[Federal Register Volume 62, Number 172 (Friday, September 5, 1997)]
[Rules and Regulations]
[Pages 46867-46872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23580]



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 Rules and Regulations
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  Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / 
Rules and Regulations  

[[Page 46867]]


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DEPARTMENT OF AGRICULTURE

Rural Telephone Bank

7 CFR Part 1610

Rural Utilities Service

7 CFR Parts 1735, 1737, 1739, and 1746

RIN 0572-AB32


Rural Telephone Bank and Telecommunications Program Loan 
Policies, Types of Loans, Loan Requirements

AGENCY: Rural Utilities Service and Rural Telephone Bank, USDA.

ACTION: Final rule.

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

SUMMARY: The Rural Utilities Service (RUS) is amending its regulations 
to incorporate changes to the telecommunications loan program required 
by the 1996 Farm Bill and the regulatory reinvention initiative of the 
Vice President's National Performance Review. RUS has reviewed the 
regulations concerning the telecommunications program and the Rural 
Telephone Bank loan policies and requirements to determine whether they 
are necessary, impose the least possible burden consistent with safety 
and soundness, and are written in a clear, straightforward manner. As a 
result of this review, the RUS telecommunications program is updating 
and streamlining its regulations and policy statements. In addition, 
this regulation will eliminate some policies and procedures that have 
become obsolete.

EFFECTIVE DATE: This regulation is effective on October 6, 1997.

FOR FURTHER INFORMATION CONTACT: Jonathan Claffey, Acting Deputy 
Director, Advanced Telecommunications Services Staff, Rural Utilities 
Service, 1400 Independence Ave., SW., STOP 1701, Room 2919, South 
Building, Washington, DC 20250-1701. Telephone: (202) 720-0530. 
Facsimile: (202) 720-2734.

SUPPLEMENTARY INFORMATION:

Classification

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

Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. RUS has determined that this final rule meets the 
applicable standards provided in Sec. 3. of the Executive Order.

Regulatory Flexibility Act Certification

    Pursuant to Sec. 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 
605(b), RUS certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities. If a rule 
has a significant economic impact on a substantial number of small 
entities, the Regulatory Flexibility Act requires agencies to analyze 
regulatory options that would minimize any significant impact of a rule 
on small entities. The application for loans under the RUS 
telecommunications program are discretionary, regulatory requirements 
will, therefore, apply only to those entities which choose to apply for 
funding.
    This action is being taken as part of the National Performance 
Review program to eliminate excess regulations and to improve the 
quality of those that remain in effect. This final rule reduces the 
Times Interest Earned Ratio requirement for all borrowers, simplifies 
current cash distribution and investment requirements for all 
borrowers, and standardizes determination of loan maturity. This final 
rule is consistent with RUS's continuing effort to devolve, in 
particular, cash management authority to the borrowers. It is also 
consistent with the goals of the regulatory reinvention initiative of 
the National Performance Review.

Information Collection and Recordkeeping Requirements

    The recordkeeping and reporting burden contained in this rule under 
OMB control number 0572-0079 is not fully effective until approved by 
the Office of Management and Budget (OMB).
    Send questions or comments regarding this burden or any other 
aspect of these collections of information, including suggestions for 
reducing the burden, to F. Lamont Heppe, Jr., Director, Program Support 
and Regulatory Analysis, Rural Utilities Service, STOP 1522, 
Washington, DC 20250-1522.

National Environmental Policy Act Certification

    RUS 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.

Program Affected

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance Programs under 10.851, Rural 
Telecommunications Loans and Loan Guarantees, and 10.582, 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.

Intergovernmental Review

    This program 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 RUS and Rural Telephone Bank loans and loan 
guarantees to governmental and non-governmental entities from coverage 
under this Order.

Unfunded Mandate

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandate Reform Act) for State, 
local, and tribal governments or the private sector. Thus today's rule 
is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandate Reform Act.

