[Federal Register Volume 62, Number 41 (Monday, March 3, 1997)]
[Proposed Rules]
[Pages 9382-9387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5137]


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DEPARTMENT OF AGRICULTURE
Rural Utilities Service

7 CFR Part 1717

RIN 0572-AB26


Settlement of Debt Owed by Electric Borrowers

AGENCY: Rural Utilities Service.

ACTION: Proposed rule.

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SUMMARY: The Administrator of the Rural Utilities Service (RUS) hereby 
proposes to establish policies and standards for the settlement of 
debts and claims owed by rural electric borrowers. In addition to 
proposing policies and standards for debt settlement, the rule proposes 
RUS policy on subsequent loans to borrowers whose debt has been 
restructured.

DATES: Written comments must be received by RUS or carry a postmark or 
equivalent by May 2, 1997.

ADDRESSES: Written comments should be addressed to Monte Heppe, Jr., 
Director, Program Support and Regulatory Analysis, U.S. Department of 
Agriculture, Rural Utilities Service, Stop 1522, 1400 Independence Ave. 
SW., Washington, DC 20250-1522. RUS requires, in hard copy, a signed 
original and 3 copies of all comments (7 CFR 1700.30(e)). Comments will 
be available for public inspection during regular business hours (7 CFR 
1.27(b)).

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.), and, therefore, the Regulatory Flexibility Act 
does not apply to this proposed 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 proposed 
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 proposed rule has been reviewed under Executive 
Order 12988, Civil Justice Reform. RUS has determined that this 
proposed 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.

Background

    On April 4, 1996, P.L. 104-127 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 charge-off 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.
    This proposed regulation proposes the policies, standards, and 
procedures the Administrator would use in settling (restructuring) 
debts and claims owed by rural electric borrowers.

Section 1717.1202  General Policy

    This section proposes general policies for settling debts and 
claims. Four general policies are proposed:
    1. Wherever possible, all debt and claims will be collected in full 
in accordance with its terms.
    2. The rule by itself contains nothing that modifies or forgives 
debt or claims owed by a borrower. Any debt

[[Page 9383]]

settlement will require the explicit written approval of the 
Administrator.
    3. 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, and where settlement will maximize the 
recovery of debts and claims owed to the government.
    4. The Administrator will consider several factors in structuring 
debt settlements and determining the amount of debt recovery that is 
possible. Among those factors are the Rural Electrification Act of 
1936, the National Energy Policy Act of 1992, the policies and 
regulations of the Federal Energy Regulatory Commission (FERC), and 
other market and nonmarket forces that affect competition in the 
electric utility industry and, in particular, the rural electric 
segment of the industry.

Section 1717.1203  Relationship Between RUS and Department of Justice

    The Administrator is required to notify the Attorney General 
whenever the Administrator intends to use his or her settlement 
authority. The Attorney General retains the authority under existing 
law to settle debts and claims against a borrower that is in bankruptcy 
or is otherwise involved in litigation with the government. In 
addition, any debt or claim that has been referred in writing to the 
Attorney General would not be settled under the Administrator's own 
authority.

