[Federal Register Volume 73, Number 194 (Monday, October 6, 2008)]
[Proposed Rules]
[Pages 58085-58099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23444]


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DEPARTMENT OF THE INTERIOR

Bureau of Reclamation

43 CFR Part 403

RIN 1006-AA53


Bureau of Reclamation Loan Guarantees

AGENCY: Bureau of Reclamation, Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Bureau of Reclamation (Reclamation) proposes this rule 
establishing eligibility criteria and program requirements for loan 
guarantees authorized by the Twenty-first Century Water Works Act 
(Title II of Pub. L. 109-451; 43 U.S.C. 2421-2434) (Act). This rule is 
intended to define for potential participants how the loan guarantees 
authorized by the Act will be administered. The Act authorizes the 
Secretary of the Interior (Secretary) to make loan guarantees for three 
categories of projects:
    Category (A) projects are rural water supply projects as defined in 
section 102(9) of the Reclamation Rural Water Supply Act of 2006 (Title 
I of Pub. L. 109-451; 43 U.S.C.2401-2409) (Rural Water Supply Act of 
2006);
    A category (B) project is an extraordinary operation and 
maintenance activity for, or the rehabilitation or replacement of, a 
facility that is authorized by Federal reclamation laws and constructed 
by the United States under such law; or in connection with which there 
is a repayment or water service contract executed by the United States 
under Federal reclamation law; or
    A category (C) project is an improvement to water infrastructure 
directly associated with a reclamation project that, based on a 
determination of the Secretary improves water management; and fulfills 
other Federal goals.
    For purposes of this rule, these will be referred to as category 
(A), (B), or (C) projects. The Act provides that, subject to the 
availability of appropriations, the Secretary of the Interior may 
provide loan guarantees for eligible projects. The Act requires the 
Secretary to develop criteria for determining the eligibility of a 
project for financial assistance, and to publish them in the Federal 
Register. The intent of this rulemaking is to meet this requirement, as 
well as to define for potential participants how the loan guarantee 
will be administered. Reclamation will administer the program. 
Reclamation will take into account the comments on this rule in 
developing final regulations. Reclamation recognizes that the rule will 
be modified in the future to more specifically address category (A) 
projects and to address modifications in administration as a result of 
experience gained through the first requests.

DATES: Submit comments on the rule by November 5, 2008. The Office of 
Management and Budget has up to 60 days to approve the information 
collection in this rule, but may respond after 30 days; therefore 
public comment on the information collection must be received on or 
before November 5, 2008. Reclamation plans to hold informational 
meetings on the proposed rule and program.

ADDRESSES: You may submit comments on this rule, identified by the 
number 1006-AA53, by one of the following methods:

--Use of the Federal rulemaking Web site: http://www.regulations.gov. 
Search on docket identification number BOR-2008-0005 when submitting 
comments on this rule. Follow the instructions for submitting comments.
--By mail to: Bureau of Reclamation, Denver Federal Center, P.O. Box 
25007, Building 67, Denver CO 80225, Attention: Randy Christopherson, 
Mail Code 84-55000. Please include the number 1006-AA53 in your 
correspondence.

    Please submit comments on the information collection to the Desk 
Officer for the Department of the Interior at the Office of Management 
and Budget, Office of Information and Regulatory Affairs, via facsimile 
to (202) 395-6566, or e-mail to <a href="/cdn-cgi/l/email-protection#b6f9ffe4f7e9f2f9f5fdf3e2f6d9dbd498d3d9c698d1d9c0"><span class="__cf_email__" data-cfemail="7b3432293a243f3438303e2f3b141619551e140b551c140d">[email protected]</span></a>. A copy of 
your comments should also be directed to the Bureau of Reclamation, 
attention Randy Christopherson at the contact information.
    You can obtain copies of the information collection forms by 
contacting us as specified in the FOR FURTHER INFORMATION CONTACT 
section.

FOR FURTHER INFORMATION CONTACT: Randy Christopherson, Bureau of 
Reclamation, P.O. Box 25007, Mail Code: 84-55000, Denver, CO 80225. 
Telephone: (303) 445-2729. E-mail: <a href="/cdn-cgi/l/email-protection#493b2a213b203a3d2639212c3b3a2627092d26673c3a2b3b672e263f"><span class="__cf_email__" data-cfemail="dfadbcb7adb6acabb0afb7baadacb0b19fbbb0f1aaacbdadf1b8b0a9">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    The Act, enacted as Title II of Public Law 109-451 on December 22, 
2006, authorizes the Secretary to issue loan guarantees to assist non-
federal borrowers in financing (A) rural water supply projects; (B) 
extraordinary maintenance and rehabilitation of Reclamation project 
facilities; and (C) improvements to infrastructure directly related to 
a Reclamation project. For purposes of these loan guarantees, the Act 
defines the authorized non-federal borrower as (a) a State (including a 
department, agency, or political subdivision of a State); or (b) a 
conservancy district, irrigation district, canal company, water users' 
association, Indian tribe, an agency created by interstate compact, or 
any other entity that has the capacity to contract with the United 
States.
    Authority and responsibility for implementing the provisions of the 
Act are delegated to Reclamation. Reclamation's rulemaking will 
establish the eligibility criteria and program requirements for loan 
guarantees authorized by the Act. Reclamation expects to supplement 
these rules in the future with eligibility criteria and program 
requirements specific to those projects described in the Rural Water 
Supply Act of 2006 that are also deemed eligible for loan guarantees in 
accordance with section 202(6)(A). Section 202(6)(A) provides authority 
to issue loan guarantees for rural water supply programs (category A 
projects). The Rural Water Supply Act of 2006 defines the term rural 
water supply project to include incidental noncommercial livestock 
watering and noncommercial irrigation of vegetation and small gardens 
of less than 1 acre, and projects to improve rural water 
infrastructure. Rural water projects must receive approval from the 
Congress prior to construction and are subject to the availability of 
appropriations. Accordingly, Reclamation expects to target initial 
solicitations for guaranteed loans pursuant to the Act on Category B 
and Category C projects and on assistance for operation and maintenance 
rather than assistance with new construction.

[[Page 58086]]

Discussion of Proposed Rule

    Section 203 of the Act requires the Secretary to develop criteria 
for determining the eligibility of a project for financial assistance, 
and to publish them in the Federal Register. The intent of this rule is 
to provide program requirements and eligibility criteria for both the 
non-federal borrower and lenders. The eligibility criteria must include 
(1) the lender's submission of an application to the Secretary; (2) 
demonstration of the creditworthiness of the project, including a 
determination by the Secretary that any financing for the project has 
appropriate security features to ensure repayment; (3) demonstration by 
the non-federal borrower of its ability to repay the project financing 
from user fees or other dedicated revenue sources; (4) demonstration by 
the non-federal borrower of its ability to pay all operations, 
maintenance, and replacement costs of the project facilities; and (5) 
other criteria as the Secretary determines to be appropriate. Section 
403.7 of this rule provides generally the requirements regarding what 
information must be included in an application and section 403.10 
provides the criteria on which Reclamation will evaluate a non-federal 
borrower's application. Section 403.11 identifies the prioritization 
criteria that Reclamation will use to determine which loan guarantee 
applications will be selected to participate in the loan guarantee 
program.
    We invite you to comment on all the requirements set forth in this 
rule, particularly regarding the appropriate requirements to provide 
protections to the financial interests of the United States. In 
addition, an information collection package has been prepared. The 
application for a loan guarantee identifies in more detail the 
supporting documentation that must accompany it, including: the current 
and previous 2 years financial and income statements; the operating 
budget for the current operating cycle, a financial feasibility 
analysis and projected budgets, including schedule of all current 
installment debt; preliminary project plans and detailed cost 
estimates; pro-forma cashflows; the proposed loan amortization schedule 
and documents outlining proposed terms and conditions of the debt to be 
guaranteed; the non-federal borrower's proposed environmental 
compliance actions; description of any debt; the lender's credit 
evaluation; a description of any security available for the loan; 
authorizing resolutions of certificates; and any other documents and 
information the Secretary may request, including all documents and 
information relied upon by the lender in evaluating the non-federal 
borrower's initial loan request. The Act specifies eligibility criteria 
that must be included in subsection 203(a)(2). Section 203(b) of the 
Act, authorizes the Secretary to waive any of the criteria in 
subsection 203(a)(2) that the Secretary determines to be duplicative or 
unnecessary because of an action already taken by the United States. 
Reclamation would waive such criteria only in cases where the criteria 
have already been demonstrated to be satisfied.
    Consistent with statutory requirement, demonstration of a 
borrowers' ability to repay the debt and continue operations and 
maintenance of its facility is a high priority of the loan guarantee 
program and must be demonstrated to the satisfaction of the Secretary. 
Reclamation will adopt policies to further establish guidance to ensure 
that borrowers and lenders use their best efforts to ensure the success 
of guaranteed loans. Reclamation will only offer loan guarantees to 
eligible projects that demonstrate, to the satisfaction of the 
Secretary, the creditworthiness of the project, including a 
determination by the Secretary that any financing for the project has 
appropriate security features to ensure repayment; the ability of the 
borrower to repay all project financing; and pay all operations, 
maintenance, and replacement costs of the project facilities.
    The statute explicitly defines the scope of lenders that are 
eligible to participate in the program. This is addressed in section 
403.37 of this rule. A prospective lender must submit proof that it is 
eligible pursuant to the statute and meet the requirements as set out 
in this rule. A lender that meets the requirements and wishes to 
participate in the program must execute an agreement with Reclamation 
and thereupon will be considered an approved lender for a period of 2 
years. The requirements, as set out in Sec. Sec.  403.37, 403.38, and 
403.39 of this rule, are intended to ensure that the lender has the 
appropriate experience and expertise to meet its fiduciary obligations 
in connection with the debt guaranteed pursuant to the Act. It is 
intended that lenders, who will bear at least 20 percent of the risk of 
the guaranteed loan, will exercise a high level of care and diligence 
in the underwriting and due diligence of the loans. As described in 
Section 403.39, we are proposing to require that lenders provide 
Reclamation periodic financial reports on the status and condition of 
the loan, consistent with the terms of the Lender's Agreement; to 
service the loan consistent with the regulation and the Lender's 
Agreement and notify Reclamation promptly if it becomes aware of any 
problems or irregularities concerning the project or the ability of the 
borrower to make payment on the loan. We invite you to comment on the 
proposed lender eligibility criteria and requirements. We are 
specifically interested in how the criteria and requirements would be 
applied should the lender fall from eligibility after the loan has been 
originated. Comments are also invited on the potential additional 
efficiency or productivity benefits that may be realized by the 
improvement, repair, or replacement of the infrastructure, facilities, 
or asset.
    The Act defines the term ``project'' to include ``an extraordinary 
operation and maintenance activity for, or the rehabilitation or 
replacement of a facility that is authorized by Federal reclamation law 
and constructed by the United States under such law; or in connection 
with which there is a repayment or water service contract executed by 
the United States'' (Category B). The statute does not define the 
phrase ``extraordinary operation and maintenance activity.'' In section 
403.2, we propose to define ``extraordinary operation and maintenance 
activity as major, non-recurring maintenance to Reclamation-owned or 
operated facilities, or facility components, that is intended to ensure 
the continued safe, dependable, and reliable delivery of authorized 
reclamation project benefits; and greater than 10 percent of the 
borrower's annual O & M budget for the facility, or greater than 
$100,000.
    Reclamation developed this definition during its Managing for 
Excellence efforts. The definition, developed as part of the public 
process associated with these efforts, was vetted both within 
Reclamation and with its water users, and it has been adopted in this 
rule. We request comment on this definition, the percentage and dollar 
thresholds, and the application and use of the definition within the 
proposed program.
    Project Costs. In section 403.2, we propose to define project costs 
as the expected financial obligations which may be incurred for the 
development and support of the various features of an eligible project, 
as specified in Sec.  403.50. The key elements of estimating eligible 
project costs are detailed in existing Reclamation policies. Section 
204 of the Act provides that the Secretary shall not issue loan 
guarantees that exceed 90 percent of the cost of the project, as 
estimated at the time the loan guarantee

