[Federal Register Volume 75, Number 87 (Thursday, May 6, 2010)]
[Notices]
[Pages 25076-25098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10249]



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Part III





Department of Agriculture





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Rural Business-Cooperative Service



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Notice of Funds Availability (NOFA) Inviting Applications for 
Biorefineries; Notice

Federal Register / Vol. 75, No. 87 / Thursday, May 6, 2010 / 
Notices

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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service


Notice of Funds Availability (NOFA) Inviting Applications for 
Biorefineries

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Notice.

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SUMMARY: This notice announces the acceptance of applications for funds 
available under the BioRefinery Assistance Program (the ``Program'') to 
provide guaranteed loans for the development and construction of 
commercial-scale biorefineries or for the retrofitting of existing 
facilities using eligible technology for the development of advanced 
biofuels. Applications will be accepted for biorefineries that produce 
transportation fuels that meet the Renewable Fuel Standard or are 
currently undergoing an appeal to the U.S. Environmental Protection 
Agency for inclusion in the Renewable Fuel Standard, or that produce 
non-transportation renewable energy that results in a reduction in 
greenhouse gases. There will only be one application window under this 
Notice.

DATES: Applications for participating in this Program for Fiscal Year 
2010 must be received between May 6, 2010 and August 4, 2010.

ADDRESSES: Applications and forms may be obtained from:
    <bullet> U.S. Department of Agriculture, Rural Development, Energy 
Branch, Attention: BioRefinery Assistance Program, 1400 Independence 
Avenue, SW., STOP 3225, Washington, DC 20250-3225.
    <bullet> Agency Web site: http://www.rurdev.usda.gov. Follow 
instructions for obtaining the application and forms.
    Submit an original completed application with two copies to USDA's 
Rural Development National Office: Energy Branch, Attention: 
BioRefinery Assistance Program, 1400 Independence Avenue, SW., STOP 
3225, Washington, DC 20250-3225.

FOR FURTHER INFORMATION CONTACT: Energy Branch, Attention: BioRefinery 
Assistance Program, 1400 Independence Avenue, SW., Mail Stop 3225, 
Washington, DC 20250-3225. Telephone: 202-720-1400.

SUPPLEMENTARY INFORMATION:

Programs Affected

    This Program is listed in the Catalog of Federal Domestic 
Assistance under Number 10.865.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA), the paperwork 
burden associated with this Notice of Funds Availability (NOFA) has 
been approved by the Office of Management and Budget (OMB) under OMB 
Control Number 0570-0055.
    The PRA burden associated with the original Notice, published on 
November 20, 2008, was approved by OMB, with an opportunity to comment 
on the burden associated with the program.
    Biorefineries seeking funding under this Notice have to submit 
applications that include specified information, certifications, and 
agreements. All of the forms, information, certifications, and 
agreements required to apply for this program under this Notice have 
been authorized under OMB Control Number 0570-0055.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to provide increased opportunities for citizen to access 
Government information and services electronically.

I. Background

    Section 9003 of the Food, Conservation, and Energy Act of 2008 
(2008 Farm Bill) is intended to assist in the development and 
construction of commercial-scale biorefineries and the retrofitting of 
existing facilities using eligible technology for the development of 
advanced biofuels. Consistent with Congressional intent, preference 
will be given to projects where first-of-a-kind technology will be 
deployed at the commercial scale. To that end, the program will promote 
the development of the first commercial scale biorefineries that do not 
rely on corn kernel starch as the feedstock or standard biodiesel 
technology.
    The Agency will make guarantees available on loans for eligible 
projects that will provide for the development, construction, and/or 
retrofitting of commercial biorefineries using eligible technology. 
Eligible technology is:
    (a) Any technology that is being adopted in a viable commercial-
scale operation of a biorefinery that produces an advanced biofuel, and
    (b) Any technology not described in paragraph (a) above that has 
been demonstrated to have technical and economic potential for 
commercial application in a biorefinery that produces an advanced 
biofuel.
    Over the life of the program, it is likely that guarantees will be 
awarded to projects that are first-of-a-kind and that may include 
projects with commercial applications that are expanded to new regions, 
modified to utilize different feedstocks, or substantially improved 
such that they represent a significant technological risk.

A. Guaranteed Loan Funding

    This NOFA provides up to $150 million in mandatory budget authority 
for this Program in Fiscal Year 2010 to support loan guarantees.
    The maximum principal amount of a loan guaranteed under this 
Program is $250 million; there is no minimum amount. The amount of a 
loan guaranteed under this Program will be reduced by the amount of 
other direct Federal funding that the eligible borrower receives for 
eligible project costs.
    The maximum guarantee under this Program is 80 percent of the 
principal and interest due on a loan guaranteed under this Program if 
the loan amount is equal to or less than $80 million. If the loan 
amount is more than $80 million and less than $125 million, the maximum 
guarantee is 70 percent for the amount in excess of $80 million. If the 
loan amount is equal to or more than $125 million, the maximum 
guarantee is 60 percent for the entire loan amount.
    The amount of a loan guaranteed for a project under this Program 
will not exceed 80 percent of total eligible project costs. Thus, the 
amount of guaranteed loan funds that may be made available to an 
applicant for an eligible project will not exceed 64 percent of the 
total eligible project costs.
    The interest rate for the guaranteed loan will be negotiated 
between the lender and the applicant and shall be in line with interest 
rates on other similar government guaranteed loan programs. The 
interest rate may be either fixed or variable, as long as it is a legal 
rate, and shall be fully amortizing. The interest rate for both the 
guaranteed and unguaranteed portions of the loan must be of the same 
type (i.e., both fixed or both variable). The interest rate charged 
will be subject to Agency review and approval.
    The length of a loan guaranteed under this Program would be for a 
period of no more than 20 years or 85 percent of the useful life of the 
project, as determined by the lender and confirmed by the Agency, 
whichever is less. The length of the loan term would be required to be 
the same for both the guaranteed and unguaranteed portion of the loan.

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B. Eligibility Requirements for Guarantee Assistance

    This Notice contains eligibility requirements for borrowers, 
projects, and lenders, as discussed below.
Borrower Eligibility
    To be eligible to receive a guaranteed loan under this Program, a 
borrower must be one of the following:
    <bullet> Individual,
    <bullet> Indian tribe,
    <bullet> Unit of State or local government,
    <bullet> Corporation,
    <bullet> Farm cooperative,
    <bullet> Farmer cooperative organization,
    <bullet> Association of agricultural producers,
    <bullet> National Laboratory,
    <bullet> Institution of higher education,
    <bullet> Rural electric cooperative,
    <bullet> Public power entity, or
    <bullet> Consortium of any of those entities.
Project Eligibility
    Projects eligible for loan guarantees under this Notice must be 
located in a rural area and be for either:
    <bullet> The development and construction of commercial-scale 
biorefineries that produce transportation fuels that meet the Renewable 
Fuel Standard or are currently undergoing an appeal to the U.S. 
Environmental Protection Agency for inclusion in the Renewable Fuel 
Standard, or that produce non-transportation renewable energy that will 
result in a reduction in greenhouse gases using eligible technology, or
    <bullet> The retrofitting of existing facilities that produce 
transportation fuels that meet the Renewable Fuel Standard or are 
currently undergoing an appeal to the U.S. Environmental Protection 
Agency for inclusion in the Renewable Fuel Standard, or that produce 
non-transportation renewable energy that will result in a reduction in 
greenhouse gases using eligible technology.
    Eligible technology is defined as either:
    <bullet> A technology that is being adopted in a viable commercial-
scale operation of a biorefinery that produces an advanced biofuel; or
    <bullet> A technology not described in the previous paragraph that 
has been demonstrated to have technical and economic potential for 
commercial application in a biorefinery that produces an advanced 
biofuel.
Lender Eligibility
    Regulated or supervised lenders that meet the requirements 
specified in this Notice (see section I) may be eligible to participate 
in this Program.

C. Applications

    The lender must submit a separate application for each project for 
which a loan guarantee is sought under this Notice. It is recommended 
that applicants refer to the application guide for this program 
(``Instructions for Application for Loan Guarantee--Section 9003 
BioRefinery Assistance Loan Guarantees''), which can be found on the 
Agency's Web site at http://www.rurdev.usda.gov/rbs/busp/baplg9003.htm.
    Because of factors of cost and complexity for eligible projects 
under this Program, the lender must include with the application a 
project-specific feasibility study, as defined in this Notice. The 
feasibility study must be prepared by a qualified consultant. The 
feasibility study must address, in part, both the technical and 
economic feasibility of the project.
    As noted previously, the Agency intends to accept applications 
during Fiscal Year 2010 from May 6, 2010 and August 4, 2010.
    Ineligible or incomplete applications will be returned to the 
applicant. If an application is determined to be ineligible for any 
reason, the Agency will inform the lender, in writing, of the reasons 
and provide any applicable appeal rights. The denial or rejection of an 
application under the Program may be appealed as provided in this 
Notice.

D. Evaluation of Guaranteed Loan Applications

    Submission of an application neither reserves funding nor ensures 
funding. The Agency will evaluate each application and make a 
determination as to whether the borrower is eligible, whether the 
lender is eligible, whether the proposed project is eligible, the 
credit-worthiness and technical merit of the project, and whether the 
proposed funding request complies with all applicable statutes and 
regulations. The evaluation will be based on the information provided 
by the lender and on other sources of information, such as recognized 
industry experts in the applicable technology field, as necessary.
    The Agency will score each application in order to prioritize each 
proposed project. The evaluation criteria that the Agency will use to 
score these projects are:
    <bullet> Whether the borrower has established a market for the 
advanced biofuel and the byproducts produced.
    <bullet> Whether the area in which the borrower proposes to place 
the biorefinery has other similar advanced biofuel facilities.
    <bullet> Whether the borrower is proposing to use a feedstock not 
previously used in the production of advanced biofuels.
    <bullet> Whether the borrower is proposing to work with producer 
associations or cooperatives.
    <bullet> The level of financial participation by the borrower, 
including support from non-Federal and private sources. Such financial 
participation may take the form of direct financial support, technical 
support, and contributions of in-kind resources including such kinds of 
support from state government. Any direct Federal funding for eligible 
project costs from other sources will reduce the amount of the loan 
that may be guaranteed under this program.
    <bullet> Whether the borrower has established that the adoption of 
the process proposed in the application will have a positive impact on 
resource conservation, public health, and the environment.
    <bullet> Whether the borrower can establish that, if adopted, the 
biofuels production technology proposed in the application will not 
have any significant negative impacts on existing manufacturing plants 
or other facilities that use similar feedstocks.
    <bullet> The potential for rural economic development, including 
the number of local jobs created and inclusion of local banks or other 
capital sources in any proposed debt syndication.
    <bullet> The level of local ownership proposed in the application.
    <bullet> Whether the project can be replicated.
    <bullet> The extent to which the project converts cellulosic 
biomass feedstocks into advanced biofuel.
    <bullet> Whether the project is a first-of-a-kind technology, 
system, or process.

II. Provisions for BioRefinery Assistance Loan Guarantees

    All guaranteed loan requests for this Program are subject to the 
provisions of this Notice as laid out in this section of the Notice.

A. Definitions

    The following definitions are applicable to this Notice.
    Advanced biofuel. Fuel derived from renewable biomass, other than 
corn kernel starch to include:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;

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    (4) Diesel-equivalent fuel derived from renewable biomass, 
including vegetable oil and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from renewable 
biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from renewable biomass; or
    (7) Other fuel derived from cellulosic biomass.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the BioRefinery 
Assistance Program. References to the National Office, Finance Office, 
State Office or other Agency offices or officials should be read as 
prefaced by ``Agency'' or ``Rural Development'' as applicable.
    Association of agricultural producers. An organization that 
represents independent producers directly engaged in the production of 
agricultural products, including crops (including farming); livestock 
(including ranching); forestry products; hydroponics; nursery stock; or 
aquaculture, whereby 50 percent or greater of their gross income is 
derived from the operations; and whose mission includes working on 
behalf of such producers and the majority of whose membership and board 
of directors are comprised of agricultural producers.
    Arm's-length transaction. A transaction between ready, willing, and 
able disinterested parties who are not affiliated with or related to 
each other and have no security, monetary, or stockholder interest in 
each other.
    Assignment Guarantee Agreement. A signed, Agency-approved agreement 
between the Agency, the lender, and the holder setting forth the terms 
and conditions of an assignment of a guaranteed portion of a loan or 
any part thereof.
    Assurance agreement. A signed, Agency-approved agreement between 
the Agency and the lender that assures the Agency that the lender is in 
compliance with and will continue to be in compliance with Title VI of 
the Civil Rights Act of 1964, 7 CFR part 15, and Agency regulations 
promulgated there under.
    Biofuel. A fuel derived from renewable biomass.
    Biogas. Biomass converted to gaseous fuels.
    Biorefinery. A facility (including equipment and processes) that 
converts renewable biomass into biofuels and biobased products and may 
produce electricity.
    Borrower. The person that borrows, or seeks to borrow, money from 
the lender, including any party or parties liable for the guaranteed 
loan.
    Business plan. A comprehensive document that:
    (1) Describes clearly the borrower's ownership structure and 
management, including experience and succession planning;
    (2) Discusses, if applicable, the borrower's parent, affiliates, 
and subsidiaries, including their names and a description of the 
relationship;
    (3) Discusses how the borrower will operate the proposed project, 
including, at a minimum, a description of:
    (i) The business and its strategy;
    (ii) Possible vendors and models of major system components;
    (iii) The products and services to be provided;
    (iv) The availability of the resources (e.g., labor, raw materials, 
supplies) necessary to provide those products and services;
    (v) Site location and its relation to product distribution (e.g., 
rail lines or highways) and any land use or other permits necessary to 
operate the facility; and
    (vi) The market for the product and its competition, including any 
and all competitive threats and advantages;
    (4) Presents pro forma financial statements, including:
    (i) Balance sheet and income and expense for a period of not less 
than 3 years of stabilized operation, and
    (ii) Cash flows for the life of the project; and
    (5) Describes the proposed use of funds.
    Collateral. The asset(s) pledged by the borrower in support of the 
loan.
    Conditional Commitment. An Agency-approved form provided to the 
lender indicating the loan guarantee it has requested has been approved 
subject to the completion of all conditions and requirements contained 
therein.
    Deficiency balance. The balance remaining on a loan after all 
collateral has been liquidated.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
collateral securing the loan.
    Eligible borrower. An individual, Indian tribe, or unit of State or 
local government, including a corporation, farm cooperative, farmer 
cooperative organization, association of agricultural producers, 
National Laboratory, institution of higher education, rural electric 
cooperative, public power entity, or consortium of any of those 
entities.
    Eligible project costs. Those expenses approved by the Agency for 
the project as identified in paragraphs (g)(3)(i) through (ix) of 
Section Q of this Notice.
    Eligible technology.
    (1) A technology that is being adopted in a viable commercial-scale 
operation of a biorefinery that produces an advanced biofuel; or
    (2) A technology not described in paragraph (1) of this definition 
that has been demonstrated to have technical and economic potential for 
commercial application in a biorefinery that produces an advanced 
biofuel.
    Fair market value. The price that could reasonably be expected for 
an asset in an arm's-length transaction under ordinary economic and 
business conditions.
    Farm cooperative. A farmer or rancher owned and controlled business 
from which benefits are derived and distributed equitably on the basis 
of use by each of the farmer or rancher owners.
    Farmer Cooperative Organization. A cooperative organization is a 
cooperative or an entity, not chartered as a cooperative, that operates 
as a cooperative in that it is owned and operated for the benefit of 
its members, including the manner in which it distributes its dividends 
and assets.
    Feasibility study. An analysis by a qualified consultant of the 
economic, market, technical, financial, and management capabilities of 
a proposed project or business in terms of its expectation for success.
    Finance Office. The office which maintains the Agency financial 
accounting records located in St. Louis, Missouri.
    Future recovery. Any funds collected by lender associated with a 
defaulted project, after final loss claim has been paid by USDA.
    Guaranteed loan. A loan made and serviced by a lender for which the 
Agency has issued a Loan Note Guarantee.
    Holder. A person or entity, other than the lender, who owns all or 
part of the guaranteed portion of the loan with no servicing 
responsibilities. When the single note option is used and the lender 
assigns a part of the guaranteed note to an assignee, the assignee 
becomes a holder only when the Agency receives notice and the 
transaction is completed through use of Form RD 4279-6, ``Assignment 
Guarantee Agreement,'' or predecessor form.
    Immediate family. Individuals who are closely related by blood, 
marriage, or adoption, or live within the same household, such as a 
spouse, parent, child, brother, sister, aunt, uncle,

