[Federal Register Volume 59, Number 109 (Wednesday, June 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13888]


[[Page Unknown]]

[Federal Register: June 8, 1994]


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

DEPARTMENT OF AGRICULTURE
Rural Electrification Administration

7 CFR Part 1735

RIN 0572-AA91

 

Telephone Program Loan Policies, Types, and Requirements

AGENCY: Rural Electrification Administration, USDA.

ACTION: Final rule.

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

SUMMARY: The Rural Electrification Administration (REA) hereby amends 
its regulation concerning general policies for telephone loans to make 
consistent for all telephone borrowers the adjusted net worth to assets 
requirement set forth in the mortgage between REA and its borrowers. 
The final rule establishes at 10 percent, the percentage of adjusted 
assets used in determining both the borrower's allowable distribution 
of capital and certain reporting requirements. This percentage will be 
incorporated in new mortgages and will also apply to borrowers with 
outstanding loans regardless of the percentage stated in their existing 
mortgages.

EFFECTIVE DATE: This regulation is effective on July 8, 1994.

FOR FURTHER INFORMATION CONTACT: Matthew P. Link, Director, Rural 
Telephone Bank Management Staff, Rural Electrification Administration, 
U.S. Department of Agriculture, 14th & Independence Avenue, SW., room 
2832-S, Washington, DC 20250-1500, telephone number (202) 720-0530.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be not significant for 
purposes of Executive Order 12866, Regulatory Planning and Review, and 
therefore has not been reviewed by the Office of Management and Budget.

Executive Order 12778

    This final rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This rule: (1) Will not preempt any State or 
local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule; (2) Will not have any 
retroactive effect; and (3) Will not require administrative proceedings 
before parties may file suit challenging the provisions of this rule.

Regulatory Flexibility Act Certification

    REA has determined that this final rule will not have a significant 
economic impact on a substantial number of small entities as defined in 
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The REA program 
provides loans to REA borrowers at interest rates and terms that are 
more favorable than those generally available from the private sector. 
REA borrowers, as a result of obtaining federal financing, receive 
economic benefits which exceed any direct economic costs associated 
with complying with REA regulations and requirements. Moreover, this 
final rule corrects inequities and establishes a more consistent 
standard.

Information Collection and Recordkeeping Requirements

    The reporting and recordkeeping requirements contained in this 
final rule have previously been approved by the OMB in accordance with 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These 
requirements are approved under OMB control number 0572-0031. Comments 
concerning these requirements should be directed to: Department of 
Agriculture, Clearance Office, Office of Information Resources 
Management, room 404-W, Washington, DC 20250, and to the Office of 
Information and Regulatory Affairs of OMB, Attention: Desk Officer for 
USDA, room 3201, New Executive Office Building, Washington, DC 20503.

National Environmental Policy Act Certification

    REA has determined that this final rule will not significantly 
affect the quality of the human environment as defined by the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore, 
this action does not require an environmental impact statement or 
assessment.

Catalog of Federal Domestic Assistance

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance Programs under 10.851, Rural Telephone 
Loans and Loan Guarantees, and 10.852, Rural Telephone Bank Loans. This 
catalog is available on a subscription basis from the Superintendent of 
Documents, the United States Government Printing Office, Washington, DC 
20402-9325.

Executive Order 12372

    This final rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation. A Notice of Final rule entitled 
Department Programs and Activities Excluded from Executive Order 12372 
(50 FR 47034) exempts REA and RTB loans and loan guarantees to 
governmental and nongovernmental entities from coverage under this 
Order.