[[Page 58087]]

is issued. Also, section 403.31 of this rule provides that the United 
States will guarantee up to 80 percent of eligible losses on a 
guaranteed loan, including principal outstanding and interest accrued 
as of the time of default by a borrower consistent with Federal credit 
policies under OMB circular A-129. Section 403.50 of this rule 
identifies the type of project costs that will be considered eligible 
to be included under a loan guarantee and which costs will not be 
considered eligible costs.
    Defaults. Consistent with section 205 of the Act, we are proposing 
in Subpart F the options and processes that may be available if a 
borrower defaults on an obligation. Section 205 of the Act provides 
that, if a borrower defaults on the obligation, the holder of the loan 
guarantee shall have the right to demand claim payment from the 
Secretary per the terms of the Loan Note Guarantee Agreement. Section 
403.66 of this rule prescribes actions and timelines for default 
proceedings, reflecting requirements both for default proceedings 
against loans for which collateral is pledged and against those for 
which it is not. The timeline and proceedings are expected to be 
shorter where there is no collateral, since liquidation is not a 
factor.
    Interest Rate. Section 204 of the Act provides that an obligation 
shall bear interest at a rate that does not exceed a level that the 
Secretary determines to be appropriate, taking into account the 
prevailing rate of interest in the private sector for similar loans and 
risks. In section 403.52 of this rule, we propose to require loans to 
bear fixed interest at a rate or rates negotiated between the borrower 
and the lender. However, rates charged should be similar to rates 
customarily charged to borrowers in the ordinary course of business. 
Interest rates are subject to Secretarial review and approval to 
determine appropriateness. Reclamation will consult with the Department 
of Treasury on appropriate interest rates.
    Term of Loan. A loan guaranteed under the Act must provide for 
complete amortization within 40 years. Section 403.48 of this rule 
recognizes that lenders may offer shorter terms. Reclamation will not 
approve a loan guarantee that exceeds the financial capability of the 
borrower, or for a term that exceeds the useful life of the project.
    Nonsubordination and Superior Rights. Consistent with section 205 
of the Act, we propose in section 403.56 of this rule that no loan 
guaranteed under the Act shall be subordinated to other financing. We 
further propose that the lender must obtain a position of parity with 
regard to non-collateralized obligations of the borrower. This means 
that in the event of a default, all non-secured lenders bear the risk 
of loss on a proportionate basis. Further, the non-guaranteed portion 
of a loan will not be paid first nor given any preference or priority 
over the guaranteed portion. Also, section 205(b)(2) of the Act states 
that the rights of the Secretary, with respect to any property acquired 
pursuant to a loan guarantee or related agreement, shall be superior to 
the rights of any other person with respect to the property.
    Prepayment and refinancing. The Act allows for prepayment and 
refinancing of the terms of a loan guarantee subject to the consent of 
the Secretary. Section 403.53 of this rule recognizes that prepayment 
and refinancing terms of a loan may be negotiated between the non-
federal borrower and the lender, subject to the Secretary's consent as 
part of the overall approval of the loan to be guaranteed. Any changes 
to such terms must also be approved by the Secretary, and to the extent 
such changes were not captured in the original cost estimate for the 
loan guarantee, such approval would be subject to the availability of 
appropriations, in addition to all other applicable statutory and 
regulatory requirements.
    Full Faith and Credit. Consistent with section 211 of the Act, we 
propose in section 403.3 of this rule to pledge the full faith and 
credit of the United States to the payment of all guarantees issued, 
with respect to principal and interest. Section 403.3 further proposes 
that the full faith and credit of the United States is not contestable 
except in the case of fraud or misrepresentation of which the lender 
has actual knowledge, participates in, or condones.
    Interagency coordination and cooperation. Section 209 of the Act 
requires the Secretary to consult with the Secretary of Agriculture 
prior to implementing a loan guarantee program. Reclamation has been 
working closely with the Department of Agriculture, and has gained 
valuable information on carrying out such programs. Section 209 also 
requires that a memorandum of agreement will be entered providing for 
the Department of Agriculture to carry out financial appraisal 
functions and loan guarantee administration activities. Both 
Departments are working toward development of this agreement. It is not 
the intent that this agreement will place any undue burdens on the 
implementation of the program; rather, Reclamation will be afforded the 
experience and help of the Department of Agriculture, which has 
extensive experience in issuing loan guarantees.
    Termination of Authority. Section 215 of the Act provides that the 
Secretary's authority to issue loan guarantees terminates 10 years 
after the date of enactment of the Act, which will be December 2016. 
However, the termination of authority shall have no effect on any loans 
already guaranteed or on the administration of any loan guaranteed 
prior to the date of the termination.
    Duplicative Assistance. With the exception of Rural Water projects 
authorized under Title I of Public Law 109-451, loan guarantees under 
this program cannot be paired with other Federal assistance for the 
same project.

II. Procedural Requirement

1. Regulatory Planning and Review (Executive Order (E.O.) 12866)

    The Office of Management and Budget (OMB) has determined that this 
rule is a significant rule and has reviewed it under the requirements 
of E.O. 12866.
    The loan guarantee program addressed by this rule will facilitate 
the financing of extraordinary maintenance and rehabilitation needs of 
Reclamation projects and improvements to facilities directly associated 
with them. Beneficiaries already have financial responsibility for 
these costs, but often have significant difficulty meeting these 
responsibilities when the expenses are of an extraordinary nature. 
Facilitating the financing of these extraordinary expenditures is a 
tool that may help to ensure the continued benefits currently being 
generated by Reclamation projects throughout the western United States.
    In implementing this rule, we plan to use application forms very 
similar to those currently used by the U.S. Department of Agriculture 
(USDA) for its Rural Development Loan Guarantee Program (USDA Program). 
Review and approval for the use of these forms is taking place 
concurrently with the development of this rule. However, the facilities 
being repaired or rehabilitated with financing assistance under our 
proposed loan guarantee program likely will not be the same types of 
facilities whose construction is financed by the USDA Program. 
Reclamation has consulted with USDA regarding the details of USDA's 
related programs, and will continue to do so. These consultations will 
likely result in USDA providing some assistance in the administration 
of our programs under Titles I and II of Public Law 109-451.

2. Regulatory Flexibility Act

    The Department of the Interior (Interior) certifies that this 
action will not have a significant economic effect

[[Page 58088]]

on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.). The entities eligible for loan 
guarantees under this program may include small entities defined in the 
Regulatory Flexibility Act. However, this rule does not impose a 
requirement for small businesses to report or keep records on any of 
the requirements contained in this rule and does not mandate 
participation. Therefore, we have determined that the rule will not 
have a significant economic impact on a substantial number of small 
entities.

3. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMR Act) (2 
U.S.C. 1531 et seq.) requires each Federal agency to prepare a written 
assessment of the effects of any Federal mandate in an agency rule that 
may result in the expenditure by State, local and tribal governments, 
in the aggregate, or by the private sector, of $100 million or more 
(adjusted annually for inflation) in any one year. The UMR Act also 
requires a Federal agency to develop an effective process to permit 
timely input by elected officials of State, tribal, or local 
governments on a proposed ``significant intergovernmental mandate,'' 
and requires an agency plan for giving notice and opportunity to 
provide timely input to potentially affected small governments before 
establishing any requirements that might significantly or uniquely 
affect those small governments.
    The term Federal mandate is defined in the UMR Act to mean a 
Federal intergovernmental mandate or a Federal private sector mandate. 
Although this rule will impose certain requirements on non-Federal 
governmental and private sector applicants for loan guarantees, the UMR 
Act's definitions of the terms ``Federal intergovernmental mandate'' 
and ``Federal private sector mandate'' exclude, among other things, any 
provision in legislation, statute, or regulation that is a condition of 
Federal assistance or a duty arising from participation in a voluntary 
program (2 U.S.C. 658(5) and (7), respectively).
    This rule does not impose an unfunded mandate or a requirement to 
expend monies on the part of State, local, or tribal governments or 
communities, or the private sector. Requests from any of these entities 
for loan guarantees under the proposed rules are strictly voluntary. 
Reclamation is not imposing a duty, requirement, or mandate on State, 
local, or tribal governments or communities, or the private sector to 
request such financing assistance. Thus this rule falls under the 
exceptions in the definitions of ``Federal intergovernmental mandate'' 
and ``Federal private sector mandate'' for requirements that are a 
condition of Federal assistance or a duty arising from participation in 
a voluntary program. Therefore, the Act does not apply to this 
rulemaking and a statement containing information required by the 
Unfunded Mandates Reform Act (2 U.S.C. 1531, et seq.) is not required.

4. Takings (E.O. 12630 and E.O. 13406)

    Under the criteria in E.O. 12630 and E.O. 13406, this rule does not 
have any significant takings implications. This rule sets forth the 
requirements for requesting and obtaining loan guarantees from 
Reclamation to assist in financing eligible projects for which 
Reclamation project beneficiaries are already financially responsible. 
While some of the project beneficiaries' property may be pledged as 
collateral for the loans to be guaranteed, the property would only be 
transferred from the owner if default occurs and such a situation would 
not constitute a taking. A Takings Implication Assessment is therefore 
not required.

5. Federalism (E.O. 13132)

    Under the criteria in E.O. 13132, this rule does not have any 
federalism implications to warrant the preparation of a Federalism 
Assessment. The rule is not associated with, nor will it have 
substantial direct effects on the States, on the relationship between 
the National Government and the States, or on the distribution of power 
and responsibilities among the various levels of government. A 
Federalism Assessment is not required.

6. Civil Justice Reform (E.O. 12988)

    This rule complies with the requirements of E.O. 12988. 
Specifically, this rule:
    (a) Does not unduly burden the judicial system;
    (b) Meets the criteria of section 3(a) requiring that all 
regulations be reviewed to eliminate errors and ambiguity and be 
written to minimize litigation; and
    (c) Meets the criteria of section 3(b)(2) requiring that all 
regulations be written in clear language and contain clear legal 
standards.