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grandparent, grandchild, niece, or nephew.
    Indian tribe. This term has the meaning given it in section 4 of 
the Indian Self-Determination and Education Assistance Act (25 U.S.C. 
450b).
    Institution of higher education. This term has the meaning given it 
in section 102(a) of the Higher Education Act of 1965 (20 U.S.C. 
1002(a)).
    Intellectual property. Any and all intangible assets that consists 
of human knowledge and ideas including, without limitation, patents, 
copyrights, trademarks, service marks, and trade secrets.
    Lender. A regulated or supervised lender that meets the criteria 
specified in Section I of this Notice.
    Lender's Agreement. The Agency approved signed form between the 
Agency and the lender setting forth the lender's loan responsibilities 
under an issued Loan Note Guarantee.
    Lender's analysis. The analysis and evaluation of the credit 
factors associated with each guarantee application to ensure loan 
repayment through the use of credit document procedures and an 
underwriting process that is consistent with industry standards and the 
lender's written policy and procedures.
    Liquidation value. A monetary value given to property that is sold 
or exchanges hands under forced or limiting conditions, such as 
bankruptcy.
    Loan agreement. The Agency approved agreement between the borrower 
and lender containing the terms and conditions of the loan and the 
responsibilities of the borrower and lender.
    Loan Note Guarantee. The Agency approved form containing the terms 
and conditions of the guarantee of an identified loan.
    Loan-to-cost. The ratio of the dollar amount of a loan to the 
dollar value of the actual eligible project cost adjusted for other 
debt, project obligations, or other factors as determined by USDA.
    Loan-to-value. The ratio of the dollar amount of a loan to the 
dollar value of the collateral pledged as security for the loan.
    Market value. The amount for which property would sell for its 
highest and best use in an arm's length transaction.
    Negligent loan servicing.
    (1) The failure of a lender to perform those services that a 
reasonably prudent lender would perform in originating, servicing, and 
liquidating its own portfolio of unguaranteed loans; or
    (2) The failure of the lender to perform its origination and 
servicing responsibilities in accordance with its origination and 
servicing policies and procedures in use by the lender at the time the 
loan is made.
    (3) The term includes the concepts of failure to act, not acting in 
a timely manner, or acting in a manner contrary to the manner in which 
a reasonably prudent lender would act.
    Offtake agreement. The terms and conditions governing the sale and 
transportation of biofuels, biobased products, and electricity produced 
by the borrower to another party.
    Parity. A lien position whereby two or more lenders share a 
security interest of equal priority in collateral. In the event of 
default, each lender will be affected on a pro rata basis.
    Participation. Sale of an interest in a loan by the lender wherein 
the lender retains the note, collateral securing the note, and all 
responsibility for loan servicing and liquidation.
    Person. Any individual, corporation, company, foundation, 
association, labor organization, firm, partnership, society, joint 
stock company, group of organizations, public body, or State or local 
government.
    Promissory Note. A legal instrument that a borrower signs promising 
to pay a specific amount of money at a stated time. ``Note'' or 
``Promissory Note'' shall also be construed to include ``Bond'' or 
other evidence of debt where appropriate.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed 
to, and will not or cannot, meet obligations to protect or preserve 
collateral.
    Qualified consultant. An independent, third-party possessing the 
knowledge, expertise, and experience to perform in an efficient, 
effective, and authoritative manner the specific task required.
    Qualified Intellectual Property. Any intellectual property included 
on current (within one year) audited balance sheets for which an audit 
opinion has been received that states the financial reports fairly 
represent the values therein and the reported value has been arrived at 
in accordance with Generally Accepted Accounting Principles (GAAP) 
standards for valuing intellectual property. The supporting work papers 
must be satisfactory to the Administrator.
    Regulated or supervised lender. A lender that is subject to 
examination or supervision by an appropriate agency of the United 
States or a State that supervises or regulates credit institutions.
    Renewable biomass.
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land and public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) 
of subsection (e) of section 102 of the Healthy Forests Restoration Act 
of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
that section; or
    (2) Any organic matter that is available on a renewable or 
recurring basis from non-Federal land or land belonging to an Indian or 
Indian tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Renewable biomass agreement. The terms and conditions governing the 
sale and transportation of the renewable biomass to the borrower by 
another party.
    Retrofitting. The modification of a building or equipment to 
incorporate functions not included in the original design that allow 
for the production of advanced biofuels.
    Rural or rural area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants, according to the 
latest decennial census of the United States, and the contiguous and 
adjacent urbanized area. In determining which census blocks in an 
urbanized area are not in a rural area, the Agency shall exclude any 
cluster of census blocks that would otherwise be considered not in a 
rural area only because the cluster is adjacent to not more than 2 
census blocks that are otherwise considered not in a rural area under 
this definition. For the purposes of this definition, cities and towns 
are incorporated population

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centers with definite boundaries, local self government, and legal 
powers set forth in a charter granted by the State. For Puerto Rico, 
Census Designated Place, as defined by the U.S. Census Bureau, will be 
used as the equivalent to city or town. For the purpose of defining a 
rural area in the Republic of Palau, the Federated States of 
Micronesia, and the Republic of the Marshall Islands, the Agency shall 
determine what constitutes rural and rural area based on available 
population data.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the District of Columbia, the U.S. Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
    Subordination. An agreement between the lender and borrower whereby 
lien priorities on certain assets pledged to secure payment of the 
guaranteed loan will be reduced to a position junior to, or on parity 
with, the lien position of another loan (see paragraph (h)(1) in 
section O).
    Technical and economic potential. A technology not described in 
paragraph (1) of the definition of ``eligible technology'' is 
considered to have demonstrated ``technical and economic potential'' 
for commercial application in a biorefinery that produces an advanced 
biofuel if each of the following conditions is met:
    (1) The advanced biofuel biorefinery's likely financial and 
production success is evidenced in a thorough evaluation including, but 
not limited to:
    (i) Feedstocks;
    (ii) Process engineering;
    (iii) Siting;
    (iv) Technology;
    (v) Energy production; and
    (vi) Financial and sensitivity review using an banking industry 
software analysis program with appropriate industry standards.
    (2) The evaluation in paragraph (1) of this definition is completed 
by an independent third-party expert in a feasibility study, technical 
report, or other analysis, each of which must be satisfactory to the 
Agency, that demonstrates the success of the project.
    (3) The advanced biofuel technology has a least a 12-month (four 
season) operating cycle at semi-work scale.
    Transfer and assumption. The conveyance by a debtor to an assuming 
party of the assets, collateral, and liabilities of the loan in return 
for the assuming party's binding promise to pay the outstanding debt.
    Viable commercial-scale. An operation is considered to a viable 
commercial-scale operation if it meets each of the following 
conditions:
    (1) Evidence that a proposed project's revenue will be sufficient 
to recover the full cost of the project over the term of the guaranteed 
loan, service debt, and result in an anticipated annual rate of return 
sufficient to encourage investors or lenders to provide funding for the 
project.
    (2) Such proposed project will be able to operate profitably 
without public and private sector subsidies upon completion of 
construction (volumetric excise tax is not included as a subsidy).
    (3) Contracts for feedstocks are adequate to address proposed off-
take from the biorefinery.
    (4) The proposed project demonstrates the ability to achieve market 
entry, suitable infrastructure to transport the advanced biofuel to its 
market is available, and general market competitiveness of the advanced 
biofuel technology and related products.
    (5) The project must demonstrate that it can be easily replicated 
and that replications can be sited at multiple facilities across a wide 
geographic area based on the proposed deployment plan.
    (6) The advanced biofuel technology has at least a 12-month (four 
season) operating history at semi-work scale, which demonstrates the 
ability to operate at a commercial scale.

B. Exception Authority

    Except as specified in paragraphs (a) through (d) of this section, 
the Administrator may, on a case-by-case basis, make exceptions to any 
requirement or provision of this Notice only when such an exception is 
in the best financial interests of the Federal Government and is 
otherwise not in conflict with applicable law.
    (a) Lender and borrower eligibility. No exception to lender or 
borrower eligibility can be made.
    (b) Project eligibility. No exception to project eligibility can be 
made.
    (c) Term length. No exception to the maximum length of the loan 
term can be made with respect to loan originations.
    (d) Rural area definition. No exception to the definition of rural 
area, as defined in this Notice, can be made.

C. Review or Appeals

    A person has review or appeal rights in accordance with 7 CFR part 
11.

D. Conflicts of Interest

    No conflict of interest or appearance of conflict of interest will 
be allowed. For purposes of this Notice, conflict of interest includes, 
but is not limited to, distribution or payment of guaranteed loan funds 
or award of project contracts to an individual owner, partner, 
stockholder, or beneficiary of the lender or borrower or an immediate 
family member of such an individual.

E. Oversight and Monitoring

    (a) General. The lender will cooperate fully with Agency oversight 
and monitoring of all lenders involved in any manner with any guarantee 
under this Program to ensure compliance with the provisions in this 
Notice. Such oversight and monitoring will include, but is not limited 
to, reviewing lender records and meeting with lenders.
    (b) Reports and notifications. The Agency will require lenders to 
submit to the Agency reports and notifications to facilitate the 
Agency's oversight and monitoring. These reports and notifications 
include, but are not necessarily limited to:
    (1) During construction, the lender will submit quarterly 
construction progress reports to the Agency. These reports will 
contain, at a minimum, construction milestone attainment, loan 
advances, and personnel hiring, training, and retention.
    (2) Periodic reports, to be submitted quarterly unless otherwise 
specified in the Conditional Commitment, regarding the condition of its 
Agency guaranteed loan portfolio (including borrower status and loan 
classification) and any material change in the general financial 
condition of the borrower since the last periodic report was submitted.
    (3) Monthly default reports, including borrower payment history, 
for each loan in monetary default using a form approved by the Agency.
    (4) Notification within 15 days of:
    (i) Any loan agreement violation by any borrower, including when a 
borrower is 30 days past due or is otherwise in default;
    (ii) Any permanent or temporary reduction in interest rate; and
    (iii) Any change in the loan classification of any loan made under 
this Notice.
    (5) If a lender receives a final loss payment, an annual report on 
its collection activities for each unsatisfied account for 3 years 
following payment of the final loss claim.

F. Forms, Regulations, and Instructions

    Copies of all forms, regulations, and instructions referenced in 
this Notice may be obtained through the Agency.

[[Page 25081]]

Basic Eligibility Requirements

G. Borrower Eligibility

    To be eligible for a guaranteed loan under this Program, a borrower 
must meet each of the conditions specified in the following paragraphs, 
as applicable.
    (a) The borrower must be one of the following:
    (1) An individual;
    (2) An Indian tribe;
    (3) A unit of State or local government;
    (4) A corporation;
    (5) A farm cooperative;
    (6) A farmer cooperative organization;
    (7) An association of agricultural producers;
    (8) A National Laboratory;
    (9) An institution of higher education;
    (10) A rural electric cooperative;
    (11) A public power entity; or
    (12) A consortium of any of the above entities.
    (b) Individual borrowers must either:
    (1) Be citizens of the United States (U.S.), the Republic of Palau, 
the Federated States of Micronesia, the Republic of the Marshall 
Islands, or American Samoa, or
    (2) Reside in the U.S. after legal admittance for permanent 
residence.
    (c) Entities other than individuals must be at least 51 percent 
owned by persons who are either citizens as identified above or legally 
admitted permanent residents residing in the U.S. When an entity owns 
an interest in the borrower, its citizenship will be determined by the 
citizenship of the individuals who own an interest in the entity or any 
sub-entity based on their ownership interest.
    (d) Each borrower must have, or obtain, the legal authority 
necessary to construct, operate, and maintain the proposed facility and 
services and to obtain, give security for, and repay the proposed loan.
    (e) A borrower will be considered ineligible for a guarantee under 
this Program if either the borrower or any owner with more than 20 
percent ownership interest in the borrower
    (i) Has an outstanding judgment obtained by the U.S. in a Federal 
Court (other than U.S. Tax Court),
    (ii) Is delinquent on the payment of Federal income taxes,
    (iii) Is delinquent on Federal debt, or
    (iv) Is debarred or suspended from receiving Federal assistance.

H. Project Eligibility

    Projects eligible for loan guarantees under this Program must meet 
the criteria specified in this section.
    (a) The project must be located in a rural area.
    (b) The project must be for either:
    (1) The development and construction of commercial-scale 
biorefineries using eligible technology or
    (2) The retrofitting of existing facilities, including, but not 
limited to, wood products facilities and sugar mills, with eligible 
technology.
    (c) The project must be for the production of advanced biofuels 
that are either:
    (1) Transportation fuels that meet the Renewable Fuel Standard or 
are currently undergoing an appeal to the U.S. Environmental Protection 
Agency for inclusion in the Renewable Fuel Standard, or
    (2) Non-transportation renewable energy that will result in a 
reduction in greenhouse gases.
    (d) The project must meet the financial metric criteria specified 
in paragraphs (d)(1) through (d)(3) of this section. These financial 
metric criteria shall be calculated from the realistic information in 
the pro forma statements or borrower financial statements of a typical 
operating year after the project is completed and stabilized.
    (1) A debt coverage ratio of 1.0 or higher;
    (2) A debt-to-tangible net worth ratio of 4:1 or lower for start-up 
businesses and of 9:1 or lower for existing businesses.
    (3) A loan-to-value ratio of no more than 1.0.

I. Lender Eligibility

    To be eligible to participate in this Program under this Notice, a 
lender must be a regulated or supervised lender and must maintain at 
all times the following minimum acceptable levels of capital:
    <bullet> Total Risk-Based Capital ratio of 10 percent or higher;
    <bullet> Tier 1 Risk-Based Capital ratio of 6 percent or higher; 
and
    <bullet> Tier 1 Leverage Capital ratio of 5 percent or higher.
    If the regulated or supervised lender is a commercial bank or 
thrift, these levels would be based on those reflected in Call Reports 
and Thrift Financial Reports.
    Further, the Agency will approve loan guarantees only for lenders 
with adequate experience with similar projects and the expertise to 
make, secure, service, and collect loans approved under this Notice. 
Lenders debarred from other Federal credit programs will not be 
eligible under this program.