Section 1717.1204  Policies and Conditions Applicable to Settlements

    This section proposes specific policies, standards, and conditions 
applicable to debt settlements. These are in addition to the general 
principles proposed in Sec. 1717.1202. The specific policies, 
standards, and conditions include the following:
    <bullet> Documentation, analyses, and other actions would be 
required of the borrower to demonstrate that it is unable to pay its 
debts or claims in accordance with their terms, or that it will be 
unable to meet such obligations sometime within the 24 months following 
the borrower's application for relief, and that such default is likely 
to continue beyond the 24-month period.
    <bullet> RUS could contract with an independent consultant of its 
choice to provide an analysis of the efficiency and effectiveness of 
the borrower's organization and operations, and those of its member 
systems in the case of a power supply borrower. The borrower (and its 
member systems in the case of a power supply borrower) could be 
required to share in the costs of the consultant. The scope of work of 
the independent consultant, reporting relationships, and the 
consultant's access to the borrower's records and staff are spelled out 
in Sec. 1717.1204(b)(3).
    <bullet> Debt settlement measures that could be used under proposed 
Sec. 1717.1204 would include, but not be limited to, reamortization of 
debt; extension of debt maturity; reduction in the interest rate 
charged; forgiveness of interest accrued, penalties, and the 
government's cost of collection; and with the concurrence of the Under 
Secretary for Rural Development, forgiveness of loan principal. They 
would also include restructuring a borrower's obligations under a loan 
guaranteed by RUS, by RUS acquiring and restructuring the guaranteed 
loan, by restructuring the loan guarantee obligation and/or the 
borrower's reimbursement obligations, or by other means, subject to any 
consents or approvals required by the third party lenders.
    <bullet> The borrower or the independent consultant could be 
required to solicit competitive bids for the borrower's system. The 
Administrator could 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 could 
also consider the bids in evaluating alternative settlement measures.
    <bullet> The Administrator would not grant debt relief unless 
similar relief, on a pro rata basis, is granted by other secured 
creditors of the borrower, or they provide other benefits or value to 
the restructuring. Unsecured creditors would also be expected to 
contribute to the restructuring. If it is not possible to obtain the 
expected contributions from other creditors, the Administrator could 
proceed to settle a borrower's debt if that would maximize recovery by 
the government and would not result in material benefits accruing to 
other creditors at the expense of the government.
    <bullet> The Administrator could consider several methods for 
determining the value of a borrower's assets. In no case would the 
Administrator settle a debt or claim for less than the value (after 
considering collection costs) of the borrower's system and other 
collateral securing the debt or claim. In the case of a power supply 
borrower, the value of the wholesale power contracts between the 
borrower and its member systems would be considered. The valuation of 
the wholesale power contracts would 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 provided under the contracts, and 
to otherwise enforce the contracts in accordance with their terms.
    <bullet> The Administrator would 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.
    <bullet> The Administrator would consider whether a settlement is 
favorable to the government in comparison with what can be recovered by 
enforced collection procedures.
    <bullet> Before any settlement is approved, the borrower would be 
required to obtain all approvals required of regulatory bodies that are 
needed for the borrower to fulfill its obligations under the 
settlement.
    <bullet> As a condition of debt settlement, the borrower, and in 
the case of a power supply borrower, its members, would be required to 
implement changes in management, operations, and performance if 
requested by the Administrator. The borrower could be required to 
undertake a corporate restructuring and/or sell a portion of its plant, 
facilities, or other assets. The borrower could also be required to 
replace senior management and/or hire outside experts acceptable to the 
Administrator. This could include a commitment by the borrower's board 
of directors to restructure and/or obtain new members on the board. The 
borrower could be required to accept controls on general funds, as well 
as on any investments, loans or guarantees, notwithstanding any 
limitations on RUS' control rights in the borrower's loan documents or 
RUS regulations. Certain actions could also be required of the borrower 
to perfect and protect the government's lien on cash deposits, 
securities, and other assets. In the case of a power supply borrower, 
the borrower could be required to obtain credit support as well as 
pledges and action plans from its members regarding changes in 
operations, management, and organizational structure to reduce the 
member's operating costs, improve their efficiency, and/or expand their 
markets and revenues.
    <bullet> As a condition of debt settlement, a borrower could be 
required to convey some or all of its assets to the government.
    <bullet> Finally, RUS will require that the borrower warrant and 
agree that no

[[Page 9384]]

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. RUS may impose such other terms and conditions of 
debt settlement as RUS deems to be in the government's interests.

Section 1717.1205  Waiver of Existing Conditions on Borrowers

    This section would allow the Administrator to waive or otherwise 
reduce conditions and requirements imposed on a borrower by its loan 
documents if the Administrator determines that that would enhance the 
recovery of debt by the government. Such waivers and reductions might 
include a variety of actions, but could not include the debt settlement 
measures proposed in paragraph (c) of Sec. 1717.1204, which would be 
subject to all of the requirements of Sec. 1717.1204.

Section 1717.1206  Loans Subsequent to Settlement

    Under this section, in considering any loan request subsequent to a 
debt settlement, the Administrator would presume that credit support 
for the full amount of the requested loan is needed. The credit support 
could be in a number of forms, provided that they are acceptable to the 
Administrator.

Section 1717.1207  RUS Obligations Under Loan Guarantees

    This section would clarify that RUS' obligations under loan 
guarantee commitments to the Federal Financing Bank (FFB) and other 
lenders are not affected by the proposed rule. For example, if RUS 
settles a guaranteed loan of the FFB, RUS' obligation under its 
guarantee to the FFB to make up any shortfall in payments on that loan 
would remain in force.

Section 1717.1208  Government's Rights Under Loan Documents

    This section would clarify that the proposed rule does not limit, 
modify, or otherwise affect the rights of the government under the loan 
documents executed with borrowers, or under law or equity.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35, as amended) RUS is requesting comments on the information 
collection incorporated in this proposed rule.
    Comment on this information collection must be received by May 2, 
1997.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) The accuracy of the agency's estimate of the burden of the 
proposed collection of information; (c) Ways to enhance the quality, 
utility and clarity of the information to be collected; and (d) Ways to 
minimize the burden of the collection of information on respondents, 
including through the use of automated collection techniques or other 
forms of information technology.