7. Consultation with Indian Tribes (E.O. 13175)

    Under the criteria of E.O. 13175, Reclamation has evaluated this 
rule and determined that it would have no substantial effects on 
Federally recognized Indian tribes. While many tribal entities may be 
eligible to apply for loan guarantees from Reclamation under this rule, 
such application is strictly voluntary.

8. Paperwork Reduction Act

    This rule would require applicants to provide information that will 
enable Reclamation to determine eligibility for the program and 
creditworthiness. The information will also be necessary to evaluate 
the merits of applications and effectively administer any guaranteed 
loans. The rule also proposes to require that lenders submit 
information to allow Reclamation to determine their eligibility for 
participation and to submit reports and other information related to 
loan guarantees and the borrower. Reclamation plans to use several 
forms very similar to those currently used for various USDA Programs. 
The purpose of the forms will be to obtain relevant financial 
information including income and expenses, collateral assets, previous 
credit history, and current loan status. Following are further details 
regarding the information collection:
    Title: Reclamation Loan Guarantees 43 CFR Part 403.
    OMB No. 1006-NEW.
    Frequency: One-time voluntary application.
    Respondents for loan applications and participating lenders: 
Eligible entities (described in Sec.  403.4 of the rule) that desire to 
obtain a private loan guaranteed by Reclamation and eligible lenders 
(described in Sec.  403.37) that wish to participate in the loan 
guarantee program.
    Estimated Total Number of Respondents: 76.
    Estimated Number of Responses per Respondent: 1.2.
    Estimated Total Annual Burden on Respondents, including form and 
non-form requirements: 737 hours.
    Comments are Invited on:
    (a) Whether the proposed collection of information is necessary for 
the proper performance of our functions, including whether the 
information will have practical use;
    (b) The accuracy of our burden estimate for the proposed collection 
of information, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, usefulness, and clarity of the 
information collected; and
    (d) Ways to minimize the burden of the collection of information on 
respondents.
    As part of our continuing effort to reduce paperwork and respondent 
burdens, Reclamation invites the public and other Federal agencies to 
comment on any aspect of the reporting and recordkeeping burden. You 
may submit

[[Page 58089]]

your comments directly to the Office of Information and Regulatory 
Affairs, OMB. You should provide Reclamation with a copy of your 
comments so that we can summarize all written comments and address them 
in the final rule preamble. Refer to the ADDRESSES section for 
instructions on submitting comments. You may obtain a copy of the 
supporting statement for this new collection of information by 
contacting Reclamation's Information Collection Clearance Officer at 
(303) 445-2055.
    The PRA provides that an agency may not conduct or sponsor a 
collection of information unless it displays a currently valid OMB 
control number. Until OMB approves this collection of information and 
assigns an OMB control number and the regulation becomes effective, you 
are not required to respond. The OMB is required to make a decision 
concerning the collection of information of this proposed regulation 
between 30 to 60 days after publication of this document in the Federal 
Register. Therefore, a comment to OMB is best assured of having its 
full effect if OMB receives it by November 5, 2008. This does not 
affect the deadline for the public to comment to Reclamation on the 
proposed regulation. OMB has up to 60 days to approve the information 
collection in this rule, but may respond after 30 days; therefore 
public comment on the information collection must be received on or 
before November 5, 2008.

9. National Environmental Policy Act of 1969 (NEPA)

    This document has been reviewed in accordance with the Council on 
Environmental Quality (CEQ) regulations for implementing NEPA (40 CFR 
Parts 1500-1508). Reclamation has determined that this action does not 
constitute a major Federal action significantly affecting the quality 
of the human environment and, in accordance with the National 
Environmental Policy Act (NEPA) of 1969, 42 U.S.C. 4321 et seq., an 
Environmental Impact Statement is not required. Loan applications will 
be reviewed individually to determine compliance with NEPA.

10. Data Quality Act

    In developing this rule, there was no need to conduct or use a 
study, experiment, or survey requiring peer review under the Data 
Quality Act (Pub. L. 106-554).

11. Effects on the Energy Supply (E.O. 13211)

    This rule is not a significant energy action under the definition 
in the E.O. 13211, in that it is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy. While 
loan guarantees will more commonly be extended to water supply 
facilities, any extension of the guarantees to power production 
facilities would have the same beneficial effects of credit assistance. 
No adverse effects on these facilities could result from the proposed 
rule. A Statement of Energy Effects is therefore not required.

12. Clarity of This Regulation

    We are required by E.O. 12866 and 12988, and by the Presidential 
Memorandum of June 1, 1998, to write all rules in plain language. This 
means each rule we publish must:
    (a) Be logically organized;
    (b) Use the active voice to address readers directly;
    (c) Use clear language rather than jargon;
    (d) Be divided into short sections and sentences; and
    (e) Use lists and tables wherever possible.
    If you believe we have not met these requirements, please send 
comments to Reclamation as instructed in the ADDRESSES section. Please 
make your comments as specific as possible, referring to specific 
sections and how they could be improved. For example, you should tell 
us the numbers of the sections or paragraphs that are unclearly 
written, which sections or sentences are too long, the sections where 
you believe lists or tables would be useful, etc.

13. Public Comments

    Reclamation believes a 30 day public comment period is appropriate. 
The Loan Guarantee rule may provide a helpful financial tool to help 
accomplish Reclamation's goals. Reclamation has encouraged public 
participation through public meetings and has incorporated into the 
proposed rule public input from these meetings. The public was involved 
in developing the framework documents which were utilized in preparing 
the rule. Reclamation specifically addressed the Loan Guarantee program 
during public meetings held in Salt Lake City, UT on September 19 and 
20, 2006 and received valuable feedback. Considering that those 
interested in the proposed rule are already aware of the framework and 
have had opportunity to provide input through these public meetings, 
Reclamation believes 30 days provides sufficient time to provide 
additional input on the proposal.
    Before including your name, address, phone number, e-mail address, 
or other personal identifying information in your comment, you should 
be aware that your entire comment--including your personal identifying 
information--may be made publicly available at any time. While you can 
ask us in your comment to withhold your personal identifying 
information from public review, we cannot guarantee that we will be 
able to do so.

List of Subjects in 43 CFR Part 403

    Loan guarantee, Water supply.

    Dated: September 29, 2008.
Kameran L. Onley,
Acting Assistant Secretary--Water and Science.

    For the reasons stated in the preamble, the Bureau of Reclamation 
proposes to add a new part 403 to Title 43 of the Code of Federal 
Regulations as follows:

PART 403--RECLAMATION LOAN GUARANTEES

Subpart A--Loan Guarantee Program Overview
Sec.
403.1 What is the purpose of the program?
403.2 What terms are used in this part?
403.3 Are loan guarantees supported by the full faith and credit of 
the United States?
403.4 Who is eligible for a loan guarantee?
403.5 What can I finance under the program?
403.6 How do I obtain a loan guarantee?
403.7 What must be included in an application package?
403.8 [Reserved]
403.9 What are the criteria for program eligibility?
403.10 How will Reclamation evaluate my application?
403.11 What criteria will be used to prioritize loan requests?
403.12-403.15 [Reserved]
403.16 What permits must I obtain?
403.17 Where can I get more information about loan guarantees?
403.18 Does this rule contain an information collection that 
requires approval by OMB?
403. 19 [Reserved]
Subpart B--Borrower Roles and Responsibilities
403.20 As a borrower, what is my role in the loan guarantee program?
403.21 What is my role in preparation of environmental compliance 
documents?
403.22 What is my role in preparing plans and specifications for the 
project?
403.23-403.24 [Reserved]
403.25 What are the application and contractual requirements if I 
apply for a guaranteed loan as a Joint Powers Authority (JPA)?
403.26-403.28 [Reserved]
Subpart C--Reclamation Roles and Responsibilities
403.29 What is Reclamation's role in the loan guarantee program?
403.30 What information will Reclamation maintain on the lender?

[[Page 58090]]

403.31 How much of the loan will Reclamation guarantee?
403.32 What is Reclamation's role in preparation of NEPA and other 
environmental compliance documents?
403.33 Can Reclamation make exceptions to requirements in this rule?
403.34-403.36 [Reserved]
Subpart D--Lender Criteria and Responsibilities
403.37 Which lenders are eligible to participate in the program?
403.38 What other requirements must a lender meet to participate in 
the program?
403.39 What is the lender's role in the program?
403.40 Can the lender cancel or modify a Conditional Commitment for 
Guarantee, or transfer it to another lender?
403.41 Can a lender sell or transfer the Loan Note Guarantee 
Agreement to another lender?
403.42 Can a lender sell the debt obligation in a secondary market?
403.43 What fees and costs is the lender responsible for?
403.44 Can Reclamation guarantee bonds sold to finance eligible 
projects?
403.45-403.46 [Reserved]
Subpart E--Guaranteed Loan Terms and Details
403.47 What conditions must be met before a Loan Note Guarantee 
Agreement is issued?
403.48 What is the maximum term I can obtain on a guaranteed loan?
403.49 Is there a limit on the size of a guaranteed loan?
403.50 What project costs are eligible to be covered by my 
guaranteed loan?
403.51 What if my project cost exceeds the estimated loan guarantee 
amount?
403.52 What interest rates and charges apply to my guaranteed loan?
403.53 Can I prepay or refinance a guaranteed loan?
403.54 When can an entity begin actual ``on the ground'' work on the 
project to be financed?
403.55 [Reserved]
403.56 Can the repayment of a loan guarantee be subordinated to any 
other financing?
403.57 Under what conditions would the United States not pay the 
guaranteed portion of a loan?
403.58 Will the requirements of the Reclamation Reform Act of 1982 
apply?
403.59-403.62 [Reserved]
Subpart F--Default Actions and Termination
403.63 What options do I have if I have problems repaying the 
guaranteed loan?
403.64 How can Reclamation help me if I can't resolve repayment 
problems with my lender?
403.65 What happens if I still can't make my payments after working 
with the lender and Reclamation?
403.66 What are the actions and timelines associated with default 
proceedings?
403.67 What is the process for liquidation where collateral has been 
pledged?
403.68 What is the timeline for filing a Final Report of Loss?
403.69 [Reserved]
403.70 What interest does the lender have in the guaranteed loan 
after Reclamation makes a loss payment?
403.71 What will Reclamation do if a borrower defaults?
403.72 When does the Loan Note Guarantee Agreement terminate?
403.73 What happens if the non-Federal party breaches the existing 
Loan Note Guarantee Agreement?

    Authority: Pub. L. 109-451, 120 Stat. 3345 (43 U.S.C. 2401 et 
seq.).

Subpart A--Loan Guarantee Program Overview


Sec.  403.1  What is the purpose of the program?