Basic Application Provisions

J. Loan Applications

    Applications for loan guarantees, which are to be filed with the 
USDA Rural Development National Office's Energy Branch as shown under 
ADDRESSES, must contain the items identified in the paragraphs (b)(1) 
through (18), organized pursuant to a Table of Contents in a chapter 
format.
    (a) Table of Contents.
    (b) Project Summary. Provide a concise summary of the proposed 
project and application information, project purpose and need, and 
project goals, including the following:
    (1) Title. Provide a descriptive title of the project.
    (2) Borrower eligibility. Describe how the borrower meets the 
eligibility criteria identified in Section II.G of this Notice.
    (3) Project eligibility. Describe how the project meets the 
eligibility criteria identified in Section II.H of this Notice. This 
description is to provide the reader with a frame of reference for 
reviewing the rest of the application. Clearly state whether the 
application is for the construction and development of a biorefinery or 
for the retrofitting of an existing facility and provide a brief 
description of the project. Provide results from demonstration or pilot 
facilities that prove the technology proposed to be used meets the 
definition of eligible technology. Additional project description 
information will be needed later in the application.
    (4) Matching funds. Submit a spreadsheet identifying sources, 
amounts, and status of matching funds. The spreadsheet must also 
include a directory of matching funds source contact information. 
Attach any applications, correspondence, or other written communication 
between applicant and matching fund source.
    (5) Application for Loan Guarantee. Completed Form RD 4279-1, 
``Application for Loan Guarantee'' (or successor form).
    (6) Environmental information. Form RD 1940-20, ``Request for 
Environmental Information;'' omit the attachments specified in the 
instructions to the form; and attach an environmental information 
document completed pursuant to 7 CFR part 1940, subpart G, Exhibit H.
    (i) Civil Rights Impact Analysis. The Agency is responsible for 
ensuring that all requirements of RD Instruction 2006-P, ``Civil Rights 
Impact Analysis,'' with the addition of Executive Order 12898, 
Environmental Justice, are met and will complete the appropriate level

[[Page 25082]]

of review in accordance with that instruction. When guaranteed loans 
are proposed, Agency employees will conduct a Civil Rights Impact 
Analysis (CRIA) with regard to environmental justice. The CRIA must be 
conducted and the analysis documented utilizing Form RD 2006-38, 
``Civil Rights Impact Analysis Certification.'' This must be done prior 
to loan approval, obligation of funds, or other commitments of agency 
resources, including issuance of a Conditional Commitment, whichever 
occurs first.
    (ii) Intergovernmental consultation. Intergovernmental consultation 
comments in accordance with RD Instruction 1940-J and 7 CFR, part 3015, 
subpart V.
    (7) Credit reports.
    (i) A personal credit report from an acceptable credit reporting 
company for a proprietor (owner), each partner, officer, director, key 
employee, and stockholder owning 20 percent or more interest in the 
applicant, except for those corporations listed on a major stock 
exchange. Credit reports are not required for elected and appointed 
officials when the applicant is a public body.
    (ii) Commercial credit reports obtained by the lender on the 
borrower and any parent, affiliate, and subsidiary firms.
    (8) Appraisals. Appraisals, accompanied by a copy of a Phase I 
Environmental Site Assessment (ESA) in accordance with ASTM standards. 
If the appraisal has not been completed when the application is filed, 
an estimated appraisal must be submitted with the application. In all 
cases, a completed appraisal consistent with paragraph (c) in section N 
must be submitted prior to the loan being closed.
    (9) Financial information. For all businesses, a current (not more 
than 90 days old) balance sheet; a pro forma balance sheet at startup; 
projected balance sheets and income and expense statements for a period 
of not less than 3 years of stabilized operation; and cash flow 
statements for the life of the project. Projections should be supported 
by a list of assumptions showing the basis for the projections.
    (10) Credit rating. For loans of $125 million or more, an 
evaluation and credit rating of the total project's indebtedness, 
without consideration for a government guarantee, from a nationally-
recognized rating agency.
    (11) Lender's analysis. Lender's complete written analysis of the 
project, including:
    (i) A summary of the technology to be used in the project;
    (ii) The viability of such technology for the particular project 
application;
    (iii) Whether the project is retrofit or Greenfield;
    (iv) Borrower's management;
    (v) Repayment ability (including a cash-flow analysis);
    (vi) Sponsor's history of debt repayment;
    (vii) Necessity of any debt refinancing;
    (viii) The credit reports of the borrower, its principals, and any 
parent, affiliate, or subsidiary; and
    (ix) The credit analysis specified in Section II.N of this Notice.
    (12) Loan Agreement. A proposed loan agreement or a sample loan 
agreement with an attached list of the proposed loan agreement 
provisions. The loan agreement must be executed by the lender and 
borrower before the Agency issues a Loan Note Guarantee. The following 
requirements must be addressed in the loan agreement:
    (i) Prohibition against assuming liabilities or obligations of 
others;
    (ii) Restriction on dividend payments;
    (iii) Limitation on the purchase or sale of equipment and fixed 
assets;
    (iv) Limitation on compensation of officers and owners;
    (v) Financial covenants regarding working capital or current ratio 
requirement, and maximum debt-to-net worth ratio;
    (vi) Borrower change of control;
    (vii) Repayment and amortization of the loan;
    (viii) List of collateral and lien priority for the loan;
    (ix) Type and frequency of financial statements to be required for 
the duration of the loan.
    (x) A section for the later insertion of any additional 
requirements imposed by the Agency in its Conditional Commitment; and
    (xi) A section for the later insertion of any necessary mitigation 
measures by the borrower to avoid or reduce adverse environmental 
impacts from this proposal's construction or operation.
    (13) Business plan. Submit a business plan. Any or all of the 
requirements in the business plan may be omitted if the information is 
included in the feasibility study.
    (14) Feasibility study. Submit a feasibility study on the proposed 
project. Elements in an acceptable feasibility study include, but are 
not limited to, the elements outlined in Table 1. In addition, as part 
of the feasibility study, both a technical assessment and economic 
analysis of the project are required. These two assessments are 
discussed in detail in paragraphs (d) and (e) of this section.

                  Table 1--Feasibility Study Components
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
(A) Executive Summary:
    Introduction/Project Overview (Brief general overview of project
     location, size, etc.)
    Economic feasibility determination.
    Technical feasibility determination.
    Market feasibility determination.
    Financial feasibility determination.
    Management feasibility determination.
    Recommendations for implementation.
(B) Economic Feasibility:
    Information regarding project site.
    Availability of trained or trainable labor.
    Availability of infrastructure, including utilities, and rail, air
     and road service to the site.
    Feedstock:
        Feedstock source management.
        Estimates of feedstock volumes and costs.
        Collection, Pre-Treatment, Transportation, and Storage.
    Document that any and all woody biomass feedstock cannot be used as
     a higher value wood-based product.
    Impacts on existing manufacturing plants or other facilities that
     use similar feedstock if the applicant's proposed biofuel
     production technology is adopted.
    Project impact on resource conservation, public health, and the
     environment.
    Overall economic impact of the project including any additional
     markets created for agricultural and forestry products and
     agricultural waste material and potential for rural economic
     development.

[[Page 25083]]

 
    Feasibility/plans of project to work with producer associations or
     cooperatives including estimated amount of annual feedstock and
     biofuel and byproduct dollars from producer associations and
     cooperatives.
(C) Market Feasibility:
    Information on the sales organization and management.
    Nature and extent of market and market area.
    Marketing plans for sale of projected output--principle products and
     by-products.
    Extent of competition including other similar facilities in the
     market area.
    Commitments from customers or brokers--principle products and by-
     products.
    Risks Related to the Advanced Biofuel Industry, including industry
     status.
(D) Technical Feasibility:
    Suitability of the selected site for the intended use including the
     information documents Form RD 1940-20 and required narrative in the
     7 CFR part 1940, subpart G Exhibit H format.
    Report shall be based upon verifiable data and contain sufficient
     information and analysis so that a determination may be made on the
     technical feasibility of achieving the levels of income or
     production that are projected in the financial statements. Describe
     the scale of development for which the process technology has been
     proven, i.e. lab (or bench), pilot, or demonstration scale; and the
     specific volume of the process (expressed either as volume of
     feedstock processed--tons per unit of time, or as product--gallons
     per unit of time).
    Report shall also identify any constraints or limitations in these
     financial projections and any other facility or design-related
     factors which might affect the success of the enterprise.
    Report shall also identify and estimate project operation and
     development costs and specify the level of accuracy of these
     estimates and the assumptions on which these estimates have been
     based.
    The Project engineer or architect is considered an independent party
     provided neither the principal of the firm nor any individual of
     the firm who participates in the technical feasibility report has a
     financial interest in the project if no other individual or firm
     with the expertise necessary to make such a determination is
     reasonably available to perform the function, an individual or firm
     that is not independent may be used.
    Ability of the proposed system to be Commercially Replicated.
    Supports the Renewable Fuel Standards of the U.S. Environmental
     Protection Agency.
    Risks Related to:
        Construction of the Advanced Biofuel Plant,
        Advanced Biofuel Production, and
        Regulation and Governmental Action.
(E) Financial Feasibility:
    Reliability of the financial projections and assumptions on which
     the financial statements are based including all sources of project
     capital both private or public, such as Federal funds. Three Years
     (minimum) projected Balance Sheets and Income Statements. Cash Flow
     projections for the life of the project.
    Ability of the business to achieve the projected income and cash
     flow.
    Assessment of the cost accounting system.
    Availability of short-term credit or other means to meet seasonable
     business costs.
    Adequacy of raw materials and supplies.
    Sensitivity Analysis--including feedstock and energy costs, product/
     co-product prices.
    Risks Related to:
        The Project,
        Applicant Financing Plan,
        The operational units, and
        Tax Issues.
(F) Management Feasibility:
    Continuity and adequacy of management.
    Projected total supply from members and non-members.
    Projected competitive demand for raw materials.
    Procurement plan and projected procurement costs.
    Form of commitment of raw materials (marketing agreements, etc.).
    Identify applicant and/or management's previous experience
     concerning the receipt of federal financial assistance, including
     amount of funding, date received, purpose, and outcome.
        Risks Related to:
        Applicant as a Company (i.e. Development-Stage) and Conflicts of
         Interest.
(G) Qualifications:
    A resume or statement of qualifications of the author of the
     feasibility study, including prior experience, should be submitted.
------------------------------------------------------------------------

     (15) Lender certifications.
    (i) A certification by the lender stating that it has completed a 
comprehensive analysis of the proposal, the borrower is eligible, the 
loan is for an eligible project, and there is reasonable assurance of 
repayment ability based on the borrower's history, projections and 
equity, and the collateral to be obtained.
    (ii) A certification by the lender that the proposed project will 
be in compliance with all applicable State and Federal environmental 
laws and regulations.
    (16) DUNS Number. A Dun and Bradstreet Universal Numbering System 
(DUNS) number.
    (17) Bioenergy experience. Identify applicant, including 
principals, prior experience in bioenergy projects and the receipt of 
Federal financial assistance, including amount of funding, date 
received, purpose, and outcome, for such projects.
    (18) Each applicant must provide documentation from an Agency-
approved recognized published source quantifying the reduction in 
greenhouse gas emissions that results from the displacement of fossil 
fuels.
    (19) Other. Any additional information required by the Agency.
    (c) Form modifications. The BioRefinery Assistance Program will be 
using the same forms as the Business and Industry and Section 9006 
programs with the understanding that:
    (1) All references in those forms to the Business and Industry 
program or the Section 9006 program in whatever

[[Page 25084]]

manner, and whether referenced singularly or jointly, shall be deemed 
to be references to the BioRefinery Assistance Program described in 
this Notice, and
    (2) All references to the Business and Industry or Section 9006 
regulations in those forms in whatever manner, whether general or 
specific, whether singularly or jointly, and whether or not specific 
Code of Federal Regulation citations are used, shall be deemed to be a 
reference to the requirements of the BioRefinery Assistance Program 
described in this Notice. In addition, the following modifications are 
to be used for this Program.
    (i) Application for Loan Guarantee (Form RD 4279-1) is modified as 
described below.
    (A) Part A, Block 10, Type of Borrower, do not fill out if your 
entity is not listed.
    (B) Part A, Block 11. Instead of the Standard Industrial 
Classification (SIC) Code, fill in your North American Industry 
Classification System (NAICS).
    (C) Part A, Block 22 is not applicable.
    (D) Part A, Block 29, Financial Statements. Comply with the 
financial statement requirements in this Notice rather than in Block 
29.
    (E) Part A, Block 30, which deals with guarantors, is not 
applicable.
    (F) Part A, Block 33, Technical Report. Replace Technical Report 
with Feasibility Study, which will include a technical assessment of 
the project.
    (G) Part B, Block 17, which addresses equity. Do not fill in this 
block, but instead provide similar information according to the equity 
requirements contained in this Notice.
    (H) Part B, Block 22, which addresses the lender's analysis. Attach 
the lender's analysis as described in this Notice.
    (3) Lender's Agreement (Form RD 4279-4), Section I, Item B, is 
applicable with the addition that negligent servicing includes any 
instance where a lender fails to ensure that all environmental laws are 
being complied with by any person receiving guaranteed loan funds under 
this Program.
    (4) Loan Note Guarantee (Form RD 4279-5), Section 3, Full Faith and 
Credit, under Conditions of Guarantee is applicable with the addition 
that negligent servicing includes any instance where a lender fails to 
ensure that all environmental laws are being complied with by a person 
receiving guaranteed loan funds under this Program.
    (d) Technical Assessment. As part of the feasibility study, a 
detailed technical assessment is required for each project. The 
technical assessment must demonstrate that the project design, 
procurement, installation, startup, operation and maintenance of the 
project will operate or perform as specified over its useful life in a 
reliable and a cost effective manner, and must identify what the useful 
life of the project is. The technical assessment must also identify all 
necessary project agreements, demonstrate that those agreements will be 
in place on or before the time of loan closing, and demonstrate that 
necessary project equipment and services will be available over the 
useful life. All technical information provided must follow the format 
specified in paragraphs (d)(1) through (9) below. Supporting 
information may be submitted in other formats. Design drawings and 
process flow charts are encouraged as exhibits. A discussion of each 
topic identified in paragraphs (d)(1) through (9) is not necessary if 
the topic is not applicable to the specific project. Questions 
identified in the Agency's technical review of the project must be 
answered to the Agency's satisfaction before the application will be 
approved. All projects require the services of a professional engineer 
(PE).
    (1) Qualifications of project team. The project team will vary 
according to the complexity and scale of the project. The project team 
must have demonstrated expertise in similar advanced biofuel technology 
development, engineering, installation, and maintenance. Authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services for the development, construction, and retrofitting, as 
applicable, of technology for producing advanced biofuels must be 
provided. In addition, authoritative evidence that vendors of 
proprietary components can provide necessary equipment and spare parts 
for the biorefinery to operate over its useful life must be provided. 
The application must:
    (i) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the borrower's risk, and a design 
build method, often referred to as turnkey, where the borrower 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (ii) Discuss the advanced biofuels technology equipment 
manufacturers of major components being considered in terms of the 
length of time in business and the number of units installed at the 
capacity and scale being considered;
    (iii) Discuss the project team members' qualifications for 
engineering, designing, and installing advanced biofuels refineries 
including any relevant certifications by recognized organizations or 
bodies. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available; and
    (iv) Describe the advanced biofuels refinery operator's 
qualifications and experience for servicing, operating, and maintaining 
such equipment or projects. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating and 
with references if available.
    (2) Agreements and permits. All necessary agreements and permits 
required for the project and the status and schedule for securing those 
agreements and permits, including the items specified in paragraphs 
(2)(i) through (vi), must be identified in the application.
    (i) Advanced biofuels refineries must be installed in accordance 
with applicable local, State, and national codes and regulations. 
Identify zoning and code issues, and required permits and the schedule 
for meeting those requirements and securing those permits.
    (ii) Identify licenses where required and the schedule for 
obtaining those licenses.
    (iii) Identify land use agreements required for the project and the 
schedule for securing the agreements and the term of those agreements.
    (iv) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (v) Identify available component warranties for the specific 
project location and size.
    (vi) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (3) Resource assessment. Adequate and appropriate evidence of the 
availability of the feedstocks required for the advanced biofuels 
refinery to operate as designed must be provided in the application. 
Indicate the type and quantity of the feedstock including storage, 
where applicable. Indicate shipping or receiving method and required 
infrastructure for shipping, and other appropriate transportation 
mechanisms. For proposed projects with an established resource, provide 
a summary of the resource.