FOR FURTHER INFORMATION CONTACT: Dawn Wolfgang, Program Support and 
Regulatory Analysis, U.S. Department of Agriculture, Rural Utilities 
Service, Ag Box 1522, 1400 Independence Avenue, SW., Washington, DC 
20250-1522. Telephone: 202-720-0812. FAX: 202-720-4120. E-mail: 
<a href="/cdn-cgi/l/email-protection#dabeadb5b6bcbdbbb49aa8afa9f4afa9bebbf4bdb5ac"><span class="__cf_email__" data-cfemail="3155465e5d5756505f714344421f444255501f565e47">[email protected]</span></a>.
    Title: 7 CFR 1717 subpart Y, Settlement of Debt Owed by Electric 
Borrowers.
    Type of request: New information collection.
    Abstract: The information collection required by this proposed rule 
stems from passage of Pub. L. 104-127, which amended section 331(b) of 
the Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.) 
to extend to RUS loans and loan guarantees the Secretary of 
Agriculture's authority to settle debts. Only those electric borrowers 
that are unable to fully repay their debts to the government and who 
apply to RUS for relief will be affected by this proposed information 
collection.
    The proposed collection will require only that information which is 
essential for determining the need for debt settlement, the amount of 
debt the borrower can repay, the future scheduling of debt repayment, 
and the range of opportunities for enhancing the amount of debt that 
can be recovered. The information to be collected will be similar to 
that which any prudent lender would require to determine whether debt 
settlement is required and the amount of relief that is needed. Since 
the need for relief is expected to vary substantially from case to 
case, so will the required information collection.
    Estimate of burden: Public reporting burden for this collection of 
information is estimated to average 3,000 hours per response.
    Respondents: Businesses, including not for profit cooperatives and 
others.
    Estimated number of respondents each year: 2.
    Estimated number of responses per respondent: 1.
    Estimated total annual burden on respondents: 6,000 hours.
    Copies of this information collection can be obtained from Dawn 
Wolfgang, Program Support and Regulatory Analysis, Rural Utilities 
Service. Phone: 202-720-0812.
    Send comments regarding this information collection requirement to 
the Office of Information and Regulatory Affairs, Office of Management 
and Budget, ATTN: Desk Officer, USDA, Room 10102 New Executive Office 
Building, Washington, DC 20503, and to Dawn Wolfgang, Program Support 
and Regulatory Analysis, U.S. Department of Agriculture, Rural 
Utilities Service, 1400 Independence Ave, SW, Ag Box 1522, Washington, 
DC 20250-1522.
    Comments are best assured of receiving fullest consideration if OMB 
receives them within 30 days of publication in the Federal Register.
    All comments will become a matter of public record.

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 proposes to amend 7 CFR 
chapter XVII by amending 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 read as follows:

Subpart T--[Reserved]

Sec.
1717.950--1717.999 [Reserved]

Subpart U--[Reserved]

Sec.
1717.1000--1717.1049  [Reserved]

[[Page 9385]]

Subpart V--[Reserved]

Sec.
1717.1050--1717.1099  [Reserved]

Subpart W--[Reserved]

Sec.
1717.1100--1717.1149  [Reserved]

Subpart X--[Reserved]

Sec.
1717.1150--1717.1199  [Reserved]

Subpart Y--Settlement of Debt

Sec.
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]


Secs. 1717.950--1717.999  [Reserved]

Subpart U--[Reserved]


Secs. 1717.1000--1717.1049  [Reserved]

Subpart V--[Reserved]


Secs. 1717.1050--1717.1099  [Reserved]

Subpart W--[Reserved]


Secs. 1717.1100--1717.1149  [Reserved]

Subpart X--[Reserved]


Secs. 1717.1150--1717.1199  [Reserved]

Subpart Y--Settlement of Debt


Sec. 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 (7 
U.S.C. 1981), grants authority to the Secretary of Agriculture to 
compromise, 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.


Sec. 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:
    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.
    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 
principal, accrued interest, penalties, and the government's costs of 
debt collection) owed to the government and 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 debt or claims owed to the government by rural electric borrowers.


Sec. 1717.1202  General policy.

    (a) It is the policy of the Administrator that, wherever possible, 
all debt owed 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, and where settlement will maximize the 
recovery of debts and claims owed to the government.
    (d) In structuring settlements and determining 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 (Public Law 
102-486, 106 Stat. 2776), the policies and regulations of the Federal 
Energy Regulatory Commission, and other market and nonmarket forces as 
to their effects on competition in the electric utility industry and on 
rural electric systems in particular.


Sec. 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 a claim has been referred in writing to the Attorney 
General, the Administrator will not use his or her own authority to 
settle the claim.


Sec. 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 
Sec. 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 borrower's application for relief, 
and such default is likely to continue beyond the 24 month period. 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, 
and other factors that may be relevant on a case by case basis.
    (2) The borrower must provide to RUS, 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:

[[Page 9386]]

    (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. In the case of a 
power supply borrower, the study shall include such opportunities among 
the members of the borrower;
    (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 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 
realizing economies through marketing, and for improving the borrower's 
existing and prospective contractual arrangements for the purchase and 
sale of power and the operation of plant and facilities; and
    (G) 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.
    (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 weighted average 
life of the restructured debt shall not exceed the weighted average of 
the expected remaining useful lives of the assets pledged as security 
for said debt;
    (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;
    (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, by restructuring 
the loan guarantee obligation, by 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) Debt owed by 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 debt owed by 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

[[Page 9387]]

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 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 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 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 non-real 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.


Sec. 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 Sec. 1717.1204(c), which are subject to all of the requirements of 
Sec. 1717.1204.


Sec. 1717.1206  Loans subsequent to settlement.

    In considering any future loan requests from a borrower whose debt 
has been restructured (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.


Sec. 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.


Sec. 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: February 24, 1997.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 97-5137 Filed 2-28-97; 8:45 am]
BILLING CODE 3410-15-P


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