters

also suggested several specific changes

and additions to the analyses to be

conducted in determining the need for

and the appropriate amount of debt

settlement. Several of these suggestions

have been adopted, as discussed

elsewhere.

As for more detailed standards for

deciding when debt settlement is

needed and the amount of debt

settlement, RUS believes that, with the

changes made, the rule provides

reasonably detailed standards. Sections

1717.1202 and 1717.1204(b)(1) clearly

establish that, wherever possible, all

debt will be collected in full in

accordance to its terms and that

settlement will be used only when it

will maximize the recovery of debts and

claims. The remainder of § 1717.1204

sets out in substantial detail the

information and actions required for the

Administrator to make a determination

that debt settlement is necessary and the

appropriate amount and form of the

settlement. Given the tremendous

variation from case to case in the

numerous factors that affect a

borrower’s ability to meet its financial
Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations 50489

obligations (e.g., economic, financial,

competitive, engineering, technological,

and regulatory factors) RUS does not

believe that it is possible to develop a

more detailed, immutable set of

decision criteria that would work well

in most cases.

Section 1717.1203 Relationship

Between RUS and Department of Justice

NRECA, CFC, and several borrowers

asked for clarification of several aspects

of this section. First, if a claim has been

referred in writing to the Attorney

General for settlement under the

Attorney General’s authority, can the

claim be referred back to the

Administrator for action? Yes, it can, at

the discretion of the Attorney General.

Second, if a claim has been referred in

writing to the Attorney General, is there

a formal mechanism by which the

borrower or the Administrator could

request that the claim be referred back

to the Administrator? No, there is no

formal mechanism. A claim could be

referred back to the Administrator at the

discretion of the Attorney General.

Third, if a borrower has previously had

its debt settled under the authority of

the Attorney General and the borrower

applies for additional relief on any

outstanding debt to the government, can

the Administrator use his or her

authority to consider the request from

the borrower? The Administrator could

consider the borrower’s request after

promptly notifying the Attorney General

that the request has been received.

These points have been clarified in the

changes made to § 1717.1203.

Section 1717.204(b) Need for Debt

Settlement

The Office of Inspector General (OIG)

of the U.S. Department of Agriculture

recommended that a borrower’s

application for debt settlement include

a certification by the borrower that it is

unable to meet its financial obligations.

RUS agrees with the recommendation

and has revised § 1717.204(b) to require

a resolution to that effect by the

borrower’s board of directors.

OIG also recommended the borrower

be required to certify that all the

information provided to RUS in

connection with the application for debt

settlement is true and accurate in all

material respects. RUS has adopted this

recommendation and has added a new

paragraph (m) to § 1717.1204.

NRECA and several borrowers

criticized the provision in paragraph

(b)(1) that would limit the use of debt

settlement to borrowers that have

defaulted or are likely to default within

24 months of the borrower’s application

for debt settlement. They felt that either

there should be no limit on the forecast

period within which a borrower is likely

to default, or that the forecast period

should be longer. Some of them felt that

limiting the forecast period to 24

months would limit the use of debt

settlement to essentially crisis

situations, where it would be too late to

help the borrower in dealing with its

serious problems and too late to avoid

bankruptcy. EEI and the ad hoc group

of 6 IOUs argued that debt settlement

should be used only when a borrower

has in fact defaulted, and that use of a

24 month forecast period for when a

borrower is likely to default would

amount to an extraordinary grace period

and would result in borrowers receiving

an unfair subsidy from RUS at the

expense of taxpayers and the borrowers’

competitors.

RUS continues to believe that its

middle ground position is the right one

on this issue. It does not believe that

debt settlement should be used only

when a borrower has already defaulted.

Debt settlement should be one of the

tools available to assist borrowers in

addressing their own problems when it

is reasonably clear that the borrower

will default without some debt relief.

RUS believes, however, that a specific,

defined time period within which a

borrower is likely to default is needed

to discourage unmerited or wildly

speculative applications for relief, and

to focus government resources on

problems that can be defined and

resolved with some degree of certainty,

as opposed to distant potential problems

that may not materialize or may change

greatly in the rapidly changing industry

environment. This approach is an

important element in maximizing debt

recovery by the government.