[[Page 25085]]

    (4) Design and engineering. Authoritative evidence that the 
advanced biofuels refinery will be designed and engineered so as to 
meet its intended purposes, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards must be provided in the application. Projects shall be 
engineered by a qualified entity. Biorefineries must be engineered as a 
complete, integrated facility. The engineering must be comprehensive 
including site selection, systems and component selection, and systems 
monitoring equipment. Biorefineries must be constructed by a qualified 
entity.
    (i) The application must include a concise but complete description 
of the project including location of the project; resource 
characteristics, including the kind and amount of feedstocks; 
biorefinery specifications; kind, amount, and quality of the output; 
and monitoring equipment. Address performance on a monthly and annual 
basis. Describe the uses of or the market for the advanced biofuels 
produced by the biorefinery. Discuss the impact of reduced or 
interrupted feedstock availability on the biorefinery's operations.
    (ii) The application must include a description of the project site 
and address issues such as site access, foundations, backup equipment 
when applicable, and the environmental information documents Form RD 
1940-20 and required narrative in the 7 CFR part 1940, subpart G, 
Exhibit H format. Identify any unique construction and installation 
issues.
    (iii) Sites must be controlled by the eligible borrower for at 
least the proposed project life or for the financing term of any 
associated federal loans or loan guarantees.
    (5) Project development schedule. Each significant task, its 
beginning and end, and its relationship to the time needed to initiate 
and carry the project through startup and shakedown must be provided in 
the application. Provide a detailed description of the project timeline 
including resource assessment, project and site design, permits and 
agreements, equipment procurement, and project construction from 
excavation through startup and shakedown.
    (6) Equipment procurement. A demonstration that equipment required 
by the biorefinery is available and can be procured and delivered 
within the proposed project development schedule must be provided in 
the application. Biorefineries may be constructed of components 
manufactured in more than one location. Provide a description of any 
unique equipment procurement issues such as scheduling and timing of 
component manufacture and delivery, ordering, warranties, shipping, 
receiving, and on-site storage or inventory.
    (7) Equipment installation. A full description of the management of 
and plan for site development and systems installation, details 
regarding the scheduling of major installation equipment needed for 
project construction, and a description of the startup and shakedown 
specification and process and the conditions required for startup and 
shakedown for each equipment item individually and for the biorefinery 
as a whole must be provided in the application.
    (8) Operations and maintenance. The operations and maintenance 
requirements of the biorefinery necessary for the biorefinery to 
operate as designed over the useful life must be provided in the 
application. The application must also include:
    (i) Information regarding available biorefinery and component 
warranties and availability of spare parts;
    (ii) A description of the routine operations and maintenance 
requirements of the proposed biorefinery, including maintenance 
schedule for the mechanical, piping, and electrical systems and system 
monitoring and control requirements, as well as provision of 
information that supports expected useful life of the biorefinery and 
timing of major component replacement or rebuilds;
    (iii) A discussion of the costs and labor associated with 
operations and maintenance of the biorefinery and plans for in-sourcing 
or outsourcing. A description of the opportunities for technology 
transfer for long term project operations and maintenance by a local 
entity or owner/operator; and
    (iv) Provision and discussion of the risk management plan for 
handling large, unanticipated failures of major components.
    (9) Decommissioning. When uninstalling or removing the project, a 
description of the decommissioning process. A description of any 
issues, requirements, and costs for removal and disposal of the 
biorefinery.
    (e) Economic Analysis. The feasibility study must also contain a 
detailed economic analysis of the project. The economic analysis must 
describe the costs and revenues of the proposed project to demonstrate 
the financial performance of the project by:
    (1) Providing a detailed analysis and description of project costs 
including project management, resource assessment, project design, 
project permitting, land agreements, equipment, site preparation, 
systems installation, startup and shakedown, warranties, insurance, 
financing, professional services, and operations and maintenance costs;
    (2) Providing a detailed analysis and description of annual project 
revenues and expenses over the useful life of the project;
    (3) Providing a detailed description of applicable investment 
incentives, productivity incentives, loans, and grants; and
    (4) Identifying any other project authorities and subsidies that 
affect the project.

K. Evaluation of Guaranteed Loan Applications

    (a) General review. The Agency will utilize a panel of reviewers, 
including Rural Development field staff and U.S. Department of Energy 
staff, to review each application. Each application will be evaluated 
to confirm that both the borrower and project are eligible, the project 
has technical merit, there is reasonable assurance of repayment, there 
is sufficient collateral and equity, and the proposed project complies 
with all applicable statutes and regulations.
    (1) If the Agency determines it is unable to guarantee the loan, 
the lender will be informed in writing. Such notification will include 
the reasons for denial of the guarantee.
    (2) In the case where an Agency receives an application that is 
undergoing an appeal before the U.S. Environmental Protection Agency 
for inclusion in the Renewable Fuel Standard, the Agency will be unable 
to finalize processing of the application until the appeal has been 
completed.
    (b) Ineligible applications. If the borrower, lender, or the 
project is determined to be ineligible for any reason, the Agency will 
inform the lender, in writing, of the reasons and provide any 
applicable appeal rights. No further evaluation of the application will 
occur.
    (c) Incomplete applications. If the application is incomplete, the 
Agency will identify those parts of the application that are incomplete 
and return it, with a written explanation, to the lender for possible 
future resubmission. Upon receipt of a complete application, if 
submitted within the proper deadlines noted in this Notice, the Agency 
will complete its evaluation.
    (d) Technical merit determination. The Agency's determination of a 
project's technical merit will be based on the information in the 
application.

[[Page 25086]]

The Agency may engage the services of other government agencies or 
recognized industry experts in the applicable technology field, at its 
discretion, to evaluate and rate the application. The Agency may use 
this evaluation and rating to determine the level of technical merit of 
the proposed project. Projects determined by the Agency to be without 
technical merit will not be selected for funding.
    (e) Evaluation criteria. The Agency will score each eligible 
application that meets the minimum requirements for financial and 
technical feasibility, based on the evaluation criteria identified 
below. A minimum score of 40 points is required in order to be 
considered for a guarantee. The Agency will give priority to those 
applications with the highest scores above the minimum threshold. A 
maximum of 100 points is possible.
    (1) Whether the borrower has established a market for the advanced 
biofuel and the byproducts produced. A maximum of 5 points can be 
awarded. Points to be awarded will be determined as follows:
    (i) If the business has less than or equal to a 50 percent 
commitment for feedstocks, marketing agreements for the advanced 
biofuel, and the byproducts produced, 0 points will be awarded.
    (ii) If the business has a greater than 50 percent commitment for 
feedstocks, marketing agreements for the advanced biofuel and the 
byproducts produced, 5 points will be awarded.
    (2) Whether the area in which the borrower proposes to place the 
biorefinery has other similar advanced biofuel facilities. A maximum of 
5 points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If the biorefinery will be located in a trade area that has 
other advanced biofuel facilities, with area defined as ``within the 
area supplying the feedstock,'' 0 points will be awarded.
    (ii) If the biorefinery will be located in a trade area that does 
not have other advanced biofuel facilities, with area defined as 
``within the area supplying the feedstock,'' 5 points will be awarded.
    (3) Whether the borrower is proposing to use a feedstock not 
previously used in the production of advanced biofuels. A maximum of 14 
points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If the borrower proposes to use a feedstock previously used in 
the production of advanced biofuels in a commercial facility, 0 points 
will be awarded.
    (ii) If the borrower proposes to use a feedstock not previously 
used in production of advanced biofuels in a commercial facility, 14 
points will be awarded.
    (4) Whether the borrower is proposing to work with producer 
associations or cooperatives. A maximum of 5 points can be awarded. 
Points to be awarded will be determined as follows:
    (i) If the borrower procurement or marketing agreements amount to 
less than or equal to 50 percent of annual feedstock and biofuel and 
byproduct dollars with producer associations or cooperatives, 0 points 
will be awarded.
    (ii) If the borrower procurement or marketing agreements amount to 
more than 50 percent of annual feedstock and biofuel and byproduct 
dollars with producer associations or cooperatives, 5 points will be 
awarded.
    (5) The level of financial participation by the borrower, including 
support from non-Federal and private sources. Such financial 
participation may take the form of direct financial support, technical 
support, and contributions of in-kind resources including financial or 
other support from state or local government. A maximum of 20 points 
can be awarded. Other Direct Federal funding will not be considered as 
part of the borrower's cash equity participation. Points to be awarded 
will be determined as follows:
    (i) If the borrower's cash equity injection plus other sources is 
equal to or greater than 30 percent, but less than 40 percent, tangible 
balance sheet equity, 10 points will be awarded.
    (ii) If the borrower's cash equity injection plus other sources is 
equal to or greater than 40 percent tangible balance sheet equity, 20 
points will be awarded.
    (iii) If a project uses other Federal direct funding, 10 points 
will be deducted.
    (6) Whether the borrower has established that the adoption of the 
process proposed in the application will have a positive impact on 
resource conservation, public health, and the environment. A maximum of 
9 points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If process adoption will have a positive impact on resource 
conservation, 3 points will be awarded.
    (ii) If process adoption will have a positive impact on public 
health, 3 points will be awarded.
    (iii) If process adoption will have a positive impact on 
environment, 3 points will be awarded.
    (7) Whether the borrower can establish that, if adopted, the 
biofuels production technology proposed in the application will not 
have any significant negative impacts on existing manufacturing plants 
or other facilities that use similar feedstocks. A maximum of 5 points 
can be awarded. Points to be awarded will be determined as follows:
    (i) If the borrower has not established, through an independent 
third party, that the biofuels production technology proposed in the 
application, if adopted, will not have any significant negative impacts 
on existing manufacturing plants or other facilities that use similar 
feed stocks, 0 points will be awarded.
    (ii) Applicant has established, through an independent third party, 
that the biofuels production technology proposed in the application, if 
adopted, will not have any significant negative impacts on existing 
manufacturing plants or other facilities that use similar feed stocks, 
5 points will be awarded.
    (8) The potential for rural economic development. If the business 
creates jobs with an average wage that exceeds both the State and 
County median household wages, 3 points will be awarded.
    (9) The level of local ownership proposed in the application. A 
maximum of 13 points can be awarded. Points to be awarded will be 
determined as follows:
    (i) If local ownership is greater than 20 percent, with area 
defined as ``within the area supplying the feedstock,'' up to 6 points 
will be awarded.
    (ii) If local ownership is greater than 50 percent, with area 
defined as ``within the area supplying the feedstock,'' 13 points will 
be awarded.
    (10) Whether the project can be replicated. A maximum of 5 points 
can be awarded. Points to be awarded will be determined as follows:
    (i) If the project can be commercially replicated regionally (e.g., 
Northeast, Southwest, etc.), 2 points will be awarded.
    (ii) If the project can be commercially replicated nationally, up 
to 5 points will be awarded.
    (11) The extent to which the project converts cellulosic biomass 
feedstocks into advanced biofuels. A maximum of 6 points can be 
awarded.
    (i) If 50% or less of the amount of advanced biofuels produced by 
the project is derived from cellulosic renewable biomass feedstocks, 
then 0 points will be awarded.
    (ii) If more than 50% of the amount of advanced biofuels produced 
by the project is from cellulosic renewable biomass feedstocks, then 6 
points will be awarded.
    (12) If the project is a first-of-a-kind technology, system, or 
process, 10 points will be awarded.

[[Page 25087]]

L. Loan Approval and Obligating Funds

    (a) Environmental review. The Agency has reviewed the types of 
applicant proposals that may qualify for assistance under this section 
and has determined, in accordance with 7 CFR Part 1940-G, that all 
proposals shall be reviewed as a Class II Environmental Assessment (EA) 
as the development of new and emerging technologies would not meet the 
classification of a Categorical Exclusion (CE) in accordance with 7 CFR 
Part 1940.310 or a Class I EA in accordance with 7 CFR Part 1940.311. 
Furthermore, if after Agency review of proposals the Agency has 
determined that the proposal could result in significant environmental 
impacts on the quality of the human environment, an Environmental 
Impact Statement may be required pursuant to 7 CFR Part 1940.313.
    (b) Conditional Commitment. Upon approval of a loan guarantee, the 
Agency will issue a Conditional Commitment to the lender containing 
conditions, including all applicable regulatory, statutory, and other 
requirements, under which a Loan Note Guarantee will be issued. One of 
the conditions shall be that the project receiving guaranteed loan 
funds under this Program will be in compliance with all applicable 
State and Federal environmental laws and regulations. The Conditional 
Commitment is a binding obligation by the Agency. However, if the terms 
of the Conditional Commitment are not satisfied, the Commitment is no 
longer binding on the Agency.
    (c) Alternate conditions. If certain conditions of the Conditional 
Commitment cannot be met, the lender and applicant may propose 
alternate conditions. Within the requirements of the applicable 
regulations and instructions and prudent lending practices, the Agency 
may negotiate with the lender and the applicant regarding any proposed 
changes to the Conditional Commitment.
    (d) Wage rates. As a condition of receiving a loan guaranteed under 
this Program, each borrower shall ensure that all laborers and 
mechanics employed by contractors or subcontractors in the performance 
of construction work financed in whole or in part with Guaranteed Loan 
Funds under this Notice shall be paid wages at rates not less than 
those prevailing on similar construction in the locality as determined 
by the Secretary of Labor in accordance with sections 3141 through 
3144, 3146, and 3147 of title 40, U.S.C. Awards under this Notice are 
further subject to the relevant regulations contained in title 29 of 
the Code of Federal Regulations.

M. Lender's Functions and Responsibilities--General

    All lenders requesting or obtaining a loan guarantee under this 
Notice are responsible for:
    (a) Processing applications for guaranteed loans;
    (b) Developing and maintaining adequately documented loan files;
    (c) Recommending only loan proposals that are eligible and 
financially feasible;
    (d) Obtaining valid evidence of debt and collateral in accordance 
with sound lending practices;
    (e) Supervising construction;
    (f) Distribution of loan funds;
    (g) Servicing guaranteed loans in a prudent manner, including 
liquidation if necessary;
    (h) Following Agency regulations; and
    (i) Obtaining Agency approvals or concurrence as required.