[[Page 46868]]

Background

    On March 7, 1997, at 62 FR 10483, RUS published a proposed rule to 
incorporate changes to the telecommunications loan program required by 
the Federal Agriculture Improvement and Reform Act of 1996 (Pub. L. 
104-127) (1996 Farm Bill) and the regulatory reinvention initiative of 
the Vice President's National Performance Review. The amendments as 
proposed would reduce regulatory burdens on RUS telecommunications 
program borrowers and simplify existing procedures and policies.
    RUS received 7 comments regarding the proposed rule, which were 
taken into consideration in preparing the final rule. Overall, 
respondents generally expressed support for the proposed rule, but made 
specific comments. A list of the commenters and comment summaries and 
responses follows:
    1. Joint comments submitted by: Eastern Rural Telecom Association; 
United States Telephone Association; Western Rural Telephone 
Association; and National Rural Telecom Association, Washington, DC.
    2. Organization for the Promotion and Advancement of Small 
Telecommunications Companies, Washington, DC.
    3. National Telephone Cooperative Association, Washington, DC.
    4. Associated Communications & Research Services, Oklahoma City, 
OK.
    5. Lackawaxen Telephone Company, Rowland, PA.
    6. TDS Telecom, Madison, WI.
    7. Kiesling Associates, LLP, West Des Moines, IA.

Sections 1610.6 and 1735.31 Concurrent Bank and RUS Cost-of-Money Loans

    Comment Summary: One commenter objected to the proposal to limit 
the size of cost-of-money and Rural Telephone Bank (Bank) loans to no 
more than 10 percent of lending authority from appropriations in any 
fiscal year. The commenter believes no authority exists in the Rural 
Electrification Act of 1936, as amended (RE Act), for RUS to make loans 
for less than 100 percent of the borrowers needs. If there is a 
shortage of cost-of-money and Bank loan funds the solution is to 
increase loan levels, not ration available credit among borrowers.
    Response: The proposed revision to the regulations reflects the 
government's current fiscal and budgetary constraints. To continue 
fulfilling RUS's mission of ensuring that rural telecommunications 
providers have the means to modernize their networks, to fully effect 
the mandated area coverage provision of the RE Act, and to achieve 
maximum use of funds available, RUS will limit the loan amount to any 
single borrower in a fiscal year to, generally, no more than 10 percent 
of the lending authority from appropriations in any fiscal year.

Section 1610.11  Prepayments

    Comment Summary: RUS was asked to clarify how new terms of the loan 
and remaining economic life will be determined for borrowers requesting 
refunding notes. One commenter asked if a borrower prepays 100 percent 
of the amount outstanding whether or not the equipment originally 
financed is no longer in service, would this be possible under the new 
provisions without penalty?
    Response: The principal balance of the refunding notes would be the 
unpaid principal balance of the original notes associated with the 
loan. The term of the refunding notes would match the remaining 
composite economic life of the facilities financed, as determined by 
the original feasibility study prepared in connection with that 
particular loan. All other payment terms, including the rate of 
interest on the refunding notes, would remain unchanged. Only those 
Bank borrowers subject to the funded reserve or net plant to secured 
debt ratio requirements electing to issue refunding notes will not be 
required to pay a prepayment premium, if such requirement is contained 
in the original note. Barring this, Bank borrowers with notes 
containing prepayment premium provisions will still be bound by those 
provisions if prepaying a loan.

Section 1735.2  Definitions

    Comment Summary: One commenter inquired about the definitions of 
total assets and net worth and how existing borrowers (e.g., those 
under an older form of mortgage with RUS) that elect to follow the new 
allowable distribution calculation under Sec. 1735.46 determine total 
assets and net worth.
    Response: The definitions for total assets and net worth have been 
added to Sec. 1735.2. The new allowable distribution calculation under 
Sec. 1735.46 will be based on the total assets and net worth of the 
borrower, and not on a consolidated basis.