The forecast period is an aid for

identifying cases where default is

relatively imminent. It does not

establish the time period during which

RUS will consider the borrower’s

application for relief. Nor does the

forecast period limit in any way

discussions between RUS and borrowers

regarding their financial and economic

problems, possible actions by the

borrowers to address their problems,

and any assistance that RUS may be able

to offer, short of debt settlement, such

as deferral of principal and interest

payments under section 12 of the RE

Act, merger incentives under 7 CFR

1717 subpart D, or waiver of certain

requirements and controls under

§§ 1710.4 or 1717.600(c). Eliminating

the forecast period and accepting

applications from borrowers who assert

that they may default at some distant

point in the future would not provide

greater incentive for borrowers to take

advantage of all available opportunities

to address their problems themselves or

to work with RUS in fashioning

workable solutions short of debt

settlement. RUS continues to believe

that a forecast period of 24 months is

reasonable and will enable RUS to assist

borrowers in dealing with serious

problems before they become

insurmountable.

Some borrowers argued that requiring

a borrower to demonstrate to RUS that

it will likely default within a certain

period of time in order to be considered

for possible debt settlement would ruin

the borrower’s credit rating and make it

extremely difficult for the borrower to

obtain credit from other sources. Since

debt settlement will be used only when

a borrower has already defaulted or will

likely default in the relatively near

future, RUS believes that the act of

applying for debt settlement will

probably have the same effect on the

borrower’s relationship with other

creditors whether or not the borrower is

required to demonstrate to RUS that it

will likely default within the forecast

period. No change has been made in the

requirement that borrowers must

demonstrate to RUS that they will

probably be unable to meet their

financial obligations sometime during

the forecast period.

NRECA, CFC, and some borrowers

argued that requiring the borrower to

perform an in-depth analysis of the

opportunities available to the memberowners of a power supply borrower to

reduce costs or otherwise improve their

financial and competitive positions

could cause too much delay and should

be optional. RUS believes that

determination of the need for debt

settlement for a power supply borrower

normally should not be based only on

the condition and potential remedial

actions of the power supply borrower,

since the efficiency and effectiveness of

the borrower’s member-owners will

often have a major bearing on the health

of the power supply borrower. If there

is a serious financial problem

warranting consideration of debt

settlement, there appears to be no

reason why a credible analysis of the

member-owner’s operations cannot be

completed in a timely manner.

However, since there could be some

instances where it may be in the

government’s interest to waive this

requirement, the provision has been

amended to allow for a waiver by the

Administrator.

EEI and an investment banker

recommended that the in-depth analysis

required to demonstrate the need for

debt settlement include the possibility

of raising rates in order to generate more
50490 Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations

revenue to meet the borrower’s

obligations. It was assumed by RUS that

such analysis would be included, and

that has now been made explicit. EEI

also recommended that the in-depth

analysis of the need for debt settlement

include a review of the borrower’s

contracts for services and supplies; a

thorough analysis of the borrower’s

management structure, system

operations, and financial and operating

statements for possible cost reductions;

and comparisons of the borrower with

one or more ‘‘benchmark’’ electric

utilities to help identify areas for

efficiency gains. RUS agrees with the

substance of these recommendations

and notes that certain elements, such as

including a thorough analysis of the

borrower’s management structure,

system operations, and financial and

operating statements, are already

included in one form or another.

Changes have been made to paragraphs

(b)(2) and (b)(3) of § 1717.1204 to

include analytical elements contained

in EEI’s recommendations that were not

explicitly included in the proposed rule.

With respect to the use by RUS of

independent consultants to advise on

debt settlements (see paragraph (b)(3) of

§ 1717.1204), a borrower suggested that

RUS have a pre-qualified list of

consultants for borrowers to choose

among, in order to eliminate the need

for independent consultants. RUS

disagrees with this suggestion. The

choice of an independent consultant

must reside entirely with RUS in order

to ensure that the consultant has the

expertise needed for a particular case,

and is in fact independent and capable

of rendering impartial and objective

analysis and advice to RUS. NRECA, in

its comments, recognized the need for

the consultant to be completely

independent of the borrower, but

suggested that RUS should consider

consulting with the borrower before

making a selection. RUS does not

believe it should be under any

obligation to consult with the borrower,

and would view any such obligation as

compromising its ability to select a truly

independent consultant.

The ad hoc group of 6 IOUs stated

that use of independent consultants and

other neutral third parties to determine

the value of the borrower’s system

should be mandatory rather than

optional. RUS agrees that independent

consultants should be used in most

cases to help RUS determine the value

of a borrower’s system, but does not

believe that this should be mandatory in

all cases. The additional time and cost

of obtaining an independent

consultant’s assessment may not be

worthwhile in all cases, such as when

the amount of debt involved is small, or

when only very limited relief is being

considered, such as reamortization or

extension of maturities.