N. Lender's Functions and Responsibilities--Origination

    (a) Credit evaluation. The lender must determine credit quality of 
the borrower, including the following:
    (1) The lender must address all of the elements of credit quality 
in a written credit analysis, including cash flow, collateral, and 
adequacy of equity.
    (i) Cash flow. All efforts will be made to structure debt so that 
the business has adequate debt coverage and the ability to accommodate 
expansion.
    (ii) Collateral. Collateral must have documented value sufficient 
to protect the interest of the lender and the Agency, as determined by 
the Agency.
    (iii) Equity. Borrowers shall demonstrate evidence of cash equity 
injection in the project of not less than 20 percent of eligible 
project costs. The fair market value of equity in real property that is 
to be pledged as collateral for the loan may be substituted in whole or 
in part to meet the cash equity requirement. However, the appraisal 
completed to establish the fair market value of the real property must 
not be more than 1 year old and must meet Agency appraisal standards. 
Otherwise, cash equity injection must be in the form of cash.
    (2) The credit analysis must also include spreadsheets of the 
balance sheets and income statements of the borrower for the 3 previous 
years (for existing businesses), pro forma balance sheets at startup, 
and projected yearend balance sheets and income statements for a period 
of not less than 3 years of stabilized operation, with appropriate 
ratios and comparisons with industrial standards (such as Dun & 
Bradstreet or Robert Morris Associates) to the extent available.
    (3) All data must be shown in total dollars and also in common size 
form, obtained by expressing all balance sheet items as a percentage of 
assets and all income and expense items as a percentage of sales.
    (b) Lien priorities. The entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. The unguaranteed portion of the loan will neither 
be paid first nor given any preference or priority over the guaranteed 
portion or be secured by separate collateral. The guarantee will be 
secured by a first lien on all collateral necessary to run the project 
in the event of the borrower's default including, without limitation, 
all real property, contracts and permits, and all furnishings, 
fixtures, and equipment of the project. In addition, the lender and the 
Agency should be shown as an additional insured on insurance policies 
(or other risk sharing instruments) that benefit the project and must 
be able to assume any contracts that are material to running the 
project including any feedstock or offtake agreements.
    (c) Appraisals. Lenders are required to provide real property and 
chattel collateral appraisals conducted by an independent qualified 
appraiser in accordance with the Uniform Standards of Professional 
Appraisal Practices or successor standards.
    (1) All appraisals used to establish the fair market value of the 
real property must not be more than 1 year old.
    (2) All appraisals will include consideration of the potential 
effects from a release of hazardous substances or petroleum products or 
other environmental hazards on the market value of the collateral.
    (3) A complete self-contained appraisal must be conducted.
    (4) Lenders must complete, for all applications, a Phase I 
Environmental Site Assessment (ESA) in accordance with ASTM standards, 
which should be provided to the appraiser for completion of the self-
contained appraisal. Lenders shall use specialized appraisers.
    (d) Construction planning and performing development.
    (1) Design Policy. The lender must ensure that all project 
facilities will be designed utilizing accepted architectural and 
engineering practices and must conform to applicable Federal, state, 
and local codes and requirements. The lender will also ensure that the 
project will be completed using the available funds and, once 
completed, will be used for its intended purpose

[[Page 25088]]

and produce products in the quality and quantity proposed in the 
completed application approved by the Agency.
    (2) Project Control. The lender will monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction conforms to applicable Federal, state, and 
local code requirements; proceeds are used in accordance with the 
approved plans, specifications, and contract documents; and that funds 
are used for eligible project costs. The lender will provide a resident 
inspector.
    (3) Changes or cost overruns. The borrower shall be responsible for 
any changes or cost overruns. If any such change or cost overrun 
occurs, then any change order must be expressly approved by the Agency 
which approval shall not be unreasonably withheld, and neither the 
lender nor borrower will divert funds from purposes identified in the 
guaranteed loan application to pay for any such change or cost overrun 
without the express written approval of the Agency. In no event will 
the current loan be modified or a subsequent guaranteed loan be 
approved to cover any such changes or costs. Failure to comply with the 
terms of this paragraph will be considered a material adverse change in 
the borrower's financial condition, and the lender must address this 
matter, in writing, to the Agency's satisfaction. In the event any of 
the aforementioned increases in costs and/or expenses are incurred by 
the borrower, the borrower must provide for such increases in a manner 
that there is no diminution of the borrower's operating capital.
    (4) New draws. The following two certifications are required for 
each new draw:
    (i) Certification by the project engineer to the lender that the 
work referred to in the draw has been successfully completed; and
    (ii) Certification from the lender that all debts have been paid 
and all mechanics' liens have been waived.
    (e) Laws that contain other compliance requirements. Each lender 
and borrower must comply with:
    (1) Equal Credit Opportunity Act. In accordance with title V of 
Public Law 93-495, the Equal Credit Opportunity Act, with respect to 
any aspect of a credit transaction, neither the lender nor the Agency 
will discriminate against any applicant on the basis of race, color, 
religion, national origin, sex, marital status or age (providing the 
applicant has the capacity to contract), or because all or part of the 
applicant's income derives from a public assistance program, or because 
the applicant has, in good faith, exercised any right under the 
Consumer Protection Act. The lender will comply with the requirements 
of the Equal Credit Opportunity Act as contained in the Federal Reserve 
Board's Regulation implementing that Act (see 12 CFR part 202). Such 
compliance will be accomplished prior to loan closing.
    (2) Equal opportunity. For all construction contracts in excess of 
$10,000, the contractor must comply with Executive Order 11246, ``Equal 
Employment Opportunity,'' as amended by Executive Order 11375, and as 
supplemented by applicable Department of Labor regulations (41 CFR part 
60). The borrower and lender are responsible for ensuring that the 
contractor complies with these requirements.
    (3) Americans with Disabilities Act (ADA). Guaranteed loans that 
involve the construction of or addition to facilities that accommodate 
the public and commercial facilities, as defined by the ADA, must 
comply with the ADA. The lender and borrower are responsible for 
compliance.
    (4) Environmental analysis. Each lender and borrower must comply 
with the environmental analysis identified in 7 CFR part 1940, subpart 
G, which outlines environmental procedures and requirements for this 
Notice. Each proposal will be evaluated to determine the proper level 
of National Environmental Policy Act (NEPA) review on a case-by-case 
basis by the Agency's environmental staff. The lender's borrower will 
cooperate with the Agency in the preparation of the environmental 
review. Prospective borrowers are advised to contact the Agency to 
determine environmental requirements as soon as practicable after they 
decide to pursue any form of financial assistance directly or 
indirectly available through the Agency.
    (i) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds.
    (ii) The borrower will be notified of all specific compliance 
requirements, including, but not limited to, the publication of public 
notices, and consultation with State Historic Preservation Offices and 
the U.S. Fish and Wildlife Service.
    (iii) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review.
    (iv) A borrower taking any actions or incurring any obligations 
prior to or during application review and processing that would either 
limit the range of alternatives to be considered or that would have an 
adverse effect on the environment, such as the initiation of 
construction, may result in project ineligibility.
    (f) Environmental responsibilities. Lenders have a responsibility 
to become familiar with Federal environmental requirements; to 
consider, in consultation with the prospective borrower, the potential 
environmental impacts of their proposals at the earliest planning 
stages; and to develop proposals that minimize the potential to 
adversely impact the environment. Lenders must alert the Agency to any 
controversial environmental issues related to a proposed project or 
items that may require extensive environmental review at the time of 
the application as well as after the loan closes if unforeseen events 
take place. Lenders must ensure that their borrowers complete Form RD 
1940-20; omit the attachments specified in the instructions to the 
form; and attach an environmental information document completed 
pursuant to 7 CFR part 1940, subpart G, Exhibit H; assist in the 
collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems.
    (g) Loan closing. The lender or its designated representative is 
responsible for loan closings. At the closing, the lender will ensure 
that all the conditions in the Agency's Conditional Commitment have 
been met.

O. Lender's Functions and Responsibilities--Servicing

General
    (a) Routine servicing. The lender is responsible for servicing the 
entire loan and for taking all servicing actions that a prudent lender 
would perform in servicing its own portfolio of loans that are not 
guaranteed.
    (1) The lender must service the entire loan and must remain 
mortgagee and secured party of record notwithstanding the fact that 
another party may hold a portion of the loan.
    (2) The Loan Note Guarantee is unenforceable by the lender to the 
extent any loss is occasioned by violation of usury laws, use of loan 
funds for unauthorized purposes, negligent servicing, or failure to 
obtain the required security interest regardless of the time at which 
the Agency acquires knowledge of the foregoing. This responsibility 
includes, but is not limited to, the collection of payments, obtaining 
compliance with the covenants and provisions in the loan agreement, 
obtaining and analyzing financial statements, checking on payment of 
taxes and insurance

[[Page 25089]]

premiums, and maintaining liens on collateral.
    (b) Loan classification. Within 90 days of receipt of the Loan Note 
Guarantee, the lender must notify the Agency of the loan's 
classification or rating under its regulatory standards. Should the 
classification be changed at a future time, the Agency must be notified 
within 15 days.
    (c) Insurance requirements. The lender must ensure that the 
borrower has obtained, and will maintain for the life of the guaranteed 
loan, all necessary insurance coverage appropriate to the proposed 
project, in accordance with the lender's loan origination policies and 
procedures or what a reasonably prudent lender requires, whichever is 
more stringent.
    (d) Financial reports. The lender must obtain and forward to the 
Agency the financial statements required by the loan agreement or the 
Conditional Commitment.
    (1) The lender must submit to the Agency:
    (i) Quarterly financial statements within 45 days of the end of 
each quarter and
    (ii) Annual audited financial statements within 120 days of the end 
of the borrower's fiscal year.
    (2) The lender must analyze the financial statements and provide 
the Agency with a written summary of the lender's analysis and 
conclusions, including trends, strengths, weaknesses, extraordinary 
transactions, and other indications of the financial condition of the 
borrower. Spreadsheets of the new financial statements must be 
included.
    (e) Requirements after construction.
    (1) Reports. In addition to complying with the requirements for 
loan servicing, once the project has been constructed, the lender must 
provide the Agency periodic reports from the borrower commencing the 
first full calendar year following the year in which project 
construction was completed and continuing for the life of the 
guaranteed loan. The borrower's reports will include, but not be 
limited to, the information specified in the following paragraphs, as 
applicable.
    (i) The actual amount of advanced biofuels produced to assess 
whether project goals are being met.
    (ii) If applicable, documentation that identified health and/or 
sanitation problem has been solved.
    (iii) A summary of the cost of operating and maintaining the 
facility.
    (iv) Description of any maintenance or operational problems 
associated with the facility.
    (v) Demonstration that the project is and has been in compliance 
with all applicable State and Federal environmental laws and 
regulations.
    (vi) The number of jobs created.
    (vii) A description on the status of the project's feedstock 
including, but not limited to, the feedstock being used, outstanding 
feedstock contracts, feedstock changes and interruptions, and quality 
of the feedstock.
    (2) Inspections. The lender shall conduct annual inspections of the 
project for the life of the guaranteed loan.
    (f) Release of collateral.
    (1) All releases of collateral with a value exceeding $100,000 must 
be supported by a current appraisal on the collateral released. The 
appraisal will be at the expense of the borrower and must meet the 
appraisal requirements contained in this Notice. The remaining 
collateral must be sufficient to provide for repayment of the Agency's 
guaranteed loan. The Agency may, at its discretion, require an 
appraisal of the remaining collateral in cases where it is determined 
that the Agency may be adversely affected by the release of collateral. 
Sale or release of collateral must be based on an arm's-length 
transaction.
    (2) Within the parameters of the paragraph (f)(1):
    (i) Lenders may, over the life of the guaranteed loan, release 
collateral with a cumulative value of up to 20 percent of the original 
loan amount without Agency concurrence if the proceeds generated are 
used to reduce the guaranteed loan or to buy replacement collateral.
    (ii) Release of collateral with a cumulative value in excess of 20 
percent of the original loan or when the proceeds will not be used to 
reduce the guaranteed loan or to buy replacement collateral, must be 
requested, in writing, by the lender and concurred by the Agency, in 
writing, in advance of the release. A written evaluation will be 
completed by the lender to justify the release.
    (g) Loan transfer and assumption.
    (1) Subject to approval by the lender and the Agency and the 
payment to the Agency of a one percent fee, loans are assumable. 
Assumption shall be deemed to occur in the event of a change in the 
control of the borrower. For purposes of the loan, change of control 
means the merger, sale of all or substantially all of the assets of the 
borrower, or the sale of more than 25 percent of the stock or other 
equity interest of either the borrower or its corporate parent.
    (2) All loan transfers and assumptions must comply with the 
following:
    (i) Documentation of request. All transfers and assumptions must be 
approved, in writing, by the Agency and must be to eligible borrowers.
    (ii) Terms. Loan terms must not be changed unless the change is 
approved, in writing, by the Agency with the concurrence of any holder 
and the transferor, if they have not been or will not be released from 
liability. Any new loan terms must be within the terms authorized by 
this Notice. The Agency cannot approve deals unless all statutory, 
regulatory, and budgetary requirements are met. The lender's request 
for approval of new loan terms will be supported by an explanation of 
the reasons for the proposed change in loan terms. The Agency will not 
approve any change in terms that results in an increase in the cost of 
the loan guarantee, unless the Agency can secure any additional budget 
authority that would be required.
    (iii) Release of liability. The transferor may be released from 
liability only with prior Agency written concurrence and only when the 
value of the collateral being transferred is at least equal to the 
amount of the loan being assumed and is supported by a current 
appraisal and a current financial statement. The Agency will not pay 
for the appraisal. If the transfer is for less than the debt, the 
lender must demonstrate to the Agency that the transferor has no 
reasonable debt-paying ability considering their assets and income in 
the foreseeable future.
    (iv) Proceeds. Any proceeds received from the sale of collateral 
before a transfer and assumption will be credited to the transferor's 
guaranteed loan debt in inverse order of maturity before the transfer 
and assumption are closed.
    (v) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered as a new 
loan application under the provisions of this Notice.
    (vi) Credit quality. The lender must make a complete credit 
analysis of the proposed borrower and the project which is subject to 
Agency review and approval.
    (vii) Documents. Prior to Agency approval, the lender must advise 
the Agency, in writing, that the transaction can be properly and 
legally transferred, and the conveyance instruments will be filed, 
registered, or recorded as appropriate.
    (A) The assumption will be done on the lender's form of assumption 
agreement and will contain the Agency case number of the transferor and 
transferee. The lender will provide the Agency with a copy of the 
transfer and assumption agreement. The lender must ensure that all 
transfers and