    (a) The purpose of the loan guarantee program is to provide Federal 
assistance to eligible non-Federal borrowers for eligible projects 
defined as follows:
    (1) A rural water supply project;
    (2) An extraordinary operation and maintenance (O&M) activity for, 
or the rehabilitation or replacement of, a facility--
    (i) That is authorized by Federal reclamation law and constructed 
by the United States under such law; or
    (ii) In connection with which there is a repayment or water service 
contract executed by the United States under Federal reclamation law; 
or
    (3) An improvement to water infrastructure directly associated with 
a reclamation project that, based on a determination of the Secretary--
    (i) Improves water management; and
    (ii) Fulfills other Federal goals.
    (b) The program does not include loans for routine O&M work.


Sec.  403.2  What terms are used in this part?

    The following definitions apply for terms used in this part:
    Applicant means a non-Federal entity meeting the criteria in Sec.  
403.4 that seeks to obtain a Reclamation-guaranteed loan for a project 
meeting the criteria in Sec.  403.5. The applicant is often referred to 
as ``you'' in this part.
    Borrower means an Applicant who has entered into a Loan Note 
Guarantee Agreement with an eligible lender and Reclamation.
    Collateral means non-Federal property of value pledged as security 
for satisfaction of the debt.
    Conditional Commitment for Guarantee means a document issued by 
Reclamation and accepted by the Applicant and the lender, with the 
understanding of the parties that if the Applicant thereafter satisfies 
all specified and precedent funding obligations and all other 
contractual, statutory and regulatory requirements, or other 
requirements specified in the document, DOI, the Applicant, and the 
lender may execute a Loan Note Guarantee Agreement: Provided that the 
Secretary may terminate a Conditional Commitment for Guarantee for any 
reason at any time prior to the execution of the Loan Note Guarantee 
Agreement. The Conditional Commitment is non-binding. Reclamation will 
only offer Conditional Commitments for Guarantee to the extent 
appropriations are available to support the loan guarantee.
    Extraordinary operation and maintenance means major, non-recurring 
maintenance to Reclamation-owned or operated facilities, or facility 
components, that is:
    (1) Intended to ensure the continued safe, dependable, and reliable 
delivery of authorized Reclamation project benefits; and
    (2) Greater than 10 percent of the borrower's annual O&M budget for 
the facility, or greater than $100,000.
    Financial capability to repay loan means the borrower's ability to 
repay the loan as determined by the Secretary. Factors determining a 
borrower's financial capability may include, but are not limited to: 
Expenses as a ratio to income, amount of current debts/liabilities, 
projected revenues, including user fees or other dedicated revenue 
sources available to repay the guaranteed loan, the ability of 
Reclamation project beneficiaries to meet all operations, maintenance, 
and rehabilitation costs of the subject facilities and previous record 
of repaying obligations.
    Improvement to Water Infrastructure means a valuable addition made 
to property, or an enhancement of its condition, including 
modernization, upgrades or other enhancements meant to conserve water, 
increase water use efficiency, or enhance water management, and does 
not include routine maintenance.
    Joint Financing means a situation where two or more lenders (or any 
combination of lenders and other non-Federal financial sources) make 
separate, relatively contemporaneous loans or grants to supply the 
funds required by one borrower.
    Joint Powers Authority (JPA) means a regional agency that:
    (1) Represents two or more local entities (e.g., Reclamation 
repayment or water service contractors); and
    (2) Exercises common powers as authorized by the State in which the 
local entities operate (some States may refer to such regional agencies 
by another name).

[[Page 58091]]

    Lender means a non-Federal lending institution meeting the criteria 
in Sec.  403.40 that has an agreement with Reclamation to participate 
in the loan guarantee program. The lender requests a loan guarantee 
from Reclamation and then works directly with the borrower to originate 
and service the loan.
    Lender's Agreement means the signed agreement between Reclamation 
and the lender providing proof of the lender's eligibility to 
participate in the loan guarantee program, and containing the lender's 
responsibilities as defined in subpart D of this part. The Lender's 
Agreement is a single document that is valid for two years, as 
indicated in Sec.  403.38. Only one Lender's Agreement will be required 
for each eligible lender.
    Loan Guarantee means any guarantee, insurance, or other pledge by 
Reclamation to pay all or part of the principal of and interest on a 
loan or other debt obligation of a non-Federal borrower to a lender.
    Loan Guarantee Closing Report means the Reclamation form prepared 
at the time a Loan Note Guarantee Agreement is issued and upon payment 
of guaranteed loan fees, or when the terms or conditions of the loan 
guarantee change, such as the assumption or assignment of guaranteed 
loans. This form must accompany all loan guarantee fee payments. The 
lender delivers this form and applicable fee to Reclamation.
    Loan Note Guarantee Agreement means a written agreement that, when 
entered into by Reclamation, a borrower, and an eligible lender, 
pursuant to the Act, establishes the obligation of Reclamation to 
guarantee the payment of all or a portion of the principal and interest 
on specified guaranteed obligations of a borrower to eligible lenders 
or other Holders subject to the terms and conditions specified in the 
Loan Guarantee Agreement.
    Project means:
    (1) A rural water supply project (as defined in section 102(9) of 
Title I of Public Law 109-451);
    (2) An extraordinary operation and maintenance activity for, or the 
rehabilitation or replacement of, a facility--
    (i) That is authorized by Federal reclamation law and constructed 
by the United States under such law; or
    (ii) In connection with which there is a repayment or water service 
contract executed by the United States under Federal reclamation law; 
or
    (3) An improvement to water infrastructure directly associated with 
a reclamation project that, based on a determination of the Secretary--
    (i) Improves water management; and
    (ii) Fulfills other Federal goals.
    Project Costs means the expected financial obligations which may be 
incurred for the development and support of the various features of an 
eligible project, as specified in Sec.  403.50. The key elements of 
estimating eligible project costs are detailed in existing Reclamation 
policy. Project costs do not include costs for the items set forth in 
Sec.  403.50(b).
    Reclamation means the Bureau of Reclamation, also referred to in 
this part as ``us'' and ``we.''
    Reclamation Project means a geographically-defined system of 
structures specifically authorized by Congress, such as the Central 
Arizona Project or the Central Valley Project.
    Rehabilitation and Replacement means the processes of renovating a 
facility or system where performance is failing to meet the original 
criteria and needs of the Reclamation Project. This process is 
generally significant in terms of magnitude of work involved and 
related costs and, thus, also may benefit from the use of the loan 
guarantee program. Replacements are typically related to items with a 
defined service life. Examples of this could include the replacement of 
a dam gate or valve that has met or exceeded its expected service life, 
replacements of a reach of canal lining, or other work beyond the 
capability of the borrower to finance from annual O&M budgets or 
reserve funds.
    Report of Loss means the Reclamation form used by lenders when 
reporting a loss on a Reclamation guaranteed loan.
    Reserved Works means facilities owned, operated, and maintained by 
Reclamation, O&M costs of which may be paid in part by authorized 
Reclamation Project entities.
    Routine Operation and Maintenance means recurring operation and 
maintenance activities such as minor repairs and replacement of parts 
and structural components, and other day-to-day activities needed to 
preserve a facility so that it continues to provide acceptable services 
and achieves its expected life. It excludes extraordinary operation and 
maintenance, rehabilitation, and replacement.
    Transferred Works means facilities for which the management, 
funding (full or partial), and operation and maintenance has been 
transferred to one or more of the Reclamation Project beneficiaries. 
Reclamation still maintains ownership of the facilities.


Sec.  403.3  Are loan guarantees supported by the full faith and credit 
of the United States?

    Yes. The full faith and credit of the United States is pledged to 
the payment of all guarantees issued under this regulation with respect 
to principal and interest. Issuance of a Loan Note Guarantee Agreement 
constitutes an obligation supported by the full faith and credit of the 
United States and is not contestable except for fraud or 
misrepresentation of which the lender has actual knowledge, 
participates in, or condones. Some exceptions may apply in cases where 
the lender does not perform reasonable and customary servicing of the 
loan, as described in Sec.  403.60.


Sec.  403.4  Who is eligible for a loan guarantee?

    To be eligible for a loan guarantee under this part, an entity must 
be either:
    (a) A State (including department, agency, or political subdivision 
of a State); or
    (b) A conservancy district, irrigation district, canal company, 
water users association, Indian tribe, an agency created by interstate 
compact or any other entity that has the capacity to contract with the 
United States under Federal reclamation law (e.g., a rural water 
association or a JPA).


Sec.  403.5  What can I finance under the program?

    You can finance project costs as described in Sec.  403.50(a) for 
any of the types of work listed in paragraphs (a), (b), or (c) of this 
section.
    (a) Construction of projects determined to be eligible under Title 
I of Public Law 109-451, The Rural Water Supply Act of 2006.
    (b) Extraordinary operation and maintenance for, or the 
rehabilitation or replacement of, a facility that:
    (1) Is authorized by Federal reclamation law and constructed by the 
United States under that law; or
    (2) Has in place a repayment or water service contract under 
Federal reclamation law. In addition to facilities where Reclamation 
holds title, this would include facilities constructed and operated by 
the U.S. Army Corps of Engineers, where irrigation water users contract 
with Reclamation for use of the water from the facilities and pay some 
portion of the O&M costs associated with those facilities.
    (c) Improvements to water infrastructure directly associated with a 
Reclamation project. If you have existing facilities that are 
physically connected to or receive water directly from a Reclamation 
project, improvements to those facilities may qualify for financing 
under the program. Decisions on which facilities qualify under this 
section will be made on a case-by-case basis.

[[Page 58092]]

Sec.  403.6  How do I obtain a loan guarantee?

    (a) After receiving appropriations for the loan guarantee program, 
we will issue solicitations to invite the submission of Applications 
for loan guarantees for eligible projects. We will issue a solicitation 
before proceeding with other steps in the loan guarantee process, 
including issuance of a loan guarantee. Each solicitation may include 
programmatic, technical, financial and other factors we will use to 
evaluate applications and such other information as we may deem 
appropriate.
    (b) To obtain a loan guarantee under this rule, a proposed project 
must meet the eligibility criteria described in Sec.  403.5 as well as 
any other criteria that may be identified in the solicitation.
    (c) We recommend that you visit several qualified lenders to 
discuss the planned work, qualifications for a guaranteed loan, 
conditions or terms of a loan, etc. See Sec.  403.37 for descriptions 
of eligible lending institutions. Once you determine which lending 
institution to use, you will work directly ith the lender to secure its 
approval of your loan request based on its own financial analysis.
    (d) Following a lender's approval of your loan request, you and the 
lender must prepare an application package to submit to us, as detailed 
in Sec.  403.7, to request consideration for a loan guarantee. You and 
the lender may meet with us at this point in the process to discuss the 
requirements of the application package.
    (e) When we receive your application, we will review it based on 
the criteria in Sec.  403.10, and notify you and the lender whether we 
require additional information or the application has been denied. 
After completion of our review and evaluation, Reclamation may offer a 
conditional commitment for guarantee.
    (f) You and the lender complete and sign the Acceptance of 
Conditions and return a copy to us. You will then continue to work with 
the lender to meet the conditions set forth in the Conditional 
Commitment for Guarantee.
    (g) Once terms and conditions of the Conditional Commitment (such 
as NEPA compliance; necessary local, State, tribal, or Federal permits; 
and district election to approve indebtedness, if applicable), and any 
other applicable statutory, regulatory, and budgetary requirements are 
met, and the Secretary determines that the loan merits a guarantee, 
Reclamation, you, and the lender will sign the Loan Note Guarantee 
Agreement.