Section 1717.1204(c) Debt Settlement

Measures

Several commenters argued that

extension of debt maturities should not

be limited to the weighted average of the

expected remaining useful lives of the

assets pledged as security. RUS agrees

that the language in the proposed rule

is suitable primarily when the only

assets involved are plant and other real

estate. In many cases there may to other

‘‘assets’’ pledged as security for the

debt, such as wholesale power

contracts, irrevocable trusts, or other

assured streams of revenues pledged as

security, which don’t fit the normal

concept of an asset’s useful life. Given

these considerations, RUS has

concluded that because of the unusual

complexity of the loan security issues

when debt is restructured, it is not

possible to impose a fixed generic limit

on debt maturity tied to specific assets

or other forms of security that would

serve the government’s interests in all

cases. The limitation in § 717.1204(c) on

debt maturity has been revised such that

the maturity of the restructured debt

shall not extend more than 10 years

beyond the latest maturity date prior to

settlement. This is an outside limit,

only. The actual maturity approved in

each case will depend on specific

consideration of quality and longevity of

the collateral and other evidence or

guarantees that the debt will be repaid

and is reasonably secured.

Proposed paragraph (c) included

reducing the interest rate on debt as one

of the settlement measures, but imposed

a floor of 5 percent interest, below

which rates could not be reduced.

NRECA and several borrowers argued

that limiting the amount that interest

rates could be reduced would limit the

Administrator’s flexibility in negotiating

terms favorable to the government. RUS

does not believe the 5 percent interest

floor would be a problem in most cases,

but recognizes that the Administrator

should be able to waive the limitation

if he or she determines that that would

facilitate the maximization of debt

recovery by the government. The

paragraph has been amended

accordingly.

Section 1717.1204(d) Debt Owed to

Other Creditors

CFC stated that it was unfair to expect

similar debt relief on a pro rata basis to

be provided by other secured lenders,

and said that pro rata implied equal

methodology in determining the fair

contribution of each secured lender.

RUS disagrees that it would be unfair to

expect each of the secured lenders to

provide similar relief on a pro rata basis,

or ‘‘other benefits or value to the

restructuring.’’ RUS recognizes that a

given structure of debt relief that may be

suitable to one lender may not be

entirely suitable to another. RUS is not

trying to impose the same structure or

methodology on all lenders involved,

but does want to ensure that each lender

provides it fair share of relief. RUS

believes that the proposed language,

retained herein, adequately expresses

the intended objective and is not unfair

to other lenders.

NRECA suggested substituting the

words ‘‘comparable concessions’’ for

‘‘similar relief on a pro rata basis . . .

or other benefits or value.’’ RUS does

not believe that this change would

result in greater assurance that each

lender will provide its fair share of debt

relief.

Section 1717.1204(e) Competitive Bids

for System Assets

Paragraph (e) provides that RUS may

ask the borrower or an independent

consultant to solicit competitive bids

from potential buyers of the borrower’s

system. One commenter asked how

conflicts of interest could be avoided if

the borrower, rather than an

independent consultant, solicits the

bids. RUS believes that any conflicts of

interest can be prevented or minimized

by the provisions in paragraph (e) which

require the bidding process to be

conducted in consultation with RUS

and using standards and procedures

acceptable to RUS.

A borrower stated that preference

should always be given to a co-op

acquiring or merging with a troubled

borrower, and that competitive bids

should not be required when acquisition

by or merger with another RUS-financed

co-op is possible. As discussed above,

RUS strongly supports mergers and

consolidations between borrowers that

are economically beneficial to the

parties and, as a result, strengthen RUS

loan security. RUS provides incentives

for such mergers and consolidations

under 7 CFR 1717 subpart D. A merger

or consolidation among two or more

borrowers may represent one of the

elements of a debt settlement, but

should not be given preference at the

expense of reducing the government’s

recovery of debt.

Another borrower commented that

requiring competitive bids for a

borrower’s system and using the bids to

sell the system is not a mortgage

requirement for non-defaulting

borrowers, and may damage the credit
Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations 50491

worthiness of solvent borrowers. RUS

notes that soliciting of competitive bids

applies only to borrowers that have

requested debt settlement, and in that

situation is appropriate whether or not

the borrower has defaulted. It is not a

requirement imposed on all borrowers,

but simply an option available to the

Administrator for determining the value

of assets of borrowers that have

requested debt settlement.

The ad hoc group of 6 IOUs stated

that the value to the Treasury of selling

all or part of the borrower’s assets

should be considered in every case, and

should not be optional. RUS does not

believe it is necessary to actually solicit

competitive bids in every case to

determine the value of a borrower’s

system. Various appraisal techniques

other than actual competitive bids may

be more cost-effective, more timely, or

otherwise more appropriate in some

circumstances to determine a system’s

value.