[[Page 25090]]

assumptions are noted on all original Loan Note Guarantees.
    (B) The lender will provide to the Agency a written certification 
that the transfer and assumption is valid, enforceable, and complies 
with all Agency regulations.
    (viii) Loss resulting from transfer. If a loss should occur upon 
consummation of a complete transfer and assumption for less than the 
full amount of the debt and the transferor is released from liability, 
the lender, if it holds the guaranteed portion, may file Form RD 449-
30, ``Loan Note Guaranteed Report of Loss,'' to recover its pro rata 
share of the actual loss. If a holder owns any of the guaranteed 
portion, such portion must be repurchased by the lender or the Agency 
in accordance with the provisions of this Notice. In completing the 
report of loss the amount of the debt assumed will be entered as net 
collateral (recovery). Approved protective advances and accrued 
interest thereon made during the arrangement of a transfer and 
assumption will be included in the calculations.
    (ix) Related party. If the transferor and transferee are affiliated 
or related parties, any transfer and assumption must be for the full 
amount of the debt.
    (x) Cash downpayment. When the transferee will be making a cash 
downpayment as part of the transfer and assumption:
    (A) The lender must have an appropriate appraiser, acceptable to 
both the transferee and transferor and currently authorized to perform 
appraisals, determine the value of the collateral securing the loan. 
The appraisal fee and any other costs will not be paid by the Agency.
    (B) The market value of the collateral, plus any additional 
property the transferee proposes to offer as collateral, must be 
adequate to secure the balance of the guaranteed loans, as determined 
by the Agency.
    (C) Cash downpayments may be paid directly to the transferor 
provided:
    (1) The lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The lender may wish 
to require that an amount be retained for a defined period of time as a 
reserve against future defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (2) The lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness;
    (3) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption; and
    (4) The transferor agrees not to take any action against the 
transferee in connection with the assumption without prior written 
approval of the lender and the Agency.
    (h) Subordination of lien position. A subordination of the lender's 
lien position must be requested, in writing, by the lender and 
concurred, in writing, by the Agency in advance of the subordination. 
Agency concurrence requires that:
    (1) The subordination be in the best financial interests of the 
Federal government;
    (2) The lien to which the guaranteed loan is subordinated is for a 
fixed dollar limit;
    (3) Lien priorities remain for the portion of the loan that was not 
subordinated; and
    (4) The subordination does not extend the term of the guaranteed 
loan, and in no event exceeds more than 3 years.
    (i) Repurchase from holder.
    (1) Repurchase by lender. A lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a holder within 30 days of 
written demand by the holder when the borrower is in default not less 
than 60 days on principal or interest due on the loan; or the lender 
has failed to remit to the holder its pro rata share of any payment 
made by the borrower within 30 days of the lender's receipt thereof. 
The repurchase by the lender will be for an amount equal to the unpaid 
guaranteed portion of principal and accrued interest less the lender's 
servicing fee. The holder must concurrently send a copy of the demand 
letter to the Agency. The guarantee will not cover the note interest to 
the holder on the guaranteed loan accruing after 90 days from the date 
of the demand letter to the lender requesting the repurchase. The 
lender will accept an assignment without recourse from the holder upon 
repurchase. The lender is encouraged to repurchase the loan to 
facilitate the accounting of funds, resolve the problem, and prevent 
default, where and when reasonable. The lender will notify the holder 
and the Agency of its decision.
    (2) Agency purchase.
    (i) If the lender does not repurchase the unpaid guaranteed portion 
of the loan as provided in paragraph (1) of this section, the Agency 
will purchase from the holder the unpaid principal balance of the 
guaranteed portion together with accrued interest to the date of 
repurchase, less the lender's servicing fee, within 30 days after 
written demand to the Agency from the holder. (This is in addition to 
the copy of the written demand on the lender.) The guarantee will not 
cover the note interest to the holder on the guaranteed loan accruing 
after 90 days from the date of the original demand letter of the holder 
to the lender requesting the repurchase.
    (ii) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
will consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse including 
all rights, title, and interest in the loan. The holder must include in 
its demand the amount due including unpaid principal, unpaid interest 
to date of demand, and interest subsequently accruing from date of 
demand to proposed payment date. The Agency will be subrogated to all 
rights of the holder.
    (iii) The Agency will notify the lender of its receipt of the 
holder's demand for payment. The lender must promptly provide the 
Agency with the information necessary for the Agency to determine the 
appropriate amount due the holder. Upon request by the Agency, the 
lender will furnish a current statement certified by an appropriate 
authorized officer of the lender of the unpaid principal and interest 
then owed by the borrower on the loan and the amount then owed to any 
holder. Any discrepancy between the amount claimed by the holder and 
the information submitted by the lender must be resolved between the 
lender and the holder before payment will be approved. Such conflict 
will suspend the running of the 30 day payment requirement.
    (iv) Purchase by the Agency neither changes, alters, nor modifies 
any of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of Agency's rights against the lender. 
The Agency will have the right to set off against the lender all rights 
inuring to the Agency as the holder of the instrument against the 
Agency's obligation to the lender under the guarantee.
    (3) Repurchase for servicing. If, in the opinion of the lender, 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the holder must sell the guaranteed 
portion of the loan to the lender for an amount equal to the unpaid 
principal and interest on such portion less the lender's servicing fee. 
The guarantee

[[Page 25091]]

will not cover the note interest to the holder on the guaranteed loan 
accruing after 90 days from the date of the demand letter of the lender 
or the Agency to the holder requesting the holder to tender its 
guaranteed portion. The lender must not repurchase from the holder for 
arbitrage or other purposes to further its own financial gain. Any 
repurchase must only be made after the lender obtains the Agency's 
written approval. If the lender does not repurchase the portion from 
the holder, the Agency may, at its option, purchase such guaranteed 
portion for servicing purposes.
    (j) Additional loans. The lender may make additional expenditures 
or new loans to a borrower with an outstanding loan guaranteed under 
this Notice only with prior written Agency approval. The Agency will 
only approve additional expenditures or new loans to the extent such 
actions where the expenditure or loan will not violate one or more of 
the loan covenants of the borrower's loan agreement. In all instances, 
the lender must notify the Agency when they make any additional 
expenditures or new loans. In all cases, any additional expenditure or 
loan made by the lender must be junior in priority to the loan 
guaranteed hereunder.
    (k) Default by borrower.
    (1) The lender must notify the Agency when a borrower is 30 days 
past due on a payment or is otherwise in default of the loan agreement. 
Form RD 1980-44, ``Guaranteed Loan Borrower Default Status,'' will be 
used and the lender will continue to submit this form bimonthly until 
such time as the loan is no longer in default. If a monetary default 
exceeds 60 days, the lender will arrange a meeting with the Agency and 
the borrower to resolve the problem.
    (2) In considering options, the prospect for providing a permanent 
cure without adversely affecting the risk to the Agency and the lender 
is the paramount objective.
    (i) Curative actions include but are not limited to:
    (A) Deferment of principal (subject to rights of any holder);
    (B) An additional unguaranteed loan by the lender to bring the 
account current;
    (C) Reamortization of or rescheduling the payments on the loan 
(subject to rights of any holder);
    (D) Transfer and assumption of the loan in accordance with the 
provisions in this Notice;
    (E) Reorganization;
    (F) Liquidation;
    (G) Subsequent loan guarantees; and
    (H) Changes in interest rates with the Agency's, the lender's, and 
holder's approval, provided that the interest rate is adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan.
    (ii) In the event a deferment, rescheduling, reamortization, or 
moratorium is accomplished, it will be limited to the remaining life of 
the collateral or remaining limits as contained in the loan term 
provisions in this Notice, whichever is less.
    (l) Protective advances. Protective advances are advances made by 
the lender for the purpose of preserving and protecting the collateral 
where the debtor has failed to, will not, or cannot meet its 
obligations. Sound judgment must be exercised in determining that the 
protective advance preserves collateral and recovery is actually 
enhanced by making the advance. Protective advances will not be made in 
lieu of additional loans.
    (1) The maximum loss to be paid by the Agency will never exceed the 
original principal plus accrued interest regardless of any protective 
advances made.
    (2) Protective advances and interest thereon at the note rate will 
be guaranteed at the same percentage of loss as provided in the Loan 
Note Guarantee.
    (3) Protective advances must constitute an indebtedness of the 
borrower to the lender and be secured by the security instruments. 
Agency written authorization is required when cumulative protective 
advances exceed $200,000.
    (m) Liquidation. In the event of one or more incidents of default 
or third-party actions that the borrower cannot or will not cure or 
eliminate within a reasonable period of time, liquidation may be 
considered. If the lender concludes that liquidation is necessary, it 
must request the Agency's concurrence. The lender will liquidate the 
loan unless the Agency, at its option, carries out liquidation. When 
the decision to liquidate is made, if the loan has not already been 
repurchased, provisions will be made for repurchase in accordance with 
the repurchase from holder provisions in this Notice.
    (1) Decision to liquidate. A decision to liquidate shall be made 
when it is determined that the default cannot be cured through actions 
identified in this Notice or it has been determined that it is in the 
best financial interest of the Federal government and the lender to 
liquidate. The decision to liquidate or continue with the borrower must 
be made as soon as possible when any of the following exist:
    (i) A loan has been delinquent 90 days and the lender and borrower 
have not been able to cure the delinquency through one of the actions 
identified in this Notice.
    (ii) It has been determined that delaying liquidation will 
jeopardize full recovery on the loan.
    (iii) The borrower or lender has been uncooperative in resolving 
the problem and the Agency or the lender has reason to believe the 
borrower is not acting in good faith, and it would enhance the position 
of the guarantee to liquidate immediately.
    (2) Liquidation by the Agency. The Agency may require the lender to 
assign the security instruments to the Agency if the Agency, at its 
option, decides to liquidate the loan. When the Agency liquidates, 
reasonable liquidation expenses will be assessed against the proceeds 
derived from the sale of the collateral. Form RD 1980-45, ``Notice of 
Liquidation Responsibility,'' will be forwarded to the Finance Office 
when the Agency liquidates the loan.
    (3) Submission of liquidation plan. The lender will, within 30 days 
after a decision to liquidate, submit to the Agency, in writing, its 
proposed detailed method of liquidation. Upon approval by the Agency of 
the liquidation plan, the lender will commence liquidation.
    (4) Lender's liquidation plan. The liquidation plan must include, 
but is not limited to, the following:
    (i) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments and a copy of the payment ledger if available which 
reflects the current loan balance and accrued interest to date and the 
method of computing the interest.
    (ii) A full and complete list of all collateral.
    (iii) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action for acquiring and disposing of 
all collateral.
    (iv) Necessary steps for preservation of the collateral.
    (v) Copies of the borrower's latest available financial statements.
    (vi) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.
    (vii) A schedule to periodically report to the Agency on the 
progress of liquidation.
    (viii) Estimated protective advance amounts with justification.
    (ix) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined.

[[Page 25092]]

    (x) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt.
    (xi) Legal opinions, if needed.
    (xii) The lender will obtain an independent appraisal report 
meeting the requirements of appraisal requirements in this Notice on 
all collateral securing the loan which will reflect the fair market 
value and potential liquidation value. In order to formulate a 
liquidation plan which maximizes recovery, collateral must be evaluated 
for the release of hazardous substances, petroleum products, or other 
environmental hazards which may adversely impact the market value of 
the collateral. Both the estimate and the appraisal shall consider this 
aspect. The independent appraiser's fee, including the cost of a Phase 
I Environmental Site Assessment (ESA) in accordance with ASTM 
standards, will be shared equally by the Agency and the lender.
    (5) Approval of liquidation plan. The Agency will inform the 
lender, in writing, whether it concurs in the lender's liquidation 
plan. Should the Agency and the lender not agree on the liquidation 
plan, negotiations will take place between the Agency and the lender to 
resolve the disagreement. When the liquidation plan is approved by the 
Agency, the lender will proceed expeditiously with liquidation.
    (i) A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes into liquidation. However, 
if the collateral has been purchased through foreclosure or the 
borrower has conveyed title to the lender, no transfer and assumption 
is permitted.
    (ii) A protective bid may be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and the 
Agency's interest. The protective bid will not exceed the amount of the 
loan, including expenses of foreclosure, and should be based on the 
liquidation value considering estimated expenses for holding and 
reselling the property. These expenses include, but are not limited to, 
expenses for resale, interest accrual, length of time necessary for 
resale, maintenance, guard service, weatherization, and prior liens.
    (iii) Under no circumstances will the Agency pay more than 90 days 
of additional accrued interest once the liquidation plan is approved.
    (6) Acceleration. The lender, or the Agency if it liquidates, will 
proceed to accelerate the indebtedness as expeditiously as possible 
when acceleration is necessary including giving any notices and taking 
any other legal actions required. A copy of the acceleration notice or 
other acceleration document will be sent to the Agency (or lender if 
the Agency liquidates). The guaranteed loan will be considered in 
liquidation once the loan has been accelerated and a demand for payment 
has been made upon the borrower.
    (7) Filing an estimated loss claim. When the lender is conducting 
the liquidation and owns any or all of the guaranteed portion of the 
loan, the lender will file an estimated loss claim once a decision has 
been made to liquidate if the liquidation will exceed 90 days. The 
estimated loss payment will be based on the liquidation value of the 
collateral. For the purpose of reporting and loss claim computation, 
the lender will discontinue interest accrual on the defaulted loan in 
accordance with Agency procedures, and the loss claim will be promptly 
processed in accordance with applicable Agency regulations.
    (8) Accounting and reports. When the lender conducts liquidation, 
it will account for funds during the period of liquidation and will 
provide the Agency with reports at least quarterly on the progress of 
liquidation including disposition of collateral, resulting costs, and 
additional procedures necessary for successful completion of the 
liquidation.
    (9) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
will transmit to the Agency its pro rata share of any payments received 
from the borrower; liquidation; or other proceeds using Form RD 1980-
43, ``Lender's Guaranteed Loan Payment to USDA.''
    (10) Abandonment of collateral. There may be instances when the 
cost of liquidation would exceed the potential recovery value of the 
collection. The lender, with proper documentation and concurrence of 
the Agency, may abandon the collateral in lieu of liquidation. A 
proposed abandonment will be considered a servicing action requiring 
the appropriate environmental review by the Agency in accordance with 
subpart G of part 1940 of this title. Examples where abandonment may be 
considered include, but are not limited to:
    (i) The cost of liquidation is increased or the value of the 
collateral is decreased by environmental issues;
    (ii) The collateral is functionally or economically obsolete;
    (iii) The collateral has deteriorated; or
    (iv) The collateral is specialized and there is little or no demand 
for it.
    (11) Recovery and deficiency judgments. The lender should take 
action to maximize recovery from all collateral. The lender will seek a 
deficiency judgment when there is a reasonable chance of future 
collection of the judgment. The lender must make a decision whether or 
not to seek a deficiency judgment when:
    (i) A borrower voluntarily liquidates the collateral, but the sale 
fails to pay the guaranteed indebtedness;
    (ii) The collateral is voluntarily conveyed to the lender; or
    (iii) A liquidation plan is being developed for forced liquidation.
    (12) Compromise settlement. A compromise settlement may be 
considered at any time.
    (i) The lender and the Agency must receive complete financial 
information on all parties obligated for the loan and must be satisfied 
that the statements reflect the true and correct financial position of 
the debtor including all assets. Adequate consideration must be 
received before a release from liability is issued. Adequate 
consideration includes money, additional security, or other benefit to 
the goals and objectives of the Agency.
    (ii) Once the Agency and the lender agree on a reasonable amount 
that is fair and adequate, the lender can proceed to effect the 
compromise settlement.
    (iii) A compromise will only be accepted if it is in the best 
financial interest of the Federal government.
    (n) Determination of loss and payment. In all liquidation cases, 
final settlement will be made with the lender after the collateral is 
liquidated, unless otherwise designated as a future recovery or after 
settlement and compromise of all parties has been completed. The Agency 
will have the right to recover losses paid under the guarantee from any 
party which may be liable.
    (1) Report of loss form. Form RD 449-30 will be used for 
calculations of all estimated and final loss determinations. Estimated 
loss payments may only be approved by the Agency after the Agency has 
approved a liquidation plan.
    (2) Estimated loss. In accordance with the requirements of 7 CFR 
part 4287, an estimated loss claim based on liquidation appraisal value 
will be prepared and submitted by the lender.
    (i) The estimated loss payment shall be applied as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability.
    (ii) An estimated loss will be applied first to reduce the 
principal balance on the guaranteed loan and the balance, if any, to 
accrued interest. Interest accrual