Sec.  403.7  What must be included in an application package?

    An application package must contain the following:
    (a) Application for Loan Guarantee on Form 7-2580;
    (b) Proposed loan agreement between you and the lender;
    (c) A report containing an analysis of the potential environmental 
impacts of the project. The report should be pursuant to the National 
Environmental Policy Act and in accordance with appropriate Reclamation 
standards.
    (d) Preliminary architectural and/or engineering report, including 
financial feasibility analysis (as appropriate);
    (e) Project cost estimates as described in Sec.  403.50;
    (f) Appraisal reports for real property serving as collateral, 
consistent with the Uniform Standards of Professional Appraisal 
Practice, promulgated by the Appraisal Standards Board of the Appraisal 
Foundation and conducted by a state licensed or certified appraiser;
    (g) Credit reports;
    (h) Pro-forma cashflows;
    (i) A loan schedule and documentation outlining the terms and 
conditions of the loan to be guaranteed;
    (j) The lender's credit analysis which shall include an analysis 
demonstrating that at the time of the application, there is reasonable 
prospect that the Borrower will be able to repay the guaranteed 
obligation (including interest) from user fees or other dedicated 
revenue sources, as well as an analysis demonstrating that the borrower 
has the ability to pay all operation, maintenance, and rehabilitation 
costs of the project facilities;
    (k) A full description of all security features (such as any 
project or non-project assets pledged as collateral to the obligation) 
that would ensure repayment;
    (l) Proposed timeline for work accomplishment; and
    (m) Any additional information required, as determined by 
Reclamation, including other information relied upon by the lender in 
approving the borrower's initial loan request.


Sec.  403.8  [Reserved]


Sec.  403.9  What are the criteria for program eligibility?

    Section 403.4 defines who is eligible for a loan guarantee. In 
addition to meeting the entity eligibility criteria, a proposal must:
    (a) Meet acceptable engineering, financial, public health, and 
environmental standards;
    (b) Be for extraordinary repair, rehabilitation, replacement or 
betterment to facilities owned by Reclamation, or for facilities which 
are associated with a repayment or water service contract executed by 
the United States under Federal Reclamation law;
    (c) Be for improvements to water infrastructure directly associated 
with a Reclamation project;
    (d) Be prepared or reviewed by a certified professional engineer;
    (e) Have been reviewed by a financial institution for financial 
feasibility, and a letter of intent regarding the issuance of 
sufficient loan financing accompanies the proposal;
    (f) Be accompanied by appropriate documentation prepared pursuant 
to the National Environmental Policy Act and in accordance with 
appropriate Reclamation standards;
    (g) Demonstrate approval, as appropriate, of any party necessary 
for the borrower to enter into a Loan Note Guarantee Agreement;
    (h) Demonstrate to the satisfaction of the Secretary the 
creditworthiness of the project, including a determination by the 
Secretary that any financing for the project has appropriate security 
features to ensure repayment;
    (i) Demonstrate to the satisfaction of the Secretary that the 
borrower has the ability to repay the project financing from user fees 
or other dedicated revenue sources;
    (j) Demonstrate to the satisfaction of the Secretary that the 
borrower has the ability to pay all operation, maintenance, and 
rehabilitation costs of the project facilities;
    (k) Describe the borrower's efforts to obtain alternative financing 
for the proposed project;
    (l) Demonstrate that the borrower's proposed activities will be 
well managed, have clear deliverables, will be accomplished on schedule 
and within budget; and
    (m) Describe how these planned activities will ensure the continued 
safe, dependable, and reliable delivery of authorized project benefits.


Sec.  403.10  How will Reclamation evaluate my application?

    (a) In addition to the amount of funds available to use for loan 
guarantees, we will consider many different factors in evaluating your 
loan guarantee application and in determining whether to issue a 
Conditional Commitment for Guarantee and ultimately a Loan Note 
Guarantee Agreement. For projects described in Sec. Sec.  403.5(b) and 
403.5(c), the factors include, but are not limited to, the information 
provided pursuant to Sec.  403.7 above, as well as:
    (1) Engineering need;
    (2) Your historical diligence and effectiveness in performance of 
O&M,

[[Page 58093]]

and demonstration of financial capability to meet routine O&M 
expenditures;
    (3) Efficiency opportunities;
    (4) Environmental effects/impacts;
    (5) Range of alternatives considered (including a comparison of 
major rehabilitation or repair versus replacement of the affected 
facilities, if replacement is an appropriate alternative)); and
    (6) Your financial capability to repay the guaranteed loan, 
assessed on the basis of:
    (i) Outstanding debts and all other financial obligations;
    (ii) Amount of loan, rates, and terms;
    (iii) Past performance in repaying loans or other debts;
    (iv) Collateral/equity as appropriate;
    (v) Financial backing or support from local, State, or other non-
Federal entities; and
    (vi) Availability of reliable revenue sources, such as user fees 
and ad valorem taxes.
    (b) While we do not expect to do so, we may waive certain criteria 
consistent with Title II of Public Law 109-451 section 203(b) that we 
determine to be duplicative or rendered unnecessary because of an 
action already taken by the United States.
    (c) For projects described in Sec.  403.5(a), a determination of 
eligibility under Title I of Public Law 109-451 will establish 
eligibility for participation in the loan guarantee program. Additional 
eligibility criteria and program requirements for such projects will be 
published in the future as supplements to this part.
    (d) As a part of our evaluation of your loan application, we will 
use any additional information that we deem appropriate to verify the 
data included in your loan guarantee application in order to:
    (1) Determine the eligibility of a project;
    (2) Establish a priority ranking of all eligible projects; and
    (3) Determine which projects we will offer a Conditional Commitment 
for Guarantee.
    (e) If your application fails to meet the requirements of paragraph 
(a) of this section, we will notify you of the criteria we deem to be 
deficient and may take one or more of the following actions:
    (1) Request additional information to correct identified 
deficiencies;
    (2) Request one or more meetings with you to address deficiencies;
    (3) Return the application and request that you address identified 
deficiencies; or
    (4) Eliminate your application from further review.
    (f) You may modify your application to correct deficiencies 
identified in paragraph (e) of this section and, in the case of 
paragraph (e)(3) of this section, resubmit your application to us for 
re-evaluation if allowed under the terms of the solicitation. We will 
not complete our evaluation of an application until all identified 
deficiencies are resolved and resubmission of the application does not 
impose any obligation or requirement for us to offer a Conditional 
Commitment for Guarantee or a Loan Note Guarantee Agreement.
    (g) Any form of response or communication from us, or lack thereof, 
regarding your loan guarantee application shall not impose any 
obligation on us to issue a Conditional Commitment for Guarantee.


Sec.  403.11  What criteria will be used to prioritize loan requests?

    Applicants will be evaluated against other applicants and greater 
weight will be given to applicants with the greatest engineering need. 
After meeting the program eligibility criteria provided in Sec.  403.9, 
loan guarantee proposals will be prioritized based on the following 
criteria. Applicants will be evaluated against other applicants and 
greater weight will be given to applicants with the greatest 
engineering need and any other factors that may be identified in the 
solicitation, including those noted below.
    (a) Engineering Need. (1) For category (B) and (C) projects, a 
major factor in prioritization of eligible applicants will be the 
extent to which engineering analysis demonstrates that the facilities 
face existing or potential conditions that would severely impair their 
performance (e.g., significant reduction of service delivery or 
reliability). The analysis can be provided by the applicant, a 
consultant to the applicant, or by Reclamation, in the case of 
facilities operated and maintained by Reclamation for which the 
applicant is required to share in the O&M costs. The analysis should 
cite:
    (i) The time frame over which the impairment could reasonably be 
expected;
    (ii) The consequences of impairment; and
    (iii) Risk factors that could be mitigated if the project is 
undertaken.
    (2) For Category (B) projects, proposals should cite findings from 
Reclamation's Review of Operation and Maintenance (RO&M) Program and 
Facility Review reports as support for the maintenance or 
rehabilitation need.
    (b) History of Operations and Maintenance. For Category (B) 
projects, the proposal will document the history of O&M activities by 
the applicant, supported by Reclamation's RO&M and Facility Review 
reports. An evaluation will be made as to the applicant's diligence in 
operating and maintaining the assets entrusted to them by Reclamation. 
For all other projects with existing history, evaluation will be made 
based on information provided in the application and any other 
available information sources.
    (c) Efficiency Opportunities. Engineering analysis demonstrates 
that there is a significant opportunity to substantially reduce future 
routine O&M costs associated with the facility and/or conserve or more 
efficiently manage the water that would be otherwise lost to seepage, 
evaporation, or other factors which directly result from facility 
deterioration due to age or use. The expected amount of O&M cost 
reduction or water saved will be one of the prioritization 
considerations.
    (d) Financial Strength/Need/Feasibility. The overall financial 
strength of the proposed project, including the borrower's capacity to 
repay the loan and meet all other obligations (beyond demonstration to 
the satisfaction of the Secretary of the capacity to repay the loan and 
other financial eligibility requirements) will be considered in the 
prioritization as well. The proposal will also demonstrate the portion 
of the work to be funded by private sources, as well as any 
contribution expected from any non-Federal governmental agency. The 
proposal must demonstrate that it is infeasible for the applicant to 
finance the project using its current resources (e.g., reserve funds, 
tax base, etc.).
    (e) Environmental Effects. The potential for the proposed project 
to further reduce existing negative environmental effects or to provide 
environmental benefits.
    (f) Alternatives Considered. The proposal will document 
alternatives to the anticipated proposed work, including the ``no 
action'' alternative, the estimated costs for such alternatives, and 
reasons those alternatives were not selected. The extent to which all 
viable alternatives have been considered will also be taken into 
account in the prioritization process.
    (g) Best Management Practices. The proposal demonstrates that the 
borrower's proposed activities have clear deliverables, can reasonably 
be expected to be accomplished on schedule, within budget, and have 
tangible performance targets.

[[Page 58094]]

Sec. Sec.  403.12-403.15  [Reserved]


Sec.  403.16  What permits must I obtain?