Section 1717.1204(i) Regulatory

Approvals

A borrower stated that RUS should be

able to conditionally approve a

settlement before all regulatory

approvals are obtained so that the

borrower could proceed to implement

an action plan. NRECA stated that

regulatory approvals should be required

in advance of RUS approval of a debt

settlement only ‘‘insofar as possible,’’

since it may not be possible to obtain

the regulatory approvals in some cases.

RUS would note that most remedial

actions available to borrowers do not

hinge on RUS approval of debt relief,

and that borrowers should aggressively

implement such actions without delay.

However, the point is well taken that

RUS could approve or preliminarily

approve a debt settlement or parts of a

settlement before all regulatory

approvals have been obtained. The

paragraph has been amended to clarify

that only those regulatory approvals

deemed necessary by the Administrator

must be obtained before a settlement

will be approved.

Section 1717.1204(j) Conditions

Regarding Management and Operations

NRECA objected to the possibility of

RUS imposing additional controls on

the members of a power supply

borrower regarding general funds and

investments, based on the argument that

such decisions by members impacted

little on their power supplier and

because bankruptcy would be an

alternative for the power supply

borrower. The additional controls

identified in § 1717.1204(j)(3) ordinarily

would not be imposed on the members

of a power supply borrower that is

seeking debt settlement. However, such

controls on members may be

appropriate in some cases, such as when

the members have agreed to guarantee

the debt of a power supply borrower as

a condition of settling the latter’s debt.

Section 1717.1206 Loans Subsequent

to Settlement

One commenter stated that the

paragraph is unclear and subject to

various interpretations, but did not

indicate what is unclear. Perhaps one

area needing some clarification is

whether the section would grant some

right to subsequent loans to a borrower

that as agreed as part of its debt

settlement not to seek subsequent loans

from RUS. The section does not grant

any such right.

Perhaps the commenter thought that a

‘‘presumption’’ that credit support will

be needed for any subsequent loans is

not clear. ‘‘Presumption’’ means that

credit support will be required for any

subsequent loans, unless the

Administrator, for good reason,

determines that credit support is not

needed.

The ad hoc group of 6 IOUs stated

that RUS should establish a

presumption that new loans will not be

made to borrowers whose debts have

been settled unless they can prove that

they are now creditworthy.

Demonstration of creditworthiness is a

requirement which applies to all loans

made by RUS, as set forth in 7 CFR

1710.112, 1710.113, and elsewhere in

RUS regulations.

A borrower stated that if a healthy

borrower acquires or merges with a

borrower whose debt has been settled by

RUS, the surviving entity should be

exempt from the presumption that

credit support will be needed for any

subsequent loans. RUS does not agree

that an exemption should be granted for

all such cases, since the surviving entity

may nevertheless be a high risk that

would warrant credit support.

List of Subjects in 7 CFR Part 1717

Administrative practice and

procedure, Claims, Electric power,

Electric utilities, Intergovernmental

relations, Investments, Lien

accommodation, Lien subordination,

Loan programs—energy, Reporting and

recordkeeping requirements, Rural

areas.

For reasons explained in the

preamble, RUS hereby amends 7 CFR

chapter XVII, part 1717, as follows:

PART 1717—POST-LOAN POLICIES

AND PROCEDURES COMMON TO

INSURED AND GUARANTEED

ELECTRIC LOANS

1. The authority citation for part 1717

is revised to read as follows:

Authority: 7 U.S.C. 901–950b, 1981; Pub.

L. 99–591, 100 Stat. 3341–16; Pub. L. 103–

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

unless otherwise noted.

2. Subparts T through X are added

and reserved and subpart Y is added to

part 1717 to read as follows:

Subpart T—[Reserved]

Sec.

1717.950–1717.999 [Reserved]

Subpart U—[Reserved]

1717.1000–1717.1049 [Reserved]

Subpart V—[Reserved]

1717.1050–1717.1099 [Reserved]

Subpart W—[Reserved]

1717.1100–1717.1149 [Reserved]

Subpart X—[Reserved]

1717.1150–1717.1199 [Reserved]

Subpart Y—Settlement of Debt

1717.1200 Purpose and scope.

1717.1201 Definitions.

1717.1202 General policy.

1717.1203 Relationship between RUS and

Department of Justice.

1717.1204 Policies and conditions

applicable to settlements.

1717.1205 Waiver of existing conditions on

borrowers.

1717.1206 Loans subsequent to settlement.

1717.1207 RUS obligations under loan

guarantees.

1717.1208 Government’s rights under loan

documents.