[[Page 25093]]

on the defaulted loan will be discontinued.
    (iii) A protective advance claim will be paid only at the time of 
the final report of loss payment, except in certain transfer and 
assumption situations as specified in 7 CFR part 4287.
    (3) Final loss. Within 30 days after liquidation of all collateral 
is completed, a final report of loss must be prepared and submitted by 
the lender to the Agency. The Agency will not guarantee interest beyond 
this 30-day period other than for the period of time it takes the 
Agency to process the loss claim. Before approval by the Agency of any 
final loss report, the lender must account for all funds during the 
period of liquidation, disposition of the collateral, all costs 
incurred, and any other information necessary for the successful 
completion of liquidation. Upon receipt of the final accounting and 
report of loss, the Agency may audit all applicable documentation to 
determine the final loss. The lender will make its records available 
and otherwise assist the Agency in making any investigation. The 
documentation accompanying the report of loss must support the amounts 
shown on Form RD 449-30.
    (i) The lender must document that all of the collateral has been 
accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly to the loan.
    (ii) The lender will show a breakdown of any protective advance 
amount as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper and that payment was 
actually made.
    (iii) The lender will show a breakdown of liquidation expenses as 
to the payee, purpose of the expenditure, date paid, and evidence that 
the amount expended was proper and that payment was actually made. 
Liquidation expenses are recoverable only from collateral proceeds. 
Attorney fees may be approved as liquidation expenses provided the fees 
are reasonable and cover legal issues pertaining to the liquidation 
that could not be properly handled by the lender and its in-house 
counsel.
    (iv) Accrued interest will be supported by documentation as to how 
the amount was accrued. If the interest rate was a variable rate, the 
lender will include documentation of changes in both the selected base 
rate and the loan rate.
    (v) Loss payments will be paid by the Agency within 60 days after 
the review of the final loss report and accounting of the collateral.
    (4) Loss limit. The amount payable by the Agency to the lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (5) Rent. Any net rental or other income that has been received by 
the lender from the collateral will be applied on the guaranteed loan 
debt.
    (6) Liquidation costs. Liquidation costs will be deducted from the 
proceeds of the disposition of collateral. If changed circumstances 
after submission of the liquidation plan require a substantial revision 
of liquidation costs, the lender will procure the Agency's written 
concurrence prior to proceeding with the proposed changes. No in-house 
expenses of the lender will be allowed. In-house expenses include, but 
are not limited to, employee's salaries, staff lawyers, travel, and 
overhead.
    (7) Payment. When the Agency finds the final report of loss to be 
proper in all respects, it will approve Form RD 449-30 and proceed as 
follows:
    (i) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the lender.
    (ii) If the loss is less than the estimated loss payment, the 
lender will reimburse the Agency for the overpayment plus interest at 
the note rate from the date of payment.
    (iii) If the Agency has conducted the liquidation, it will pay the 
lender in accordance with the Loan Note Guarantee.
    (o) Future recovery. After a loan has been liquidated and a final 
loss has been paid by the Agency, any future funds which may be 
recovered by the lender will be pro-rated between the Agency and the 
lender based on the original percentage of guarantee.
    (p) Bankruptcy. The lender is responsible for protecting the 
guaranteed loan and all collateral securing the loan in bankruptcy 
proceedings.
    (1) Lender's responsibilities. It is the lender's responsibility to 
protect the guaranteed loan debt and all of the collateral securing it 
in bankruptcy proceedings. These responsibilities include, but are not 
limited to, the following:
    (i) The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.
    (ii) The lender will attend and, where necessary, participate in 
meetings of the creditors and all court proceedings.
    (iii) When permitted by the Bankruptcy Code, the lender will 
request modification of any plan of reorganization whenever it appears 
that additional recoveries are likely.
    (iv) The Agency will be kept adequately and regularly informed, in 
writing, of all aspects of the proceedings.
    (v) In a Chapter 11 reorganization, if an independent appraisal of 
collateral is necessary in the Agency's opinion, the Agency and the 
lender will share such appraisal fee equally.
    (2) Reports of loss during bankruptcy. When the loan is involved in 
reorganization proceedings, payment of loss claims may be made as 
provided in this section. For a liquidation proceeding, only paragraphs 
(p)(2)(iii) and (v) of this section are applicable.
    (i) Estimated loss payments.
    (A) If a borrower has filed for protection under Chapter 11 of the 
United States Code for a reorganization (but not Chapter 13) and all or 
a portion of the debt has been discharged, the lender will request an 
estimated loss payment of the guaranteed portion of the accrued 
interest and principal discharged by the court. Only one estimated loss 
payment is allowed during the reorganization. All subsequent claims of 
the lender during reorganization will be considered revisions to the 
initial estimated loss. A revised estimated loss payment may be 
processed by the Agency, at its option, in accordance with any court-
approved changes in the reorganization plan. Once the reorganization 
plan has been completed, the lender is responsible for submitting the 
documentation necessary for the Agency to review and adjust the 
estimated loss claim to reflect any actual discharge of principal and 
interest and to reimburse the lender for any court-ordered interest-
rate reduction under the terms of the reorganization plan.
    (B) The lender will use Form RD 449-30 to request an estimated loss 
payment and to revise any estimated loss payments during the course of 
the reorganization plan. The estimated loss claim, as well as any 
revisions to this claim, will be accompanied by documentation to 
support the claim.
    (C) Upon completion of a reorganization plan, the lender will 
complete a Form RD 1980-44 and forward this form to the Finance Office.
    (ii) Interest loss payments.
    (A) Interest losses sustained during the period of the 
reorganization plan will be processed in accordance with paragraph 
(p)(2)(i) of this section.
    (B) Interest losses sustained after the reorganization plan is 
completed will be processed annually when the lender sustains a loss as 
a result of a permanent interest rate reduction which extends

[[Page 25094]]

beyond the period of the reorganization plan.
    (C) If an estimated loss claim is paid during the operation of the 
Chapter 11 reorganization plan and the borrower repays in full the 
remaining balance without an additional loss sustained by the lender, a 
final report of loss is not necessary.
    (iii) Final loss payments. Final loss payments will be processed 
when the loan is liquidated.
    (iv) Payment application. The lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion 
of the debt. In the event a bankruptcy court attempts to direct the 
payments to be applied in a different manner, the lender will 
immediately notify the Agency servicing office.
    (v) Overpayments. Upon completion of the reorganization plan, the 
lender will provide the Agency with the documentation necessary to 
determine whether the estimated loss paid equals the actual loss 
sustained. If the actual loss sustained as a result of the 
reorganization is less than the estimated loss, the lender will 
reimburse the Agency for the overpayment plus interest at the note rate 
from the date of payment of the estimated loss. If the actual loss is 
greater than the estimated loss payment, the lender will submit a 
revised estimated loss in order to obtain payment of the additional 
amount owed by the Agency to the lender.
    (vi) Protective advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, these protective 
advances and accrued interest will be considered in the loss 
calculations.
    (3) Legal expenses during bankruptcy proceedings.
    (i) When a bankruptcy proceeding results in a liquidation of the 
borrower by a trustee, legal expenses will be handled as directed by 
the court.
    (ii) Chapter 11 pertains to a reorganization of a business 
contemplating an ongoing business rather than a termination and 
dissolution of the business where legal protection is afforded to the 
business as defined under Chapter 11 of the Bankruptcy Code. 
Consequently, expenses incurred by the lender in a Chapter 11 
reorganization can never be liquidation expenses unless the proceeding 
becomes a Chapter 11 liquidation. If the proceeding should become a 
Liquidating 11, reasonable and customary liquidation expenses may be 
deducted from proceeds of collateral as provided in the Lender's 
Agreement. Chapter 7 pertains to a liquidation of the borrower's 
assets. If, and when, liquidation of the borrower's assets under 
Chapter 7 is conducted by the bankruptcy trustee, then the lender 
cannot claim expenses.

P. Basic Borrower Provisions

    (a) The borrower must allow the Agency access to the project and 
its performance information until the loan is repaid in full and permit 
periodic inspection of the project by a representative of the Agency.
    (b) The borrower must permit representatives of the Agency (or 
other agencies of the U.S.) to inspect and make copies of any records 
pertaining to any Agency guaranteed loan during regular office hours of 
the borrower or at any other time upon agreement between the borrower 
and the Agency, as appropriate.

Q. Basic Guarantee and Loan Provisions

    (a) Conditions of guarantee. A loan guarantee under this Notice 
will be evidenced by a Loan Note Guarantee issued by the Agency. Each 
lender will execute a Lender's Agreement. If a valid Lender's Agreement 
already exists, it is not necessary to execute a new Lender's Agreement 
with each loan guarantee. The provisions of this Notice will apply to 
all outstanding guarantees. In the event of a conflict between the 
guarantee documents and this Notice as they exist at the time the 
documents are executed, the Notice will control. To the extent that the 
Agency publishes a regulation whose provisions are inconsistent with 
the terms of this Notice, the terms of this Notice shall control for 
loan guarantees entered into pursuant to this Notice.
    (b) Full faith and credit. A guarantee under this Notice 
constitutes an obligation supported by the full faith and credit of the 
United States and is incontestable except for fraud or 
misrepresentation of which a lender or holder has actual knowledge at 
the time it becomes such lender or holder or which a lender or holder 
participates in or condones. The guarantee will be unenforceable to the 
extent that any loss is occasioned by a provision for interest on 
interest. In addition, the guarantee will be unenforceable by the 
lender to the extent any loss is occasioned by the violation of usury 
laws, negligent servicing, or failure to obtain the required security 
regardless of the time at which the Agency acquires knowledge thereof. 
Any losses occasioned will be unenforceable to the extent that loan 
funds are used for purposes other than those specifically approved by 
the Agency in its Conditional Commitment. The Agency will guarantee 
payment as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and interest evidenced by the notes or assumption 
agreements and secured advances for protection and preservation of 
collateral made with the Agency's authorization; or
    (ii) The guaranteed principal advanced to or assumed by the 
borrower and any interest due thereon.
    (c) Soundness of guarantee. All loans guaranteed under this Notice 
must be financially sound and feasible, with reasonable assurance of 
repayment.
    (d) Rights and liabilities. When a portion of the guaranteed loan 
is sold to a holder, the holder shall succeed to all rights of the 
lender under the Loan Note Guarantee to the extent of the portion 
purchased. The lender will remain bound to all obligations under the 
Loan Note Guarantee, Lender's Agreement, and the Agency program 
regulations. A guarantee and right to require purchase will be directly 
enforceable by a holder notwithstanding any fraud or misrepresentation 
by the lender or any unenforceability of the guarantee by the lender, 
except for fraud or misrepresentation of which the holder has actual 
knowledge at the time it becomes the holder or in which the holder 
participates or condones.
    (1) In the event of material fraud, negligence or misrepresentation 
by the lender or the lender's participation in or condoning of such 
material fraud, negligence or misrepresentation, the lender will be 
liable for payments made by the Agency to any holder.
    (2) A lender will receive all payments of principal and interest on 
account of the entire loan and will promptly remit to the holder its 
pro rata share thereof, determined according to its respective interest 
in the loan, less only the lender's servicing fee.
    (e) Interest rates.
    (1) General. The interest rate for the guaranteed loan will be 
negotiated between the lender and the applicant. The interest rate 
charged must be in line with interest rates on other similar government 
guaranteed loan programs, and is subject to Agency review and approval.
    (i) The interest rate may be either fixed or variable, as long as 
it is a legal rate, and shall be fully amortizing.
    (ii) The interest rate for both the guaranteed and unguaranteed 
portions

[[Page 25095]]

of the loan must be of the same type (i.e., both fixed or both 
variable).
    (iii) The guaranteed and unguaranteed portions of the loan can bear 
interest at different rates, provided that the blended rate on the 
entire guaranteed loan shall not exceed the rate on the guaranteed 
portion of the loan by more than one (1) percent.
    (iv) Both portions of the loan must amortize at the same rate.
    (2) Variable rates. A variable interest rate agreed to by the 
lender and borrower must be based on published indices, such as the 
Prime Rate, applicable Treasury rate, or the London Inter Bank Offering 
Rate (LIBOR), and agreed to by the lender and the Agency. Variable 
rates should have either an internal or external interest rate cap.
    (i) The variable interest rate may be adjusted at different 
intervals during the term of the loan, but the adjustments may not be 
more often than quarterly and no less than yearly to prevent negative 
amortization, and must be specified in the loan agreement.
    (ii) Variable rate loans will not provide for negative amortization 
nor will they give the borrower the ability to choose its payment among 
various options.
    (iii) The lender must incorporate, within the variable rate 
Promissory Note at loan closing, the provision for adjustment of 
payment installments coincident with an interest-rate adjustment.
    (iv) The lender will ensure that the outstanding principal balance 
is properly amortized within the prescribed loan maturity to eliminate 
the possibility of a balloon payment at the end of the loan.
    (3) Interest changes. Any change in the interest rate between the 
date of issuance of the Conditional Commitment and before the issuance 
of the Loan Note Guarantee must be approved, in writing, by the Agency 
approval official. Approval of such a change will be shown as an 
amendment to the Conditional Commitment. Such changes are subject to 
the restrictions set forth in the following paragraphs.
    (i) Reductions. The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the 
interest rate of the guaranteed loan at any time during the life of the 
loan upon written agreement among these parties. The Agency must be 
notified by the lender, in writing, within 15 days of the change. If 
any of the guaranteed portion has been purchased by the Agency, then 
the Agency will affirm or reject interest rate change proposals in 
writing. The Agency will concur in such interest-rate changes only when 
it is demonstrated to the Agency that the change is a more viable 
alternative than initiating or proceeding with liquidation of the loan 
or continuing with the loan in its present state.
    (A) Fixed rates can be changed to variable rates to reduce the 
borrower's interest rate only when the variable rate has a ceiling for 
the life of the guaranteed loan that is less than or equal to the 
original fixed rate.
    (B) The interest rates, after adjustments, must comply with the 
requirements for interest rates on new loans as established under this 
Notice.
    (C) The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally effective 
amendment to the promissory note; however, no new notes may be issued. 
Copies of all legal documents must be provided to the Agency.
    (ii) Increases. Increases in interest rates are not permitted 
beyond what is provided in the loan documents. Increases from a 
variable interest rate to a higher interest rate that is a fixed rate 
are allowed, subject to concurrence by the Agency.
    (f) Term length, schedule, and repayment.
    (1) The repayment term for a loan under this Notice will be for a 
maximum period of 20 years or 85 percent of the useful life of the 
project, as determined by the lender and confirmed by the Agency, 
whichever is less. The length of the loan term shall be the same for 
both the guaranteed and unguaranteed portion of the loan.
    (2) The first installment of principal may be scheduled for payment 
after the project is operational and has begun to generate income. 
However, the first full installment of principal must be due and 
payable within 3 years from the date of the Promissory Note and be paid 
at least annually thereafter. Interest payments will be paid at least 
annually from the date of the note.
    (3) Only loans that require a periodic payment schedule that will 
retire the debt over the term of the loan without a balloon payment 
will be guaranteed (i.e., the loan will fully amortize over its life 
without any balloon payment due at maturity).
    (4) The maturity of a loan will be based on the use of proceeds, 
the useful life of the assets being financed, and the borrower's 
ability to repay. The lender may apply the maximum guidelines specified 
above only when the loan cannot be repaid over a shorter term.
    (5) Guarantees must be provided only after consideration is given 
to the borrower's overall credit quality and to the terms and 
conditions of any applicable subsidies, tax credits, and other such 
incentives.
    (6) A principal plus interest repayment schedule is permissible.
    (7) The lender will determine the particular prepayment provisions 
to offer, subject to concurrence by the Agency.
    (g) Guaranteed Loan Funding.
    (1) Maximum amount. The maximum principal amount of a loan 
guaranteed under this Program is $250 million. There is no minimum 
amount. The amount of a loan guaranteed under this Program will be 
reduced by the amount of other direct Federal funding that the eligible 
borrower receives for eligible project costs.
    (2) Maximum guarantee. The maximum guarantee on the principal and 
interest due on a loan guaranteed under this Program is as follows:
    (i) If the loan amount is equal to or less than $80 million, 80%;
    (ii) If the loan amount is more than $80 million and less than $125 
million, 80% on the first $80 million and 70% on the loan amount that 
is greater than $80 million; and
    (iii) If the loan amount is equal to or more than $125 million, 
60%.
    (3) Percentage of eligible project cost. The amount of a loan 
guaranteed for a project under this Program will not exceed 80 percent 
of total eligible project costs. Eligible project costs are only those 
costs associated with the items listed in paragraphs (g)(3)(i) through 
(ix) below, as long as the items are an integral and necessary part of 
the total project.
    (i) Purchase and installation of equipment (new, refurbished, or 
remanufactured), except agricultural tillage equipment, used equipment, 
and vehicles.
    (ii) Construction or retrofitting, except residential.
    (iii) Permit and license fees;
    (iv) Professional service fees, except for application preparation;
    (v) Feasibility studies;
    (vi) Business plans;
    (vii) Working capital;
    (viii) Land acquisition; and
    (ix) Cost of financing, excluding guarantee and renewal fees.
    (h) Guarantee and other fees
    (1) Guarantee fee. For any loan, the guarantee fee will be paid to 
the Agency by the lender at the time the Loan Note Guarantee is 
requested, and is nonrefundable.
    (i) The guarantee fee will be calculated by multiplying the 
outstanding principal balance by the percentage of the loan that is 
guaranteed under this program by the guarantee fee

