[Federal Register Volume 65, Number 80 (Tuesday, April 25, 2000)]
[Rules and Regulations]
[Pages 24105-24107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9992]


=======================================================================
-----------------------------------------------------------------------

EMERGENCY OIL AND GAS GUARANTEED LOAN BOARD

13 CFR Part 500

RIN 3003-ZA00


Emergency Oil and Gas Guaranteed Loan Program; Conforming Changes

AGENCY: Emergency Oil and Gas Guaranteed Loan Board.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Emergency Oil and Gas Guaranteed Loan Board (Board) is 
amending the regulations governing the Emergency Oil and Gas Guaranteed 
Loan Program (Program). These changes are meant to conform the 
regulations and the guarantee agreement that will be used for the 
program. The intent of these changes is to eliminate potential 
ambiguities or unintended conflicts between the language of the 
regulations and that of the Guarantee agreement. This rule also makes 
several technical changes to merely conform the regulations with the 
standard of care adopted by the Board, to conform the regulations to 
the form of the Guarantee and form of Application for Guarantee adopted 
by the Board, correct minor typographical errors and add a mail stop to 
the Board's mailing address, or to clarify the allocation of Lender 
responsibilities, liabilities and restrictions in circumstances where 
more than one lender are parties to the Guarantee.

DATES: This rule is effective April 25, 2000.

FOR FURTHER INFORMATION CONTACT: Charles E. Hall, Executive Director, 
Emergency Oil and Gas Guaranteed Loan Board, U.S. Department of 
Commerce, Room H2500, Washington, DC 20230, (202) 219-0584.

SUPPLEMENTARY INFORMATION: On October 27, 1999, the Board published a 
final rule codifying at Chapter 5, Title 13, Code of Federal 
Regulations (CFR), regulations implementing the Program, as established 
in Chapter 1 of Public Law 106-51, the Emergency Oil and Gas Guaranteed 
Loan Act of 1999 (64 FR 57946).
    Section 500.2 sets forth certain definitions applicable to the 
Program. This rule adds a definition of ``Agent'', a term used in the 
Guarantee to refer to the applicant lender that is designated to 
perform certain duties on behalf of all lenders where more than one 
lender are parties to a Guarantee.
    This rule also modifies the definition of ``Guarantee'' in 
Sec. 500.2 to make clear that more than one lender may be parties to a 
Guarantee. The definition of ``Lender'' in Sec. 500.2 is also modified 
to specify that in a multi-lender Guarantee, the term ``Lender'' means 
``Agent''.
    Section 500.201 of the Board's regulations sets forth the 
definition of an eligible lender for purposes of the Act and the 
factors that the Board will assess in determining whether the Board 
should issue a Guarantee to a particular applicant lender. The Board is 
amending this section of its regulations to clarify that multiple 
lenders under one application for a guarantee must each meet the 
Eligible Lender requirements, to require that an application for 
guarantee from more than one lender identify the lender that will act 
as Agent, and to set forth the respective responsibilities and 
liabilities of individual lenders, where more than one lender are 
parties to a Guarantee.
    Section 500.205 of the Board's regulations specifies the 
information and documentation to be contained in an application for 
guarantee. The section is being modified to include a reference to 
documentation demonstrating that the lender is eligible under 
Sec. 500.201(a) and to allow the Board to make a determination to issue 
the guarantee to such lender under Sec. 500.201(c), as required by 
paragraph 36 of the Board's form of Application for Guarantee.
    Section 500.210 of the Board's regulations sets forth restrictions 
and limitations on transfer of interests in a guaranteed loan. The 
section has been revised to reflect the fact that there may be multiple 
lenders that are parties to a Guarantee, and to allow transfer by a 
non-Agent lender of the non-guaranteed portion of a loan after payment 
under the Guarantee has been made.
    Section 500.211 sets forth lender responsibilities under the 
Program. Paragraph (b) of this section sets forth a standard of care 
applicable to actions taken by a lender. Specifically, the regulations 
state:

    The Lender shall exercise due care and diligence in 
administering the loan as would be exercised by a responsible and 
prudent banking institution when administering a secured loan of 
such banking institution's own funds without a Federal guaranty. 
Such standard shall also apply to any and all approvals, 
determinations, permissions, acceptances, requirements, or opinion 
made, given, imposed or reached by Lender. (emphasis added).