Subpart T—[Reserved]

§§ 1717.950–1717.999 [Reserved]

Subpart U—[Reserved]

§§ 1717.1000–1717.1049 [Reserved]

Subpart V—[Reserved]

§§ 1717.1050–1717.1099 [Reserved]

Subpart W—[Reserved]

§§ 1717.1100–1717.1149 [Reserved]

Subpart X—[Reserved]

§§ 1717.1150–1717.1199 [Reserved]

Subpart Y—Settlement of Debt

§ 1717.1200 Purpose and scope.

(a) Section 331(b) of the Consolidated

Farm and Rural Development Act (Con

Act), as amended on April 4, 1996 by

Public Law 104–127, 110 Stat. 888

(7 U.S.C. 1981), grants authority to the

Secretary of Agriculture to compromise,
50492 Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations

adjust, reduce, or charge-off debts or

claims arising from loans made or

guaranteed under the Rural

Electrification Act of 1936, as amended

(RE Act). Section 331(b) of the Con Act

also authorizes the Secretary of

Agriculture to adjust, modify,

subordinate, or release the terms of

security instruments, leases, contracts,

and agreements entered into or

administered by the Rural Utilities

Service (RUS). The Secretary, in 7 CFR

2.47, has delegated authority under

section 331(b) of the Con Act to the

Administrator of the RUS, with respect

to loans made or guaranteed by RUS.

(b) This subpart sets forth the policy

and standards of the Administrator of

RUS with respect to the settlement of

debts and claims arising from loans

made or guaranteed to rural electric

borrowers under the RE Act. Nothing in

this subpart limits the Administrator’s

authority under section 12 of the RE

Act.

§ 1717.1201 Definitions.

Terms used in this subpart that are

not defined in this section have the

meanings set forth in 7 CFR part 1710.

In addition, for the purposes of this

subpart:

Application for debt settlement means

a written application containing all of

the information required by

§ 1717.1204(b)(2), in form and substance

satisfactory to RUS.

Attorney General means the Attorney

General of the United States of America.

Claim means any claim of the

government arising from loans made or

guaranteed under the RE Act to a rural

electric borrower.

Con Act means the Consolidated Farm

and Rural Development Act (7 U.S.C.

1921 et seq.).

Debt means outstanding debt of a

rural electric borrower (including, but

not necessarily limited to, principal,

accrued interest, penalties, and the

government’s costs of debt collection)

arising from loans made or guaranteed

under the RE Act.

Enforced collection procedures means

any procedures available to the

Administrator for the collection of debt

that are authorized by law, in equity, or

under the borrower’s loan documents or

other agreements with RUS.

Loan documents means the mortgage

(or other security instrument acceptable

to RUS), the loan contract, and the

promissory note entered into between

the borrower and RUS.

RE Act means the Rural Electrification

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

950b).

Restructure means to settle a debt or

claim.

Settle means to reamortize, adjust,

compromise, reduce, or charge-off a

debt or claim.

§ 1717.1202 General policy.

(a) It is the policy of the

Administrator that, wherever possible,

all debt owed to the government,

including but not limited to principal

and interest, shall be collected in full in

accordance with the terms of the

borrower’s loan documents.

(b) Nothing in this subpart by itself

modifies, reduces, waives, or eliminates

any obligation of a borrower under its

loan documents. Any such

modifications regarding the debt owed

by a borrower may be granted under the

authority of the Administrator only by

means of the explicit written approval

of the Administrator in each case.

(c) The Administrator’s authority to

settle debts and claims will apply to

cases where a borrower is unable to pay

its debts and claims in accordance with

their terms, as further defined in

§ 1717.1204(b)(1), and where settlement

will maximize, on a present value basis,

the recovery of debts and claims owed

to the government.

(d) In structuring settlements and

determining the capability of the

borrower to repay debt and the amount

of debt recovery that is possible, the

Administrator will consider, among

other factors, the RE Act, the National

Energy Policy Act of 1992 (Pub. L. 102–

486, 106 Stat. 2776), the policies and

regulations of the Federal Energy

Regulatory Commission, state legislative

and regulatory actions, and other market

and nonmarket forces as to their effects

on competition in the electric utility

industry and on rural electric systems in

particular. Other factors the

Administrator will consider are set forth

in more detail in § 1717.1204.

§ 1717.1203 Relationship between RUS

and Department of Justice.

(a) The Attorney General will be

notified by the Administrator whenever

the Administrator intends to use his or

her authority under section 331(b)of the

Con Act to settle a debt or claim.

(b) If an outstanding claim has been

referred in writing to the Attorney

General, the Administrator will not use

his or her own authority to settle the

claim without the approval of the

Attorney General.