Section 1735.17  Facilities Financed

    Comment Summary: Many commenters objected to RUS adopting the 
policy that it will finance only buried plant for all loans unless RUS 
determines that buried plant is not economically feasible. Commenters 
believe that it is preferable to remain flexible in this uncertain 
telecommunications environment. Commenters suggested that, if RUS 
determines that it is necessary to implement this proposal, that RUS 
define the term economically feasible, and, to conform to its intended 
purpose, refer solely to outside plant and not cover all facilities.
    Response: The proposed rule reflects the extensive experience of 
RUS and consequently does not impose any new requirement on borrowers. 
To impose this requirement when the costs would be exorbitant would be 
burdensome to borrowers and counterproductive to achieving the 
objectives of the RE Act. RUS will only finance those system designs or 
facilities that can withstand or are designed to minimize damage caused 
by storms and other natural catastrophes, unless an alternate design or 
facility is more economically or technically feasible. Economic and 
technical feasibility will be determined using total long range 
economic costs and risk analysis.

Section 1735.43  Payments on Loans

    Comment Summary: Several commenters expressed concern that the 
proposal to tie the amortization period for loans to the depreciated 
life of facilities financed may not be in the best interest of RUS 
borrowers. Commenters believe that there will be many circumstances in 
which borrowers will require loan terms that extend 3 years beyond the 
expected composite economic life of the facilities financed. In those 
circumstances, current RUS regulations are substantially adequate to 
protect the interest of the government, and that the proposal to 
require the borrower provide additional security (i.e., funded reserve) 
for a loan that exceeds the expected composite economic life of the 
facilities by more than 3 years is unwarranted and unnecessary. One 
commenter felt that the additional security in the form of a funded 
reserve should be replaced by a requirement to maintain a net plant to 
secured debt ratio of 1.2. Borrowers could certify they have maintained 
a 1.2 net plant ratio if they opted for loan amortization periods 
different than the standard; thus, simplifying the process and reducing 
paperwork and costs to the borrower and RUS.
    Response: The final rule establishes that the repayment period will 
be based on the expected composite economic life of the facilities 
financed. Collateral for RUS loans rests on the value of the facilities 
financed. RUS relies on the revenues produced by the facilities 
financed for repayment of the loans. Therefore, RUS will continue to 
require borrowers electing maturities of more than the depreciated life 
plus 3 years maintain a funded reserve to ensure

[[Page 46869]]

adequate security over the life of the loan.
    The RE Act sets no minimum length for amortization of loans, 
presumably to allow RUS to determine a prudent amortization period. 
There are several benefits to tying the amortization period to expected 
composite economic life of facilities financed. First, earnings of the 
company are based on, among other things, the economic life of the 
facilities (depreciation). Second, total interest expense is reduced. 
Finally, the government's loan security is enhanced by the loan life 
approximating plant life; the economic life of the mortgaged assets 
declines at approximately the same pace as the principal balance of the 
loan.
    It is general practice for lenders making loans for capital assets 
to set the amortization period of the loan equal to or less than the 
expected economic life of the items financed. Consequently, RUS is not 
seeking to establish a unique requirement in this area. This option is 
intended to allow the borrower flexibility of extending loan maturity 
while allowing the government to maintain adequate security for its 
loan. This requirement is also consistent with OMB Circular A-129, 
Managing Federal Credit Programs, which in part states that the 
maturity offered should be shorter than the estimated economic life of 
the asset financed. With telecommunications borrowers facing increasing 
competition and the potential for regulatory changes, adequate security 
is of critical concern to RUS.