    Subsequent to publication of the final rule, the Board has been 
informed that

[[Page 24106]]

the formulation of the standard of care commonly used among commercial 
lenders requires the exercise of due care and diligence in 
administering the loan as would be exercised by a reasonable and 
prudent banking institution. (emphasis added). As such, the Board is 
amending its regulations to include the word ``reasonable'' in lieu of 
``responsible'' as that is the term accepted and understood by 
commercial lenders to express the standard of care.
    Paragraph (c) of Sec. 500.211 requires a representation and 
agreement by the lender that it is able to, and will, administer the 
loan in accordance with the applicable standard of care. The paragraph 
has been modified to limit the representation and agreement to the 
applicant lender where there are multiple lenders that are parties to a 
Guarantee.
    Paragraph (e) of Sec. 500.211 specifies lender obligations with 
respect to loan monitoring. The paragraph is being amended to eliminate 
a requirement for best efforts to cause Borrower correction of any 
noncompliance with loan documents, because it is inconsistent with the 
``reasonable and prudent'' standard of care that has been adopted by 
the Board.
    Paragraph (f) of Sec. 500.211 sets forth reporting requirements 
concerning guaranteed loans. The paragraph has been modified to 
eliminate certain references to specific due dates for reporting and 
instead refer to the terms of the Guarantee for such dates.
    Paragraph (g) of Sec. 500.211 states, in relevant part, that the 
Lender must notify the Board in writing without delay of the 
deterioration in the internal risk rating of a loan guaranteed under 
the Program within 3 business days of such action by the Lender; and 
the occurrence of each event of default under the Loan Documents or 
Guarantee promptly, but not later than 3 business days, of the Lender's 
learning of such occurrence. This rule merely changes, from three days 
to five days, the time within which the lender must provide 
notification of these events to the Board. This change is being made to 
provide lenders additional time to both discover and report the listed 
events.
    Section 500.213 of the Board's regulations specifies the 
circumstances under which the Board in its discretion shall be entitled 
to terminate a guarantee. The section has been modified to conform to 
the form of Guarantee adopted by the Board by eliminating a reference 
to the possibility that a Guarantee might be executed before loan 
closing, eliminating a requirement for written notice of termination, 
and providing for partial as well as entire termination of a guarantee 
where there are multiple lenders that are parties to a Guarantee.
    This rule does not affect a substantive change to the existing 
regulations. The government will hold lenders to the same standard of 
care using the term ``reasonable'' as it would have using the term 
``responsible.'' This change is meant to clarify the regulations by 
using a term familiar to the lending community to express that standard 
of care. With regard to the time by which a lender must notify the 
Board of certain events, this rule does not change the events requiring 
notification, it merely changes the maximum time, from three days to 
five days, by which such reports must be made. The other changes merely 
conform the regulations with the standard of care adopted by the Board, 
conform the regulations to the form of Guarantee and form of 
Application for Guarantee adopted by the Board, correct a typographical 
error, or clarify the allocation of Lender responsibilities, 
liabilities and restrictions in circumstances where more than one 
lender are parties to a Guarantee.

Administrative Law Requirements

Executive Order 12866

    This final rule has been determined not to be significant for 
purposes of Executive Order 12866.

Administrative Procedure Act

    This rule is exempt from the rulemaking requirements contained in 5 
U.S.C. 553 pursuant to authority contained in 5 U.S.C. 553(a)(2) as it 
involves a matter relating to loans. As such, prior notice and an 
opportunity for public comment and a delay in effective date otherwise 
required under 5 U.S.C. 553 are inapplicable to this rule.

Regulatory Flexibility Act

    Because this rule is not subject to a requirement to provide prior 
notice and an opportunity for public comment pursuant to 5 U.S.C. 553, 
or any other law, the analytical requirements of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., are inapplicable.