(c) If an application for additional

debt relief is received from a borrower

whose debt has been settled in the past

under the authority of the Attorney

General, the Administrator will

promptly notify the Attorney General

before proceeding to consider the

application.

§ 1717.1204 Policies and conditions

applicable to settlements.

(a) General. Settlement of debts and

claims shall be subject to the policies,

requirements, and conditions set forth

in this section and in § 1717.1202.

(b) Need for debt settlement. (1) The

Administrator will not settle any debt or

claim unless the Administrator has

determined that the borrower is unable

to meet its financial obligations under

its loan documents according to the

terms of those documents, or that the

borrower will not be able to meet said

obligations sometime within the period

of 24 months following the month the

borrower submits its application for

debt settlement to RUS, and, in either

case, such default is likely to continue

indefinitely. The determination of a

borrower’s ability to meet its financial

obligations will be based on analyses

and documentation by RUS of the

borrower’s historical, current, and

projected costs, revenues, cash flows,

assets, opportunities to reduce costs

and/or increase revenues, and other

factors that may be relevant on a case by

case basis.

(2) In its application to RUS for debt

settlement, the borrower must provide,

in form and substance satisfactory to

RUS, an in-depth analysis supporting

the borrower’s contention that it is

unable or will not be able to meet its

financial obligations as described in

paragraph (b)(1) of this section. The

analysis must include:

(i) An explanation and analysis of the

causes of the borrower’s inability to

meet its financial obligations;

(ii) A thorough review and analysis of

the opportunities available or

potentially available to the borrower to

reduce administrative overhead and

other costs, improve efficiency and

effectiveness, and expand markets and

revenues, including but not limited to

opportunities for sharing services,

merging, and/or consolidating, raising

rates when appropriate, and

renegotiating supplier and service

contracts. In the case of a power supply

borrower, the study shall include such

opportunities among the members of the

borrower, unless the Administrator

waives this requirement;

(iii) Documentation of the actions

taken, in progress, or planned by the

borrower (and its member systems, if

applicable) to take advantage of the

opportunities cited in paragraph

(b)(2)(ii) of this section; and

(iv) Other analyses and

documentation prescribed by RUS on a

case by case basis.

(3) RUS may require that an

independent consultant provide an

analysis of the efficiency and
Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations 50493

effectiveness of the borrower’s

organization and operations, and those

of its member systems in the case of a

power supply borrower. The following

conditions will apply:

(i) RUS will select the independent

consultant taking into account, among

other matters, the consultant’s

experience and expertise in matters

relating to electric utility operations,

finance, and restructuring;

(ii) The contract with the consultant

shall be to provide services to RUS on

such terms and conditions as RUS

deems appropriate. The consultant’s

scope of work may include, but shall

not be limited to, an analysis of the

following:

(A) How to maximize the value of the

government’s collateral, such as through

mergers, consolidations, or sales of all

or part of the collateral;

(B) The viability of the borrower’s

system, taking into account such matters

as system size, service territory and

markets, asset base, physical condition

of the plant, operating efficiency,

competitive pressures, industry trends,

and opportunities to expand markets

and improve efficiency and

effectiveness;

(C) The feasibility and the potential

benefits and risks to the borrower and

the government of corporate

restructuring, including aggregation and

disaggregation;

(D) In the case of a power supply

borrower, the retail rate mark-up by

member systems and the potential

benefits to be achieved by member

restructuring through mergers,

consolidations, shared services, and

other alliances;

(E) The quality of the borrower’s

management, management advisors,

consultants, and staff;

(F) Opportunities for reducing

overhead and other costs, for expanding

markets and revenues, and for

improving the borrower’s existing and

prospective contractual arrangements

for the purchase and sale of power,

procurement of supplies and services,

and the operation of plant and facilities;

(G) Opportunities to achieve

efficiency gains and increased revenues

based on comparisons with benchmark

electric utilities; and

(H) The accuracy and completeness of

the borrower’s analysis provided under

paragraph (b)(2) of this section;

(iii) RUS and, as appropriate, other

creditors, will determine the extent to

which the borrower and third parties

(including the members of a power

supply borrower) will be required to

participate in funding the costs of the

independent consultant;

(iv) The borrower will be required to

make available to the consultant all

corporate documents, files, and records,

and to provide the consultant with

access to key employees. The borrower

will also normally be required to

provide the consultant with office space

convenient to the borrower’s operations

and records; and

(v) All analyses, studies, opinions,

memoranda, and other documents and

information produced by the

independent consultant shall be

provided to RUS on a confidential basis

for consideration in evaluating the

borrower’s application for debt

settlement. Such documents and

information may be made available to

the borrower and other appropriate

parties if authorized in writing by RUS.