    Environmental compliance processes and other permits are required 
by law, and your project schedule and budget must account for this 
activity. You should consult with your local Reclamation office 
regarding details on the environmental compliance and permitting 
process. The following provides examples of permits and approvals often 
required:
    (a) Federal--NEPA, Endangered Species Act, Fish and Wildlife 
Coordination Act, National Historic Preservation Act compliance, and 
Clean Water Act permits (401, 402, 404 permits);
    (b) State--rights-of-way, water use, mineral use permits, and State 
environmental compliance;
    (c) Tribal--rights-of-way, water use, cultural resources, mineral 
use permits, etc.; and
    (d) Local/private--rights-of-way, water use, mineral use permits, 
and road use permits.


Sec.  403.17  Where can I get more information about loan guarantees?

    You may contact your nearest Reclamation office for more 
information or assistance. Contact information may be found at http://www.usbr.gov.


Sec.  403.18  Does this rule contain an information collection that 
requires approval by OMB?

    Yes. It does contain an information collection that is approved by 
OMB, under Control Number 1006-XXXX. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.


403.19  [Reserved]

Subpart B--Borrower Roles and Responsibilities


Sec.  403.20  As a borrower, what is my role in the loan guarantee 
program?

    As the borrower, you are the initiator of the loan guarantee 
process. You must do all of the following:
    (a) Apply for participation in the loan guarantee program;
    (b) Work with the lender for approval and conditions/terms of the 
loan;
    (c) Work with both the lender and us throughout the process and 
life of the loan;
    (d) Be financially responsible to repay the money borrowed under 
this program;
    (e) Be responsible for obtaining all necessary approvals, permits, 
or other conditions necessary for the project, and ensuring all 
contractual and other requirements related to the project, the 
facility, and the loan guarantee are met; and
    (f) Be responsible for ensuring all required documents are 
completed and submitted as required in order to complete your project.


Sec.  403.21  What is my role in preparation of environmental 
compliance documents?

    (a) NEPA and other documents may be prepared by Reclamation, by 
you, or by a consultant employed by you and approved by Reclamation. 
You will work with your local Reclamation office to decide who will 
prepare these documents. Regardless of who prepares the NEPA documents, 
we must independently evaluate them for sufficiency before final 
approval. We will work closely with you and any consultant involved.
    (b) If the NEPA document is an Environmental Impact Statement, 
Reclamation must select, alone or in cooperation with you, any NEPA 
contractor before they begin work on the document.
    (c) We will allocate all costs associated with NEPA and other forms 
of required environmental compliance among the authorized purposes 
benefiting from the project for which the loan guarantee is being 
sought, and you will be responsible for your allocated share of those 
costs.


Sec.  403.22  What is my role in preparing plans and specifications for 
the project?

    If your project meets the descriptions in Sec. Sec.  403.5(b) and 
403.5(c), you may request that we prepare the plans and specifications, 
you may hire a consultant to prepare them, or you may prepare them 
yourself. Regardless of who prepares the documents, we must review and 
approve them. Reclamation must be consulted on any subsequent changes 
to determine if further approval is required. You must pay us for all 
appropriate allocated costs incurred in this review and approval. If 
you ask us to prepare these documents, you must also pay our costs for 
the preparation.


Sec. Sec.  403.23-403.24  [Reserved]


Sec.  403.25  What are the application and contractual requirements if 
I apply for a guaranteed loan as a Joint Powers Authority (JPA)?

    If you are a JPA, you must meet all of the requirements of this 
section.
    (a) Your application must:
    (1) Identify each of the participating local water entities 
responsible to your JPA for revenues to repay the guaranteed loan;
    (2) Identify each participating entity's authority to act on behalf 
of its water users or other constituents relative to the proposed 
obligation; and
    (3) Identify the authorities through which the participating 
entities will assess and collect revenues necessary to repay through 
the JPA its share of the proposed loan obligation.
    (b) You must supply required financial information for each local 
entity.
    (c) You must determine the allocation of the loan obligation among 
the various entities of your JPA.
    (d) The participating entities must formally acknowledge their 
respective portions of the loan obligation and must sign all applicable 
loan agreements.


Sec. Sec.  403.26-403.28  [Reserved]

Subpart C--Reclamation Roles and Responsibilities


Sec.  403.29  What is Reclamation's role in the loan guarantee program?

    Reclamation has general oversight and administers the loan 
guarantee program. In these capacities we:
    (a) Issue solicitations for loan guarantee applications, as 
described in Sec.  403.6(a);
    (b) Work with you and the lender when you submit your request for a 
loan guarantee;
    (c) Review all applications received and determine who will receive 
loan guarantees and for how much;
    (d) Ensure appropriate completion of the project in accordance with 
plans and specifications; and
    (e) Manage and ensure proper oversight of the overall loan 
guarantee program.


Sec.  403.30  What information will Reclamation maintain on the lender?

    We will maintain an operational file on each lender. This file will 
contain, among other things:
    (a) Information on the guaranteed loans originated and serviced by 
the lender;
    (b) Any correspondence between us and the lender;
    (c) Any Conditional Commitments for Guarantee;
    (d) The Lender's Agreement;
    (e) Any Loan Note Guarantee Agreements issued to the lender; and
    (f) Any Loan Guarantee Closing Report prepared for each loan.


Sec.  403.31  How much of the loan will Reclamation guarantee?

    We will guarantee up to 80 percent of the principal and up to 90 
days accrued interest from the first missed payment for eligible 
losses, as set forth in Subpart F and in the Lender's Agreement. This 
guarantee is backed by the full faith and

[[Page 58095]]

credit of the United States, provided the lender does not demonstrate 
negligence in loan origination and servicing.


Sec.  403.32  What is Reclamation's role in preparation of NEPA and 
other environmental compliance documents?

    We will determine the appropriate level of NEPA documentation for 
each project. The NEPA documentation may be prepared by Reclamation, by 
you, or by a consultant employed by you and approved by us. We will 
work with you to decide who can best prepare the documentation. 
Regardless of who prepares the NEPA documents, we must independently 
evaluate them for sufficiency before final approval.


Sec.  403.33  Can Reclamation make exceptions to requirements in this 
rule?

    Yes. The Secretary may waive any of the eligibility criteria that 
he/she determines to be duplicative or rendered unnecessary because of 
an action already taken by the United States. Waivers will only be 
considered to the extent that the criteria have been demonstrated to be 
satisfied.


Sec. Sec.  403.34-403.36  [Reserved]

Subpart D--Lender Criteria and Responsibilities


Sec.  403.37  Which lenders are eligible to participate in the program?

    (a) An eligible lender is:
    (1) Any non-Federal qualified institutional buyer (as defined in 17 
CFR 230.144A(a), or any successor regulation, known as Rule 144A(a) of 
the Securities and Exchange Commission); or
    (2) Any clean renewable energy bond lender (as defined in section 
54(j)(2) of the Internal Revenue Code of 1986 (as in effect on the date 
of enactment of Public Law 109-451)).
    (b) [Reserved]


Sec.  403.38  What other requirements must a lender meet to participate 
in the program?

    A lender wishing to participate in the loan guarantee program must 
submit proof to us that they are an eligible lender under Sec.  403.37 
and that they meet the requirements of this section prior to submitting 
an application package as described in Sec.  403.7. Once a lender has 
executed a Lender's Agreement with us, they will be considered an 
approved lender for a period of two years provided that there is no 
adverse event that would affect the status of the lender, such as those 
listed in Sec.  403.39(c), and need not resubmit proof of eligibility 
for each subsequent guaranteed loan application. At the end of this 
two-year period or upon information that the lender may no longer meet 
current eligibility criteria, we will re-evaluate the lender's 
eligibility under the program.
    (a) If the lender has losses or deficiencies in processing and 
servicing any federally guaranteed loans, they must not be above a 
level that indicates an inability to properly process and service a 
loan guaranteed by Reclamation. We may consult with other Federal 
agencies to determine if previous problems, as evidenced in monitoring 
reports, excessive loss claims, or denial of loss claims, should be 
considered in this determination.
    (b) The lender must be subject to credit examination and 
supervision by an acceptable State or Federal regulatory agency listed 
below. Examination will normally include a review of the lender's asset 
quality, management practices, financial condition, and compliance with 
applicable laws and regulations. Regulating agencies may include:
    (1) Federal Deposit Insurance Corporation (FDIC);
    (2) Office of Comptroller of the Currency;
    (3) Office of Thrift Supervision;
    (4) Federal Reserve Bank;
    (5) Farm Credit Administration (FCA);
    (6) National Credit Union Administration; and
    (7) State banking Commissions.
    (c) The lender and its principal officers and staff must 
demonstrate capability to fulfill guaranteed loan servicing 
responsibilities.
    (d) If the lender is regulated only by a State regulatory agency, 
and not a Federal regulatory agency, then it must also meet the 
following financial and capital requirements:
    (1) Have a record of successfully making at least three commercial 
loans annually for at least the most recent 3 years, with delinquent 
loans not exceeding 2 percent of loans outstanding and historic losses 
not exceeding 1 percent of dollars loaned;
    (2) Have tangible balance sheet equity of at least eight percent of 
tangible assets and sufficient funds available to disburse the 
guaranteed loans it proposes to approve within the first 6 months of 
being approved as a guaranteed lender; and
    (3) The lender, its officers, or agents must not be debarred or 
suspended from participation in government contracts or programs and 
must not be delinquent on a Federal Government debt.


Sec.  403.39  What is the lender's role in the program?

    The lender must evaluate and administer the guaranteed loans as 
required by paragraph (a) of this section and notify us of changes in 
status, as required by paragraph (b) of this section.
    (a) The lender is responsible for all of the following:
    (1) Determining whether the loan guarantee applicants meet the 
general eligibility requirements for a loan guarantee, from its 
perspective;
    (2) Performing underwriting, due diligence, and evaluating the 
creditworthiness of the project consistent with the lender's standard 
lending policies and considering all relevant information;
    (3) Determining if the proposed borrower is delinquent on any debt 
(if the borrower is delinquent on any debt, processing of the 
application may continue only with our written approval);
    (4) Disclosing to Reclamation any business or ownership 
relationships between principals of the lender and borrower where the 
lender's officers, stockholders, directors, or partners, or the 
borrower, its officers, stockholders, directors, or partners own, or 
have management responsibilities in each other (this does not 
necessarily preclude such relationships);
    (5) Originating and servicing all Reclamation guaranteed loans in 
its portfolio in accordance with the Lender's Agreement, including all 
of the requirements of paragraph (b) of this section;
    (6) Assessing late charges of any kind including default charges 
and default interest in accordance with the terms and conditions 
approved by Reclamation under the Loan Note Guarantee Agreement (Note: 
None of these will be covered by the guarantee);
    (7) Notifying us of any actions taken to cure a guaranteed loan 
experiencing repayment difficulties as discussed in Sec.  403.63;
    (8) Allowing us to inspect and make copies of any of the records of 
the lender pertaining to the guaranteed loans. Such inspection and 
copying may be made during regular office hours of the lender or at any 
other time the lender and Reclamation agree upon;
    (9) Obtaining written approval from us before making any new loans 
to, or additional expenditures on behalf of, the borrower, which 
approval is subject to our discretion;
    (10) Protecting the guaranteed loan debt and any collateral 
securing it in bankruptcy proceedings;
    (11) Advising Reclamation promptly and in writing of any changes or 
conditions of the loan that may result in delinquency, inability to 
pay, or default by the borrower; and
    (12) Advising Reclamation promptly and in writing of any financial 
problems