Congressional Review Act

    This rule has been determined to be not major for purposes of the 
Congressional Review Act, 5 U.S.C. 801 et seq.

Intergovernmental Review

    No intergovernmental consultations with State and local officials 
is required because the rule is not subject to the provisions of 
Executive Order 12372 or Executive Order 12875.

Unfunded Mandate Reform Act of 1995

    This rule contains no Federal mandates, as that term is defined in 
the Unfunded Mandates Reform Act, on State, local and tribal 
governments or the private sector.

Executive Order 13132

    This rule does not contain policies having federalism implications 
requiring preparation of a Federalism Assessment.

Executive Order 12630

    This rule does not contain policies that have takings implications.

List of Subjects in 13 CFR Part 500

    Administrative practice and procedure, Loan programs--oil and gas, 
Reporting and recordkeeping requirements.

Charles E. Hall,
Executive Director, Emergency Oil and Gas Guaranteed Loan Board.


    For the reasons set forth in the preamble, the Emergency Oil and 
Gas Guaranteed Loan Board amends 13 CFR part 500 as follows:

PART 500--EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM

    1. The authority citation for part 500 continues to read as 
follows:


    Authority: Pub. L. 106-51, 113 Stat. 255 (15 U.S.C. 1841 note).


    2. Section 500.2 is amended by redesignating paragraphs (c) through 
(k) as paragraphs (d) through (l), by adding a new paragraph (c), and 
by revising redesignated paragraphs (g) and (h) to read as follows:


Sec. 500.2  Definitions.

* * * * *
    (c) Agent means that Lender authorized to take such actions, 
exercise such powers, and perform such duties on behalf and in 
representation of all Lenders party to a Guarantee of a single loan, as 
is required by, or necessarily incidental to, the terms and conditions 
of the Guarantee.
* * * * *
    (g) Guarantee means the written agreement between the Board and one 
or more Lenders, and approved by the Borrower, pursuant to which the 
Board guarantees repayment of a specified percentage of the principal 
of the loan, including the Special Terms and Conditions, the General 
Terms and Conditions, and all exhibits thereto.
    (h) Lender means a private banking or investment institution, 
eligible under Sec. 500.201, that is a party to a Guarantee

[[Page 24107]]

issued by the Board. With respect to a Guarantee of a single loan to 
which more than one Lender is a party, the term Lender means Agent.
* * * * *

    3. Section 500.201 is amended by redesignating paragraphs (b) and 
(c) as paragraphs (c) and (d) and adding a new paragraph (b) to read as 
follows:


Sec. 500.201  Eligible Lender.

* * * * *
    (b)(1) If more than one banking or investment institution is 
applying to the Board for a Guarantee of a single loan, each one of the 
banking or investment institutions on the application must meet the 
requirements to be an eligible lender set forth in paragraph (a) of 
this section.
    (2) An application for a Guarantee of a single loan submitted by a 
group of banking or investment institutions, as described in paragraph 
(b)(1) of this section, must identify one of the banking or investment 
institutions applying for such loan to act as agent for all. This agent 
is responsible for administering the loan and shall have those duties 
and responsibilities required of an agent, as set forth in the 
Guarantee.
    (3) Each Lender, irrespective of any indemnities or other 
agreements between the Lenders and the Agent, shall be bound by all 
actions, and/or failures to act, of the Agent. The Board shall be 
entitled to rely upon such actions and/or failures to act of the Agent 
as binding the Lenders.
* * * * *

    4. Section 500.205 is amended by revising paragraph (b)(11) to read 
as follows


Sec. 500.205  Application process.

* * * * *
    (b) * * *
    (11) Documentation sufficient to demonstrate that the Lender is 
eligible under Sec. 500.201(a) and to allow the Board to make a 
determination to issue a Guarantee to such Lender as set forth in 
Sec. 500.201(c).
* * * * *

    5. Section 500.210 is amended by revising paragraph (b), by 
removing the period at end of paragraph (c)(2)(iv) and adding ``; or'' 
in its place, and by adding a new paragraph (c)(3) to read as follows:


Sec. 500.210  Assignment or transfer of loans.