(4) The borrower may be required to

employ a temporary or permanent

manager acceptable to the

Administrator, to manage the borrower’s

operations to ensure that all actions are

taken to avoid or minimize the need for

debt settlement. The employment could

be on a temporary basis to manage the

system during the time the debt

settlement is being considered, and

possibly for some time after any debt

settlement, or it could be on a

permanent basis.

(5) The borrower must submit, at a

time determined by RUS, a resolution of

its board of directors requesting debt

settlement and stating that the borrower

is either currently unable to meet its

financial obligations to the government

or will not be able to meet said

obligations sometime within the next 24

months, and that, in either case, the

default is likely to continue indefinitely.

(c) Debt settlement measures. (1) If the

Administrator determines that debt

settlement is appropriate, the debt

settlement measures the Administrator

will consider under this subpart with

respect to direct, insured, or guaranteed

loans include, but are not limited to, the

following:

(i) Reamortization of debt;

(ii) Extension of debt maturity,

provided that the maturity of the

borrower’s outstanding debt after

settlement shall not extend more than

10 years beyond the latest maturity date

prior to settlement;

(iii) Reduction of the interest rate

charged on the borrower’s debt,

provided that the interest rate on any

portion of the restructured debt shall

not be reduced to less than 5 percent,

unless the Administrator determines

that reducing the rate below 5 percent

would maximize debt recovery by the

government;

(iv) Forgiveness of interest accrued,

penalties, and costs incurred by the

government to collect the debt; and

(v) With the concurrence of the Under

Secretary for Rural Development,

forgiveness of loan principal.

(2) In the event that RUS has, under

section 306 of the RE Act, guaranteed

loans made by the Federal Financing

Bank or other third parties, the

Administrator may restructure the

borrower’s obligations by: acquiring and

restructuring the guaranteed loan;

restructuring the loan guarantee

obligation; restructuring the borrower’s

reimbursement obligations; or by such

means as the Administrator deems

appropriate, subject to such consents

and approvals, if any, that may be

required by the third party lender.

(d) Borrower’s obligations to other

creditors. The Administrator will not

grant relief on debt owed to the

government unless similar relief, on a

pro rata basis, is granted with respect to

other secured obligations of the

borrower, or the other secured creditors

provide other benefits or value to the

debt restructuring. Unsecured creditors

will also be expected to contribute to

the restructuring. If it is not possible to

obtain the expected contributions from

other creditors, the Administrator may

proceed to settle a borrower’s debt if

that will maximize recovery by the

government and will not result in

material benefits accruing to other

creditors at the expense of the

government.

(e) Competitive bids for system assets.

If requested by RUS, the borrower or the

independent consultant provided for in

paragraph (b)(3) of this section shall

solicit competitive bids from potential

buyers of the borrower’s system or parts

thereof. The bidding process must be

conducted in consultation with RUS

and use standards and procedures

acceptable to RUS. The Administrator

may use the competitive bids received

as a basis for requiring the sale of all or

part of the borrower’s system as a

condition of settlement of the

borrower’s debt. The Administrator may

also consider the bids in evaluating

alternative settlement measures.

(f) Valuation of system. (1) The

Administrator will consider the value of

the borrower’s system, including, in the

case of a power supply borrower, the

wholesale power contracts between the

borrower and its member systems. The

valuation of the wholesale power

contracts shall take into account, among

other matters, the rights of the

government and/or third parties, to

assume the rights and obligations of the

borrower under such contracts, to

charge reasonable rates for service
50494 Federal Register / Vol. 62, No. 187 / Friday, September 26, 1997 / Rules and Regulations

provided under the contracts, and to

otherwise enforce the contracts in

accordance with their terms. In no case

will the Administrator settle a debt or

claim for less than the value (after

considering the government’s collection

costs) of the borrower’s system and

other collateral securing the debt or

claim.

(2) RUS may use such methods,

analyses, and assessments as the

Administrator deems appropriate to

determine the value of the borrower’s

system.

(g) Rates. The Administrator will

consider the rates charged for electric

service by the borrower and, in the case

of a power supply borrower, by its

members, taking into account, among

other factors, the practices of the

Federal Energy Regulatory Commission

(FERC), as adapted to the cooperative

structure of borrowers, and, where

applicable, FERC treatment of any

investments by co-owners in projects

jointly owned by the borrower.

(h) Collection action. The

Administrator will consider whether a

settlement is favorable to the

government in comparison with the

amount that can be recovered by

enforced collection procedures.