[[Page 58096]]

or circumstances that the non-Federal entity may have that would cause 
them to be delinquent in repayment of an existing obligation.
    (b) For purposes of paragraph (a) (4) of this section, originating 
and servicing guaranteed loans includes all of the following:
    (1) Servicing the entire loan in accordance with the Lender's 
Agreement. The un-guaranteed portion of the loan will not be paid first 
nor given any preference or priority over the guaranteed portion of the 
loan;
    (2) Taking all servicing actions that a prudent lender would 
perform in servicing a portfolio of loans that are not guaranteed, 
including, but not limited to, collecting payments, obtaining 
compliance with the covenants and provisions in the note, loan 
agreement, security instrument, or any supplemental agreements, 
verifying the payment of taxes and insurance premiums as appropriate, 
maintaining necessary liens on any collateral, and notifying 
Reclamation of any violation of the loan agreement with the borrower 
within 30 days of such violation;
    (3) Obtaining financial statements required by the Lender's 
Agreement, analyzing these statements, and providing the statements, 
along with the lender's analysis of the financial conditions of the 
borrower and supporting documentation, to us within 120 days of the end 
of the borrowers fiscal year;
    (4) When applicable, requiring audits of the borrower in accordance 
with Office of Management and Budget circulars, available from the 
Reclamation contacts listed in Sec.  403.17;
    (5) Reporting monthly data on a quarterly basis to Reclamation the 
outstanding principal and interest balance on each guaranteed loan in 
its portfolio, and other information as specified in the Lender's 
Agreement; and
    (6) Servicing delinquent loans in accordance with the Lender's 
Agreement and reasonable and prudent lending standards, to include 
monthly reporting to us on the status of delinquent loans; and
    (7) Inspecting any collateral as often as necessary to ensure the 
proper maintenance of its value.
    (c) The lender must immediately notify us in writing if it:
    (1) Becomes insolvent;
    (2) Has filed for any type of bankruptcy protection, has been 
forced into involuntary bankruptcy, or has requested an assignment for 
the benefit of creditors;
    (3) Has taken any action to cease operations, or to discontinue 
servicing its portfolio guaranteed by Reclamation;
    (4) Intends to sell the guaranteed loan to another entity;
    (5) Changes its name, location, address, tax identification number, 
or corporate structure;
    (6) Is or has been debarred, suspended, or sanctioned in connection 
with its participation in any Federal loan guarantee program; or is or 
has been debarred, suspended, or sanctioned by any Federal or State 
licensing or certification authority.


Sec.  403.40  Can the lender cancel or modify a Conditional Commitment 
for Guarantee, or transfer it to another lender?

    (a) Once the Conditional Commitment for Guarantee is issued and 
accepted, no modifications may be made as to the scope and overall 
concept of the project or the project purpose, use of the proceeds, or 
other significant terms and conditions.
    (b) Before issuance of the Loan Note Guarantee Agreement, 
Reclamation may approve the transfer of the Conditional Commitment for 
Guarantee to a new eligible lender, provided that:
    (1) The former lender states in writing why it does not wish to 
continue to be the lender for the project;
    (2) No substantive changes in ownership or control of the borrower 
have occurred;
    (3) No substantive changes in the borrower's written plan, scope of 
work, or changes in the purpose or intent of the project have occurred;
    (4) No substantive changes in the loan agreement with the borrower 
or the Conditional Commitment for Guarantee are required;
    (5) The new lender is acceptable to Reclamation, and has a current 
Lender's Agreement, or will have a Lender's Agreement in place prior to 
the sale; and
    (6) Such a transfer meets all other statutory, regulatory, and 
other requirements.


Sec.  403.41  Can a lender sell or transfer the Loan Note Guarantee 
Agreement to another lender?

    A lender can sell or transfer a guaranteed loan to another lender 
if all of the requirements of this section are met.
    (a) We must approve the sale or transfer in writing by executing a 
modification of the guarantee to identify the new lender and the amount 
of debt at the time of the substitution. Any change must meet all 
applicable statutory, regulatory, and budgetary requirements for 
approval.
    (b) The new lender must agree in writing to:
    (1) Assume all servicing and other responsibilities of the original 
lender and to acquire both the guaranteed and non-guaranteed portions 
of the loan;
    (2) Execute a Lender's Agreement if one is not in effect; and
    (3) Give the borrower written notice of the substitution.
    (c) The original lender must obtain written concurrence from the 
borrower if the rate or terms are changed (and such changes have been 
approved).
    (d) The original lender must assign its promissory note, lien 
instruments, loan agreements, and other documents to the new lender.


Sec.  403.42  Can a lender sell the debt obligation in a secondary 
market?

    A lender can sell the debt obligation in a secondary market (for 
example, as a participation). However, the lender must:
    (a) Notify us of the sale, and the associated holder information;
    (b) Sell both the guaranteed and the non-guaranteed portions of the 
loan together proportionally; and
    (c) Continue to service the loan.


Sec.  403.43  What fees and costs is the lender responsible for?

    The lender is responsible for:
    (a) Paying a loan guarantee fee of 1 percent to Reclamation; and
    (b) At least 20 percent of the outstanding loan amount, if the 
borrower defaults on the loan.
    (c) The lender's own costs associated with the loan guarantee 
program, including underwriting, servicing, and liquidation of a loan, 
including any legal or other costs.


Sec.  403.44  Can Reclamation guarantee bonds sold to finance eligible 
projects?

    No. Reclamation cannot guarantee bonds. Bond issuers do not qualify 
as eligible lenders under Sec.  403.37.


Sec. Sec.  403.45-403.46  [Reserved]

Subpart E--Guaranteed Loan Terms and Details


Sec.  403.47  What conditions must be met before a Loan Note Guarantee 
Agreement is issued?

    The Loan Note Guarantee Agreement may be issued only after the 
following have occurred:
    (a) All terms of the Conditional Commitment for Guarantee have been 
met, to the satisfaction of Reclamation;
    (b) No changes have been made in the lender's loan conditions and 
requirements since the issuance of the Conditional Commitment for 
Guarantee except those approved by Reclamation in writing;

[[Page 58097]]

    (c) The lender certifies that there have been no substantive 
adverse changes in the borrower's financial condition or any other 
adverse change in the borrower during the period of time from the 
issuance of the Conditional Commitment for Guarantee to issuance of the 
Loan Note Guarantee Agreement;
    (d) Land access and all necessary permits are obtained;
    (e) Environmental compliance has been completed and approved by 
Reclamation;
    (f) Federal funds are available;
    (g) Reclamation has approved final plans and specifications;
    (h) All applicable security, safety, and health issues are 
resolved;
    (i) The lender has executed the Lender's Agreement with us, paid 
the appropriate guarantee fee, and a Loan Guarantee Closing Report has 
been completed;
    (j) All other applicable statutory, regulatory, and budgetary 
requirements have been met;
    (k) Reclamation, in consultation with other Federal agencies 
determines that the project is consistent with all applicable Federal 
and United States Treasury policies and is in the best interest of the 
Federal government; and
    (l) The Secretary has approved the loan for a Loan Note Guarantee 
Agreement.


Sec.  403.48  What is the maximum term I can obtain on a guaranteed 
loan?

    A loan guarantee must provide for complete amortization of the loan 
within the useful life of the project, but not more than 40 years. 
Lenders may offer shorter terms.


Sec.  403.49  Is there a limit on the size of a guaranteed loan?

    Public Law 109-451 limits the size of the loan to 90 percent of 
eligible project costs. Reclamation would only guarantee up to 80% of 
that total loan amount.


Sec.  403.50  What project costs are eligible to be covered by my 
guaranteed loan?

    Before issuing a Loan Note Guarantee Agreement, we will determine 
the adequacy and appropriateness of estimated Project Costs for the 
project that is the subject of the agreement. In order for us to make 
that determination, the application must include an estimate of project 
costs that complies with applicable Reclamation policy. Among other 
things, you must calculate the sum of necessary, reasonable and 
customary costs that you have paid and expect to pay, which are 
directly related to the project, including costs for escalation and 
contingencies, to estimate the total Project Costs. All estimated costs 
must be clearly described and documented in your application for a loan 
guarantee.
    (a) Project Costs may include, but are not limited to:
    (1) Costs of acquisition, lease, or rental of real property, 
including engineering fees, surveys, title insurance, recording fees, 
and legal fees incurred in connection with land acquisition, lease or 
rental, site improvements, site restoration, access roads, and fencing;
    (2) Costs of engineering, architectural, legal and bond fees, and 
insurance paid in connection with rehabilitating or replacing the 
facility; including materials, labor, services, travel and 
transportation for facility design, construction, and startup;
    (3) Costs of equipment purchases;
    (4) Costs to provide equipment, facilities, and services related to 
safety and environmental protection;
    (5) Financial and legal services costs, including other 
professional services and fees necessary to obtain required licenses 
and permits and to prepare environmental reports and data;
    (6) Costs of necessary and appropriate insurance and bonds of all 
types;
    (7) Contract costs and non-contract costs, including appropriate 
contingencies, allowances for procurement strategies, and cost 
escalation estimates;
    (8) Capitalized interest necessary to meet market requirements, 
reasonably required reserve funds and other carrying costs during 
construction; and
    (9) Other necessary and reasonable costs.
    (b) Project Costs do not include:
    (1) Fees and commissions charged to borrower, including finder's 
fees, for obtaining Federal or other funds;
    (2) Parent corporation or other affiliated entity's general and 
administrative expenses, and non-project-related parent corporation or 
affiliated entity assessments, including organizational expenses;
    (3) Costs that are excessive or are not directly required to carry 
out the project, as determined by us, including but not limited to the 
cost of hedging instruments; and
    (4) Operating costs.


Sec.  403.51  What if my project cost exceeds the estimated loan 
amount?

    If a project satisfies the criteria in Sec. Sec.  403.5(b) or 
403.5(c), and costs exceed the estimated, then:
    (a) If your project cost estimate increases after we issue a 
Conditional Commitment for Guarantee, but before we enter into the Loan 
Note Guarantee Agreement, you will be required to notify us of the 
increase and justify the increase to us. We will then determine how 
such changes would affect any applicable statutory, regulatory, and 
budgetary requirements, and whether to re-evaluate the revised project 
to receive a loan guarantee, or reject your revised application. If we 
determine that we can re-evaluate your project, we may require you to 
make arrangements for additional funds or financing which are agreeable 
to us and the lender.
    (b) If your actual project costs exceed the amount specified in the 
Loan Note Guarantee Agreement, you will notify us and we will consult 
with you regarding such cost increases to determine what course of 
action to take, including requiring you to obtain additional funds to 
finish the project in a manner satisfactory to us and the lender.
    (c) Any additional funding or financing must be consistent with 
Public Law 109-451, all requirements of this part, and any other 
statutory, regulatory, or budgetary requirements necessary for 
Reclamation approval.