* * * * *
    (b) Under no circumstances will the Board permit an assignment or 
transfer of less than 100 percent of a Lender's interest in the Loan 
Documents and Guarantee, nor will it permit an assignment or transfer 
to be made to a party which the Board determines not to be an Eligible 
Lender pursuant to Sec. 500.201.
    (c) * * *
    (3) Transfer by a non-Agent Lender of the non-guaranteed portion of 
the loan after payment under the Guarantee has been made.

    6. Section 500.211 is amended by revising paragraphs (b), (c), (e), 
(f), (g)(1) and (g)(2) to read as follows:


Sec. 500.211  Lender responsibilities.

* * * * *
    (b) Standard of care. The Lender shall exercise due care and 
diligence in administering the loan as would be exercised by a 
reasonable and prudent banking institution when administering a secured 
loan of such banking institution's own funds without a Federal 
guaranty. Such standard shall also apply to any and all approvals, 
determinations, permissions, acceptances, requirements, or opinion 
made, given, imposed or reached by Lender.
    (c) Representation to the Board. In addition to any other 
representations required by the Guarantee, the Applicant shall 
represent to the Board that it has the ability to, and will, administer 
the loan, as well as to exercise the Applicant's rights and pursue its 
remedies, including conducting any liquidation of the Security or 
additional Security in full compliance with the standard of care, 
without the need for any advice, opinion, determination, 
recommendation, approval, disapproval, assistance (financial or other) 
or participation by the Board, except where the Board's consent is 
expressly required by the Guarantee, or where the Board, in its sole 
discretion and pursuant to the Guarantee, elects to provide same.
* * * * *
    (e) Monitoring. In accordance with the Guarantee the Lender shall 
monitor Borrower's performance under the Loan Documents to detect any 
noncompliance by the Borrower with any provision thereof.
    (f) Reporting. With respect to any loan guaranteed by the Board 
pursuant to the Act and this part the Lender shall provide the Board 
with the following information, in accordance with the Guarantee:
    (1) Audited financial statements for the Borrower;
    (2) Projected balance sheet, income statement, and cash flows for 
the Borrower for each year remaining on the term of the loan; and
    (3) A completed signed copy of Form ``Quarterly Compliance 
Statement'' that includes information on the recent performance of the 
loan, within 15 days of the end of each calendar quarter.
    (g) * * *
    (1) Deterioration in the internal risk rating of a loan guaranteed 
under this Program within 5 business days of such action by the Lender;
    (2) The occurrence of each event of default under the Loan 
Documents or Guarantee promptly, but not later than 5 business days, of 
the Lender's learning of such occurrence; and
* * * * *

    7. Section 500.213 is amended by revising the section heading and 
paragraph (a) to read as follows:


Sec. 500.213  Termination of obligations.

    (a) The Board, in its discretion, shall be entitled to terminate 
all, or a portion, of the Board's obligations under the Guarantee, 
without further cause, in the event that:
    (1) The Guarantee fee required by Sec. 500.208(d) shall not have 
been paid;
    (2) A Lender shall have released or covenanted not to sue the 
Borrower or any other guarantor, or agreed to the modification of any 
obligation of any party to any agreement related to the loan, without 
the prior written consent of the Board;
    (3) A Lender has released the Board from its liability and 
obligations under the Guarantee;
    (4) A Lender shall have made any incorrect or incomplete 
representation to the Board in any material respect in connection with 
the Application, the Guarantee or the Loan Documents;
    (5) A Lender fails to make a demand for payment within 30 days of 
payment default; or
    (6) A Lender fails to comply with any material provision of the 
Loan Documents or the Guarantee.
* * * * *


Sec. 500.211  [Amended]

    8. Section 500.211(g) introductory text is amended by adding the 
phrase ``H2500,'' immediately after the phrase ``U.S. Department of 
Commerce,''.

[FR Doc. 00-9992 Filed 4-24-00; 8:45 am]
BILLING CODE 3510-NC-U