[[Page 25096]]

rate shown below. The guarantee fee rate shall be determined as 
follows:
    (A) Two percent for guarantees on loans greater than 75 percent of 
eligible project cost.
    (B) One and one-half percent for guarantees on loans of greater 
than 65 percent but less than or equal to 75 percent of eligible 
project cost.
    (C) One percent for guarantees on loans of 65 percent or less of 
eligible project cost.
    (ii) The guarantee fee may be passed on to the borrower.
    (2) Annual renewal fee. The annual renewal fee will be calculated 
on the unpaid principal balance as of close of business on December 31 
of each year. Annual renewable fees are due on January 31. For loans 
where the Loan Note Guarantee is issued between October 1 and December 
31, the first annual renewal fee payment will not be due until the 
January 31st immediately following the first anniversary of the date 
the Loan Note Guarantee was issued.
    (i) Payments not received by April 1 are considered delinquent and, 
at the Agency's discretion, may result in cancellation of the guarantee 
to the lender. Holders' rights will continue in effect as specified in 
the Loan Note Guarantee and Assignment Guarantee Agreement. Any 
delinquent annual renewal fees will bear interest at the note rate and 
will be deducted from any loss payment due the lender.
    (ii) The annual renewal fee will be calculated by multiplying the 
outstanding principal balance by the percentage of the loan that is 
guaranteed under this program by the annual renewal fee rate shown 
below. The renewal fee rate shall be as follows:
    (A) One hundred basis points (1 percent) for guarantees on loans 
that were originally greater than 75 percent of eligible project costs.
    (B) Seventy five basis points (0.75 percent) for guarantees on 
loans that were originally greater than 65 percent but less than or 
equal to 75 percent of eligible project costs.
    (C) Fifty basis points (0.50 percent) for guarantees on loans that 
were originally for 65 percent or less of eligible project costs.
    (iii) The annual renewal fee will be paid to the Agency for as long 
as the guaranteed loan is outstanding and is payable during the 
construction period.
    (3) Lender fees. The lender may charge the borrower reasonable fees 
as approved by the Agency.
    (i) Conditions precedent to issuance of Loan Note Guarantee. All 
applicable regulatory, statutory, and other requirements must be met to 
issue the Loan Note Guarantee. The Secretary has the discretion to 
cancel a Conditional Commitment at any time. Further, the Loan Note 
Guarantee will not be issued until the lender certifies to the 
following conditions:
    (1) No major changes have been made in the lender's loan conditions 
and requirements since the issuance of the Conditional Commitment, 
unless such changes have been approved by the Agency.
    (2) All planned property acquisition has been or will be completed, 
all development has been or will be substantially completed in 
accordance with plans and specifications, and conforms with applicable 
Federal, state, and local codes.
    (3) Required hazard, flood, liability, worker compensation, and 
personal life insurance, when required, are in effect.
    (4) Truth-in-lending requirements have been met.
    (5) All equal credit opportunity requirements have been met.
    (6) The loan has been properly closed, and the required security 
instruments have been obtained or will be obtained on any acquired 
property that cannot be covered initially under State law.
    (7) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and to any other exceptions approved, in writing, by the 
Agency.
    (8) When required, the entire amount of funds for working capital 
has been disbursed except in cases where the Agency has approved 
disbursement over an extended period of time.
    (9) All other requirements of the Conditional Commitment have been 
met.
    (10) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, or other parties have been or 
will be filed against the collateral and no suits are pending or 
threatened that would adversely affect the collateral when the security 
instruments are filed.
    (11) The loan proceeds will be disbursed for purposes and in 
amounts consistent with the Conditional Commitment and Form RD 4279-1. 
A copy of the detailed loan settlement of the lender must be attached 
to support this certification.
    (12) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to issuance of the Loan 
Note Guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
lender's or borrower's control. The lender must address any assumptions 
or reservations in the requirement and must address all adverse changes 
of the borrower, and any parent, affiliate, or subsidiary of the 
borrower.
    (13) None of the lender's officers, directors, stockholders, or 
other owners (except stockholders in an institution that has normal 
stockshare requirements for participation) has a substantial financial 
interest in the borrower and neither the borrower nor its officers, 
directors, stockholders, or other owners has a substantial financial 
interest in the lender. If the borrower is a member of the board of 
directors or an officer of a Farm Credit System (FCS) institution that 
is the lender, the lender will certify that an FCS institution on the 
next highest level will independently process the loan request and act 
as the lender's agent in servicing the account.
    (14) The loan agreement includes all mitigation measures identified 
in the Agency's environmental impact analysis for this proposal 
(measures with which the borrower must comply) for the purpose of 
avoiding or reducing adverse environmental impacts of the proposal's 
construction or operation.
    (j) Issuance of the guarantee.
    (1) When loan closing plans are established, the lender must notify 
the Agency in writing. At the same time, or immediately after loan 
closing, the lender must provide the following to the Agency:
    (i) Lender's certifications as required by Conditions Precedent to 
Issuance of Loan Note Guarantee in this Notice;
    (ii) An executed Form RD 4279-4, as modified; and
    (iii) An executed Form RD 1980-19, ``Guaranteed Loan Closing 
Report,'' and appropriate guarantee fee.
    (2) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Loan Note Guarantee, Form RD 4279-5, as 
modified, and the following documents, as appropriate, will be issued:
    (i) Assignment Guarantee Agreement. If the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and the 
Agency must execute the Assignment Guarantee Agreement, Form RD 4279-6, 
as modified;
    (ii) Certificate of Incumbency. If requested by the lender, the 
Agency will provide the lender with a copy of Form RD 4279-7, as 
modified, ``Certificate of Incumbency and Signature,'' with the

[[Page 25097]]

signature and title of the Agency official responsible for signing the 
Loan Note Guarantee, Lender's Agreement, and Assignment Guarantee 
Agreement; and
    (iii) Legal documents. Copies of legal loan documents.
    (k) Refusal to execute Loan Note Guarantee. If the Agency 
determines that it cannot execute the Loan Note Guarantee, the Agency 
will promptly inform the lender of the reasons and give the lender a 
reasonable period within which to satisfy the objections. If the lender 
requests, in writing, additional time and within the period allowed, 
the Agency may grant the request. If the lender satisfies the 
objections within the time allowed, the guarantee will be issued.
    (l) Replacement of document. If the Loan Note Guarantee or 
Assignment Guarantee Agreement has been lost, stolen, destroyed, 
mutilated, or defaced, the Agency may issue a replacement to the lender 
or holder upon receipt from the lender of a notarized certificate of 
loss and an indemnity bond acceptable to the Agency. If the holder is 
the United States, a Federal Reserve Bank, a Federal Government 
corporation, a State or Territory, or the District of Columbia, an 
indemnity bond is not required.
    (m) Alterations of loan instruments. Under no circumstances shall 
the lender alter or approve any alterations of any loan instrument 
without the prior written approval of the Agency.
    (n) Reorganizations
    (1) Changes in borrower. Any changes in borrower ownership or 
organization prior to the issuance of the Loan Note Guarantee must meet 
the eligibility requirements of the Program and be approved by the 
Agency prior to the issuance of the Conditional Commitment. Once the 
Conditional Commitment is issued, no substitution of borrower(s) or 
change in the form of legal entity will be approved, unless Agency 
approval, in writing, is obtained.
    (2) Transfer of lenders. The Agency may approve the substitution of 
a new lender in place of a former lender who holds an outstanding 
Conditional Commitment when the Loan Note Guarantee has not yet been 
issued provided, that there are no changes in the borrower's ownership 
or control, loan purposes, or scope of project and loan conditions in 
the Conditional Commitment and the loan agreement remain the same. The 
new lender's servicing capability, eligibility, and experience will be 
analyzed by the Agency prior to approval of the substitution. The 
original lender will provide the Agency with a letter stating the 
reasons it no longer desires to be a lender for the project. The 
substituted lender must execute a new part B of Form RD 4279-1.
    (3) Substitution of lender. After the issuance of a Loan Note 
Guarantee, the lender shall not sell or transfer the entire loan 
without the prior written approval of the Agency. The Agency will not 
pay any loss or share in any costs (i.e., appraisal fees, environmental 
studies, or other costs associated with servicing or liquidating the 
loan) with a new lender unless a relationship is established through a 
substitution of lender in accordance with paragraph (b) of this 
section. This includes cases where the lender has failed and been taken 
over by a regulatory agency such as the Federal Deposit Insurance 
Corporation (FDIC) and the loan is subsequently sold to another lender.
    (i) The Agency may approve the substitution of a new lender if:
    (A) The proposed substitute lender:
    (1) Is an eligible lender in accordance with this Notice;
    (2) Is able to service the loan in accordance with the original 
loan documents; and
    (3) Acquires/Agrees, in writing, to acquire title to the 
unguaranteed portion of the loan held by the original lender and 
assumes all original loan requirements, including liabilities and 
servicing responsibilities.
    (B) The substitution of the lender is requested, in writing, by the 
borrower, the proposed substitute lender, and the original lender if 
still in existence.
    (ii) Where the lender has failed and been taken over by FDIC and 
the guaranteed loan is liquidated by FDIC rather than being sold to 
another lender, the Agency will pay losses and share in costs as if 
FDIC were an approved substitute lender.
    (o) Sale or Assignment of Guaranteed Loan. The lender may sell all 
or part of the guaranteed portion of the loan on the secondary market 
or retain the entire loan. The guaranteed portion of the loan shall be 
fully transferable to any accredited investor. However, the lender 
shall not sell or participate any amount of the guaranteed or 
unguaranteed portion of the loan to the borrower or members of the 
borrower's immediate families, officers, directors, stockholders, other 
owners, or a parent, subsidiary or affiliate. If the lender desires to 
market all or part of the guaranteed portion of the loan at or 
subsequent to loan closing, such loan must not be in default. Loans 
made with the proceeds of any obligation the interest on which is 
excludable from income under 26 U.S.C. 103 (interest on State and local 
banks) or any successor section will not be guaranteed. The Secretary 
may not guarantee a loan funded with the net proceeds of a bond 
described in section 142(a) of the Internal Revenue Code of 1986.
    (1) Single note system. The entire loan is evidenced by one note, 
and one Loan Note Guarantee is issued. The lender may assign all or 
part of the guaranteed portion of the loan to one or more holders by 
using the Agency's Assignment Guarantee Agreement. The holder, upon 
written notice to the lender and the Agency, may reassign the unpaid 
guaranteed portion of the loan sold under the Assignment Guarantee 
Agreement. Upon notification and completion of the assignment through 
the use of Form RD 4279-6, the assignee shall succeed to all rights and 
obligations of the holder thereunder. If this option is selected, the 
lender may not at a later date cause any additional notes to be issued.
    (2) Multi-note system. Under this option the lender may provide one 
note for the unguaranteed portion of the loan and no more than 10 notes 
for the guaranteed portion. When this option is selected by the lender, 
the holder will receive one of the borrower's executed notes and a Loan 
Note Guarantee. The Agency will issue a Loan Note Guarantee for each 
guaranteed note to be attached to the note. An Assignment Guarantee 
Agreement will not be used when the multi-note option is utilized.
    (3) After loan closing. If a loan is closed using the multinote 
option and at a later date additional notes are desired, the lender may 
cause a series of new notes, so that the total number of notes issued 
does not exceed the total number provided for in paragraph (b) of this 
section, to be issued as replacement for previously issued guaranteed 
notes, provided:
    (i) Written approval of the Agency is obtained;
    (ii) The borrower agrees and executes the new notes;
    (iii) The interest rate terms remain the same as those in effect 
when the loan was closed;
    (iv) The maturity date of the loan is not changed;
    (v) The Agency will not bear or guarantee any expenses that may be 
incurred in reference to such reissuance of notes;
    (vi) There is adequate collateral securing the notes;
    (vii) No intervening liens have arisen or have been perfected and 
the secured lien priority is better or remains the same; and
    (viii) All holders agree.
    (p) Termination of lender servicing fee. The lender's servicing fee 
will stop

[[Page 25098]]

when the Agency purchases the guaranteed portion of the loan from the 
secondary market. No such servicing fee may be charged to the Agency 
and all loan payments and collateral proceeds received will be applied 
first to the guaranteed loan and, when applied to the guaranteed loan, 
will be applied on a pro rata basis.
    (q) Participation. The lender may sell participations in the loan 
under its normal operating procedures; however, the lender must retain 
title to the notes if any of them are unguaranteed and retain the 
lender's interest in the collateral.
    (r) Minimum retention. Lenders may syndicate a portion of its risk 
position to other eligible lenders provided that at no time during the 
life of the guarantee may the original lender hold less than 50 percent 
of their original unguaranteed position in the loan.
    (s) Termination of guarantee. A guarantee issued under this Notice 
will terminate automatically upon:
    (1) Full payment of the guaranteed loan;
    (2) Full payment of any loss obligation or negotiated loss 
settlement except for future recovery provisions and payments made as a 
result of the Debt Collection Improvement Act of 1996. After final 
payment of claims to lenders and/or holders, the Agency will retain all 
funds received as the result of the Debt Collection Improvement Act of 
1996; or
    (3) Written request from the lender to the Agency that the 
guarantee will terminate 30 days after the date of the request, 
provided that the lender holds all of the guaranteed portion, and the 
original Loan Note Guarantee is returned to the Agency to be canceled.

Nondiscrimination Statement

    ``The U.S. Department of Agriculture (USDA) prohibits 
discrimination in all its programs and activities on the basis of race, 
color, national origin, age, disability, and where applicable, sex, 
marital status, familial status, parental status, religion, sexual 
orientation, genetic information, political beliefs, reprisal, or 
because all or part of an individual's income is derived from any 
public assistance program. (Not all prohibited bases apply to all 
programs.) Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD).
    To file a complaint of discrimination, write USDA, Director, Office 
of Adjudication and Compliance, 1400 Independence Avenue SW., 
Washington, DC 20250-9410, or call (800) 795-3272 (voice), or (202) 
720-6382 (TDD). USDA is an equal opportunity provider, employer, and 
lender.''

     Dated: April 27, 2010.
Judith A. Canales,
Administrator, Rural Development, Business and Cooperative Programs.
[FR Doc. 2010-10249 Filed 5-5-10; 8:45 am]
BILLING CODE 3410-XY-P