Sec.  403.52  What interest rates and charges apply to my guaranteed 
loan?

    (a) Your loan will bear interest at a rate or rates negotiated 
between you and the lender. They must be fixed rates. Interest rates 
will be those rates customarily charged borrowers in similar 
circumstances in the ordinary course of business and are subject to our 
review and approval. We will determine if the rate is reasonable after 
consultation with the Treasury Department, taking into account the 
range of interest rates prevailing in the private sector for similar 
obligations of comparable risk guaranteed by the Federal government.
    (b) Any change in the interest rate between the date of issuance of 
the Conditional Commitment for Guarantee and before the issuance of the 
Loan Note Guarantee Agreement must be approved by us.


Sec.  403.53  Can I prepay or refinance a guaranteed loan?

    You must negotiate any prepayment or refinancing terms on a loan 
guarantee with the lender, subject to our consent. All applicable 
statutory, regulatory, and budgetary requirements must be met for 
Reclamation consent.


Sec.  403.54  When can an entity begin actual ``on the ground'' work on 
the project to be financed?

    (a) An entity can begin actual work on the facilities or components 
upon issuance of the Loan Note Guarantee Agreement.
    (b) Any work done by a water user entity more than 90 days before a 
Loan

[[Page 58098]]

Note Guarantee Agreement is issued may not be included in the eligible 
project costs. In addition, any work initiated by a water user entity 
90 or fewer days prior to our issuing a Loan Note Guarantee Agreement 
may or may not be included in the eligible project costs and would be 
done at the risk of not receiving the loan guarantee, even though such 
work may have been approved by us and included in the Conditional 
Commitment for Guarantee.


Sec.  403.55  [Reserved]


Sec.  403.56  Can the repayment of a guaranteed loan be subordinated to 
any other financing?

    No. We will only guarantee a loan under this part subject to the 
condition that the obligation is not subordinate to other financing. In 
addition:
    (a) For projects without pledged collateral, the loan must be 
superior to any other financing for the project (as approved by 
Reclamation) and on a position of parity with regard to other non-
collateralized obligations of the borrower; i.e., in the event of a 
default, all non-secured lenders are affected on a proportionate basis.
    (b) For all other eligible projects, the loan must be fully secured 
through project facilities pledged as collateral for the loan and there 
shall be no other liens on such collateral. Consistent with the 
requirements of the Act, the rights of the Secretary, with respect to 
any property acquired pursuant to a loan guarantee or related 
agreement, shall be superior to the rights of any other person with 
respect to the property.
    (c) Where joint financing of a project occurs, the loan for which a 
guarantee is sought from Reclamation must have at least a parity 
position with the other lender(s), such that in the event of default, 
each lender will be affected in proportion to the share of financing it 
provides.
    (d) The non-guaranteed portion of the loan will not be paid first 
nor given any preference or priority over the guaranteed portion.


Sec.  403.57  Under what conditions would the United States not pay the 
guaranteed portion of a loan?

    (a) The Loan Note Guarantee Agreement will not be enforceable by 
the lender to the extent that any loss is a result of fraud, violation 
of usury laws, negligent servicing, or failure to obtain any security 
designated in the Lender's Agreement, regardless of when Reclamation 
acquires knowledge of any of the foregoing.
    (b) For purposes of this provision, negligent servicing is defined 
as the failure to perform those services which a reasonably prudent 
lender would perform in servicing its own portfolio of loans that are 
not guaranteed. The term includes not only the concept of a failure to 
act, but also not acting in a reasonably timely manner, or acting 
significantly contrary to the manner in which a reasonable and prudent 
lender would act up to the time of loan maturity, or until a final loss 
is paid.
    (c) Any losses occasioned will not be enforceable by the lender to 
the extent that loan funds are used for purposes other than those 
specifically approved by Reclamation in the Conditional Commitment for 
Guarantee and Loan Note Guarantee Agreement. Reclamation will review 
all loss claims, and claims may be denied, for example, in cases where 
the lender does not perform reasonable and customary servicing of the 
loan or claims include amounts not covered under the terms of the Loan 
Note Guarantee Agreement.


Sec.  403.58  Will the requirements of the Reclamation Reform Act of 
1982 apply?

    No. The loan to be guaranteed is between the borrower and a private 
lending institution and therefore does not meet the definition of a 
contract as provided in Section 202(1) of the Reclamation Reform Act of 
1982.


Sec. Sec.  403.59-403.62  [Reserved]

Subpart F--Default Actions and Termination.


Sec.  403.63  What options do I have if I have problems repaying the 
guaranteed loan?

    If you have problems paying your loan, contact Reclamation and your 
lender for consideration of possible options.


Sec.  403.64  How can Reclamation help me if I can't resolve repayment 
problems with my lender?

    If you cannot resolve repayment problems with your lender, 
Reclamation may, before default, enter into an agreement with your 
lender to pay the principal and interest payment you currently owe the 
lender. Although we do not anticipate having sufficient funds or 
justification to exercise this option, we may consider this option if 
all of the following conditions are met:
    (a) The non-Federal borrower is unable to meet the payment and is 
not in default;
    (b) We determine that it is in the public interest that you be 
permitted to continue your project, and that the probable net benefit 
to the Federal Government in making such payment on your behalf is 
greater than that which would result if your guaranteed loan defaulted;
    (c) We have sufficient funds specifically appropriated and 
available for this purpose;
    (d) The payment authorized is not greater than the amount of 
principal and interest that you are obligated to pay under the terms of 
the Loan Note Guarantee Agreement;
    (e) You agree to execute all written agreements required by us for 
such purpose and reimburse us for the payment we make on terms and 
conditions satisfactory to us; and
    (f) You will, and are financially able to, continue to make the 
scheduled payments on the remaining portion of the principal and 
interest due and on other debt obligations of the project.


Sec.  403.65  What happens if I still can't make my payments after 
working with the lender and Reclamation?

    If you cannot make payments after working with the lender and with 
Reclamation under Sec.  403.63, then the lender may start default 
proceedings.


Sec.  403.66  What are the actions and timelines associated with 
default proceedings?

    The lender will notify us when your loan payment is 30 days past 
due. If the payment becomes 60 days past due, the lender will meet with 
you and us to discuss default proceedings and potential resolution of 
the problem. The timeframe for default proceedings are shown in the 
following table:

------------------------------------------------------------------------
                                      Timeframe (days from pmt due date)
                                     -----------------------------------
    Action in the default process        Collateral       No collateral
                                           pledged           pledged
------------------------------------------------------------------------
Lender notifies Reclamation that                    30                30
 loan is past due...................
Lender meets with Reclamation and                   60                60
 borrower to discuss default
 proceedings and potential
 resolution of the problem..........
Reclamation, Borrower, and lender                   75                75
 seek possible cures................

[[Page 58099]]

 
Reclamation and lender determine                    90                90
 whether a cure is possible. If no
 cure can be found, the loan is in
 default and any collateral pledged
 for the loan becomes eligible for
 liquidation........................
Lender submits a proposed method of                120               N/A
 liquidation in writing.............
Reclamation informs lender if                      150               N/A
 liquidation plan is approved.......
Lender files an estimated loss claim               180               N/A
 if liquidation will exceed 90 days.
Lender files final Report of Loss...               210               120
Reclamation makes loss payment......               270               180
------------------------------------------------------------------------

Sec.  403.67  What is the process for liquidation of pledged 
collateral?

    (a) Any of the following factors may lead to a decision to 
liquidate:
    (1) The loan has been delinquent 90 days;
    (2) Delaying liquidation will jeopardize recovery of the loan 
collateral; or
    (3) Borrower or lender has been uncooperative in resolving the 
default;
    (b) The lender must, within 30 days after a decision to liquidate, 
submit to Reclamation in writing a proposed method of liquidation. 
Reclamation will not make any payments for estimated or actual losses 
prior to final Report of Loss.
    (c) Within 30 days after receiving the liquidation plan, we will 
inform the lender in writing whether we concur.
    (d) The lender will discontinue interest accrual at the point of 
default, or 90 days after the first payment was missed, whichever is 
earlier.
    (e) When the lender conducts the liquidation, it must account for 
funds during the period of liquidation and will provide us with reports 
at least quarterly on the progress of the liquidation. Only expenses 
authorized by Chapter 9 plans or Chapter 11 reorganizations, or 
Chapters 11 or 7 liquidations (United States Bankruptcy Code) may be 
deducted from collateral proceeds, if any.


Sec.  403.68  What is the timeline for filing a Final Report of Loss?

    Within 30 days after liquidation of all collateral, the lender must 
prepare a final Report of Loss and submit it to us. We will not 
guarantee interest beyond the point of borrower default. We will pay 
the approved loss payment within 60 days after reviewing the final 
Report of Loss and accounting of the collateral.


Sec.  403.69  [Reserved]


Sec.  403.70  What interest does the lender have in the guaranteed loan 
after Reclamation makes a loss payment?

    When we receive a final Report of Loss and pay the loss claim, we 
are immediately subrogated to the lender in all rights with respect to 
the guaranteed loan. The lender must sign and deliver to Reclamation an 
assignment of any rights it may have had with respect to the guaranteed 
loan.


Sec.  403.71  What will Reclamation do if a borrower defaults?

    If a borrower defaults, we are required to notify the Attorney 
General. The Attorney General will take appropriate action to recover 
the unpaid principal and interest due from assets of the defaulting 
non-Federal borrower associated with the obligation, or any other 
collateral pledged to secure the obligation.


Sec.  403.72  When does the Loan Note Guarantee Agreement terminate?

    A Loan Note Guarantee Agreement under this part will terminate 
automatically upon:
    (a) Full Repayment of the guaranteed loan;
    (b) Full Payment of any loss obligation or negotiated loss 
settlement as described in the Lender's Agreement; or
    (c) Written request from the lender to Reclamation, upon return of 
the Loan Note Guarantee Agreement to Reclamation.


Sec.  403.73  What happens if the non-Federal party breaches the 
existing Loan Note Guarantee Agreement?

    The Federal Government reserves the right to prosecute both the 
borrower and the lender to the fullest extent possible under existing 
laws until full recompense has been made and the conditions of the Loan 
Note Guarantee Agreement have been fulfilled. In addition, if a Loan 
Note Guarantee Agreement is breached, the Borrower will no longer be 
eligible to receive a Federally-guaranteed loan for any of its future 
activities or projects, and may not be eligible for other Federal 
assistance. Furthermore, any lender in breach of a Loan Note Guarantee 
Agreement will be responsible for paying any additional fees as 
determined necessary to the Federal Government and will not be allowed 
to hold a Federal Government note until the United States Treasury has 
been paid in full.

 [FR Doc. E8-23444 Filed 10-3-08; 8:45 am]
BILLING CODE 4310-MN-P


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