Background

    On December 29, 1993, REA published a proposed rule at 58 FR 68780 
revising the adjusted net worth percent used to specify certain cash 
distribution and reporting requirements placed on a borrower. REA 
received comments from the United States Telephone Association (USTA) 
regarding the proposed rule, which were taken into consideration in 
preparing the final rule.
    Comment Summary: With regard to paragraph (b), USTA commented that 
the language ``an alternative'', which is referencing a calculation 
contained in the REA mortgage, is confusing because this calculation 
has always been the standard, not ``an alternative'' calculation. USTA 
further commented that the ``alternative dividend calculation'', 
outlined in the February 13, 1978 supplement to REA Bulletin 402-1, 
should be codified and that REA explore other possible changes to its 
dividend policy which will increase borrowers' flexibility.
    Response: The mortgage provides an alternative to the borrower for 
distributing dividends when it cannot meet the 40 percent net worth to 
total assets ratio test. The proposed rule relates exclusively to a 
revision made in the dividend policy contained in the mortgage. There 
are other alternatives available if the borrower cannot distribute 
under the methods provided in the mortgage. These alternatives were not 
revised and are contained in REA Bulletin 402-1. While this revision to 
the mortgage represents a move towards a more flexible but consistent 
policy, REA is considering other less complicated but financially 
responsible policies.
    Comment Summary: USTA suggested that REA's policy requiring that 
borrowers retain cash in the corporation in order to secure cash and 
other assets, be revised. USTA also suggested REA consider excluding 
cash and other current assets, and other investments, from its dividend 
calculation.
    Response: As a credit agency, REA is rightfully concerned about the 
extent of a borrower's financial leverage and liquidity. When a 
borrower is highly debt-leveraged or has a marginal working capital 
position, the flow of cash away from its operations can be risky and 
could jeopardize REA's loan security. However, REA is only concerned 
with this outflow when a borrower cannot meet the 40 percent net worth 
to total assets ratio. In general, this ratio represents the borrower's 
ability to finance its assets with an appropriate level of debt and 
equity. Once a borrower is above the 40 percent comfort level, neither 
the amount nor flow of cash is subject to retention. In fact, at no 
time is a borrower required to maintain a specific level of cash.

List of Subjects in 7 CFR Part 1735

    Accounting, Loan programs--communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

    Chapter XVII of Title 7 of the Code of Federal Regulations is 
amended as follows:

PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--
TELEPHONE PROGRAM

    1. The authority citation for part 1735 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq., 1921 et seq. 

    2. In Sec. 1735.46, the existing text is designated as paragraph 
(a) and new paragraphs (b) through (h) are added to read as follows:


Sec. 1735.46  Loan security documents.

    (a) * * *
    (b) The standard form of mortgage or other security document 
required by REA to secure telephone loans prohibits the borrower from 
making certain investments or distributions of assets unless, after 
such action, the borrower's adjusted net worth is at least:
    (1) Forty percent of its adjusted assets; or
    (2) As an alternative, the sum of ten percent of its adjusted 
assets plus certain other adjustments specified in the mortgage.
    (c) The standard form of telephone mortgage also states that if the 
borrower's adjusted net worth is at least ten percent of its adjusted 
assets, the borrower is not required to take or refrain from taking 
certain actions as set forth in the mortgage.
    (d) REA will apply the ten percent requirement to all telephone 
borrowers regardless of whether the borrower's existing mortgage sets 
forth a higher percentage of adjusted net worth to assets for purposes 
of determining whether the borrower can:
    (1) Use the alternative calculation described in paragraph (b)(2) 
of this section to determine if it can make investments or 
distributions; or
    (2) Take advantage of the benefits described in paragraph (c) of 
this section.
    (e) A borrower with an adjusted net worth of less than twenty 
percent of its adjusted assets shall continue to fulfill the 
requirements of the mortgage relating to reporting its ownership and 
transfers of its ownership, including capital stock, membership 
certificates and equity capital certificates.
    (f) Any borrower meeting the standard forty percent limitation 
described in paragraph (b)(1) of this section shall continue to be able 
to pay dividends or make investments in accordance with the borrower's 
mortgage.
    (g) References to a borrower's mortgage in this section include 
deeds of trust and any other loan document applying the same 
requirements to a borrower.
    (h) This section does not limit the rights of any parties to the 
mortgage other than REA or RTB.

    Dated: June 2, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-13888 Filed 6-7-94; 8:45 am]
BILLING CODE 3410-15-P