(i) Regulatory approvals. Before the

Administrator will approve a

settlement, the borrower must provide

satisfactory evidence that it has

obtained all approvals required of

regulatory bodies that the Administrator

determines are needed to implement

rates or other provisions of the

settlement, or that are needed in any

other way for the borrower to fulfill its

obligations under the settlement.

(j) Conditions regarding management

and operations. As a condition of debt

settlement, the borrower, and in the case

of a power supply borrower, its

members, will be required to implement

those changes in structure, management,

operations, and performance deemed

necessary by the Administrator. Those

changes may include, but are not

limited to, the following:

(1) The borrower may be required to

undertake a corporate restructuring and/

or sell a portion of its plant, facilities,

or other assets

(2) The borrower may be required to

replace senior management and/or hire

outside experts acceptable to the

Administrator. Such changes may

include a commitment by the borrower’s

board of directors to restructure and/or

obtain new membership to improve

board oversight and leadership;

(3) The borrower may be required to

agree to:

(i) Controls by RUS on the general

funds of the borrower, as well as on any

investments, loans or guarantees by the

borrower, notwithstanding any

limitations on RUS’ control rights in the

borrower’s loan documents or RUS

regulations; and

(ii) Requirements deemed necessary

by RUS to perfect and protect its lien on

cash deposits, securities, equipment,

vehicles, and other items of real or nonreal property; and

(4) In the case of a power supply

borrower, the borrower may be required

to obtain credit support from its member

systems, as well as pledges and action

plans by the members to change their

operations, management, and

organizational structure (e.g., shared

services, mergers, or consolidations) in

order to reduce operating costs, improve

efficiency, and/or expand markets and

revenues.

(k) Conveyance of assets. As a

condition of a settlement, a borrower

may be required to convey some or all

its assets to the government.

(l) Additional conditions. The

borrower will be required to warrant

and agree that no bonuses or similar

extraordinary compensation has been or

will be provided, for reasons related to

the settlement of government debt, to

any officer or employee of the borrower

or to other persons or entities identified

by RUS. The Administrator may impose

such other terms and conditions of debt

settlement as the Administrator

determines to be in the government’s

interests.

(m) Certification of accuracy. Before

the Administrator will approve a debt

settlement, the manager or other

appropriate official of the borrower

must certify that all information

provided to the government by the

borrower or by any agent of the

borrower, in connection with the debt

settlement, is true, correct, and

complete in all material respects.

§ 1717.1205 Waiver of existing conditions

on borrowers.

Pursuant to section 331(b) of the Con

Act, the Administrator, at his or her sole

discretion, may waive or otherwise

reduce conditions and requirements

imposed on a borrower by its loan

documents if the Administrator

determines that such action will

contribute to enhancement of the

government’s recovery of debt. Such

waivers or reductions in conditions and

requirements under this section shall

not include the exercise of any of the

debt settlement measures set forth in

§ 1717.1204(c), which are subject to all

of the requirements of said § 1717.1204.

§ 1717.1206 Loans subsequent to

settlement.

In considering any future loan

requests from a borrower whose debt

has been settled in whole or in part

(including the surviving entity of

merged or consolidated borrowers,

where at least one of said borrowers had

its debts settled), it will be presumed

that credit support for the full amount

of the requested loan will be required.

Such support may be in a number of

forms, provided that they are acceptable

to the Administrator on a case by case

basis. They may include, but need not

be limited to, equity infusions and

guarantees of debt repayment, either

from the applicant’s members (in the

case of a power supply borrower), or

from a third party.

§ 1717.1207 RUS obligations under loan

guarantees.

Nothing in this subpart affects the

obligations of RUS under loan guarantee

commitments it has made to the Federal

Financing Bank or other lenders.

§ 1717.1208 Government’s rights under

loan documents.

Nothing in this subpart limits,

modifies, or otherwise affects the rights

of the government under loan

documents executed with borrowers, or

under law or equity.

Dated: September 19, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97–25315 Filed 9–25–97; 8:45 am]

BILLING CODE 3410–15–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 25

[Docket No. NM–141; Special Conditions

No. 25–ANM–132]

Special Conditions: Boeing Model 737–

600/–700/–800; High Intensity Radiated

Fields (HIRF)/Engine Stoppage

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final special conditions.

SUMMARY: These special conditions are

issued for Boeing Model 737–600/–700/

–800 airplanes. These airplanes will

have novel and unusual design features

when compared to the state of

technology envisioned in the

airworthiness standards for transport

category airplanes. These special

conditions contain the additional safety

standards that the Administrator

considers necessary to establish a level