Section 1735.46  Loan Security Documents

    Comment Summary: All commenters overwhelmingly supported the 
proposed simplification of RUS's policy for determining a borrower's 
allowable level of distributions and investments. Several commenters 
requested RUS clarify some minor technical aspects of the proposed 
formula. One commenter, however, in principle, believes that RUS 
borrowers should be able to dividend 100 percent of net earnings 
subsequent to loan approval. This would be more in line with private 
lenders without adversely affecting loan security.
    Response: RUS's new policy regarding investments and distributions 
of assets by borrowers will be in all mortgages for loans approved 
after the effective date of this final rule. Borrowers that have not 
received a loan after the effective date of the final rule may request 
the Administrator to apply the new requirements to them; however, once 
the decision is made to switch to the new requirements, borrowers may 
not revert back to the old method. This new policy is not an 
alternative method for borrowers to choose between from year to year.
    Further, unlike the former method for determining allowable 
distributions whereby adjustments were made to net worth and total 
assets based upon, among other things, a borrower's investments in 
affiliates, no such adjustments will be factored into the new method 
for determining allowable distributions. RUS also modified the 
definition of cash distributions to include dividend and capital credit 
distributions.
    A technical correction not published in the proposed rule will be 
made in the final rule to Sec. 1735.32, Guaranteed loans. Presently, to 
qualify for a guaranteed loan, among other things, a borrower must have 
a projected TIER (including the proposed loan or loans) of at least 1.5 
as determined by the feasibility study prepared in connection with the 
loan. To be consistent with RUS's previously proposed policy to reduce 
the maximum TIER maintenance requirement to no more than 1.5 for all 
borrowers receiving any type of loan after the effective date of the 
final rule, the TIER eligibility requirement for guaranteed loans will 
be reduced to a minimum of 1.2.

List of Subjects

7 CFR Part 1610

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

7 CFR Part 1735

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

7 CFR Part 1737

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

7 CFR Part 1739

    Accounting, Guaranteed program, Loan programs--communications, 
Reporting and recordkeeping requirements, Rural areas, 
Telecommunications.

7 CFR Part 1746

    Accounting, Guaranteed program, Loan programs--communications, 
Reporting and Recordkeeping requirements, Rural areas, 
Telecommunications.

    For the reasons set forth in the preamble, and under the authority 
of 7 U.S.C. 901 et seq., chapters XVI and XVII of Title 7 of the Code 
of Federal Regulations are amended as follows:

CHAPTER XVI

PART 1610--LOAN POLICIES

    1. The authority citation for part 1610 continues to read as 
follows:

    Authority: 7 U.S.C. 941 et seq.; Pub. L. 103-354, 108 Stat. 3178 
(7 U.S.C. 6941, et seq.).

    2. In Sec. 1610.6, new paragraph (d) is added to read as follows:


Sec. 1610.6  Concurrent Bank and RUS cost-of-money loans.

* * * * *
    (d) Generally, no more than 10 percent of lending authority from 
appropriations in any fiscal year for Bank and RUS cost-of-money loans 
may be loaned to a single borrower. The Bank will publish by notice in 
the Federal Register the dollar limit that may be loaned to a single 
borrower in that particular fiscal year based on approved Bank and RUS 
lending authority.
    3. In Sec. 1610.11, a new paragraph (c) is added to read as 
follows:


Sec. 1610.11  Prepayments.

* * * * *
    (c) Borrowers that qualify to issue a refunding note or notes in 
accordance with 7 CFR 1735.43, Payments on loans, shall not be required 
to pay a prepayment premium on all payments made in accordance with the 
new payment schedule.

CHAPTER XVII

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

    1. The part heading for part 1735 is revised as set forth above.
    1a. The authority citation for part 1735 is revised to read as 
follows:

    Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354, 
108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    2. In Sec. 1735.2, the definition of Construction fund is amended 
by removing the reference ``See 7 CFR part 1758.'', the definitions for 
Adjusted assets and Adjusted net worth are removed, and new definitions 
Cash distribution, Net worth, and Total assets are added in 
alphabetical order to read as follows:


Sec. 1735.2  Definitions.

* * * * *
    Cash distribution means investments, guarantees, extensions of 
credit,

[[Page 46870]]

advances, loans, non-affiliated company joint ventures, affiliated 
company investments, and dividend and capital credit distributions. Not 
included in this definition are qualified investments (see 7 CFR part 
1744, subpart D).
* * * * *
    Net worth means the sum of the balances of the following accounts 
of the borrower:

------------------------------------------------------------------------
                        Account names                            Number 
------------------------------------------------------------------------
(1) Capital stock............................................       4510
(2) Additional paid-in capital...............................       4520
(3) Treasury stock...........................................       4530
(4) Other capital............................................       4540
(5) Retained earnings........................................      4550 
------------------------------------------------------------------------
Note: For nonprofit organizations, owners' equity is shown in           
  subaccounts of 4540 and 4550. All references regarding account numbers
  are to the Uniform System of Accounts (47 CFR part 32).               

* * * * *
    Total assets means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
               Account names                           Number           
------------------------------------------------------------------------
(1) Current assets........................  1100s through 1300s.        
(2) Noncurrent Assets.....................  1400s through 1500s.        
(3) Total telecommunications plant........  2001 through 2007.          
(4) Less: Accumulated depreciation........  3100 through 3300s.         
(5) Less: Accumulated amortization........  3400 through 3600s.         
------------------------------------------------------------------------
Note: All references regarding account numbers are to the Uniform System
  of Accounts (47 CFR part 32).                                         

    3. In Sec. 1735.3, the first sentence is revised to read as 
follows:


Sec. 1735.3  Availability of forms.

    Single copies of RUS forms and publications cited in this part are 
available from Program Support Regulatory Analysis, Rural Utilities 
Service, STOP 1522, 1400 Independence Ave., SW., Washington, DC 20250-
1522. * * *
    4. In Sec. 1735.17, paragraph (c) is revised to read as follows:


Sec. 1735.17  Facilities financed.

* * * * *
    (c) RUS will not make any type of loan to finance the following 
items:
    (1) Station apparatus (including PBX and key systems) not owned by 
the borrower and any associated inside wiring;
    (2) Certain duplicative facilities, see Sec. 1735.12;
    (3) Facilities to serve subscribers outside the local exchange 
service area of the borrower unless those facilities are necessary to 
furnishing or improving telecommunications service within the 
borrower's service areas;
    (4) Facilities to provide service other than 1-party; and
    (5) System designs or facilities to provide service that cannot 
withstand or are not designed to minimize damage caused by storms and 
other natural catastrophes, including, but not limited to hurricanes, 
floods, tornadoes, mudslides, lightning, windstorms, hail, fire, and 
smoke, unless an alternate design or facility for modern 
telecommunications is more economically or technically feasible. 
Economic and technical feasibility will be determined using total long 
range economic costs and risk analysis.
* * * * *
    5. In Sec. 1735.22, paragraph (g) is redesignated as new paragraph 
(i), paragraph (f) is revised, and new paragraphs (g) and (h) are added 
to read as follows:


Sec. 1735.22  Loan security.

* * * * *
    (f) For purposes of determining compliance with TIER requirements, 
unless a borrower whose existing mortgage contains TIER maintenance 
requirements notifies RUS in writing differently, RUS will apply the 
requirements described in paragraph (g) of this section to the borrower 
regardless of the provisions of the borrower's existing mortgage.
    (g) For loans approved after October 6, 1997 loan contracts and 
mortgages covering hardship loans, RUS cost-of-money loans, RTB loans, 
and guaranteed loans will contain a provision requiring the borrower to 
maintain a TIER of at least 1.0 during the Forecast Period. At the end 
of the Forecast Period, the borrower shall be required to maintain, at 
a minimum, a TIER at least equal to the projected TIER determined by 
the feasibility study prepared in connection with the loan, but at 
least 1.0 and not greater than 1.5.
    (h) Nothing in this section shall affect any rights of supplemental 
lenders under the RUS mortgage, or other creditors of the borrower, to 
limit a borrower's TIER requirement to a level above that established 
in paragraph (g) of this section.
* * * * *
    6. In Sec. 1735.31, paragraphs (d) and (e) are redesignated as new 
paragraphs (e) and (f), and new paragraph (d) is added to read as 
follows:


Sec. 1735.31  RUS cost-of-money and RTB loans.

* * * * *
    (d) Generally, no more than 10 percent of lending authority from 
appropriations in any fiscal year for RUS cost-of-money and RTB loans 
may be loaned to a single borrower. RUS will publish by notice in the 
Federal Register the dollar limit that may be loaned to a single 
borrower in that particular fiscal year based on approved RUS and RTB 
lending authority.
* * * * *
    7. In Sec. 1735.32, the first sentence of paragraph (b), and 
paragraph (c) are revised to read as follows:


Sec. 1735.32  Guaranteed loans.

* * * * *
    (b) Requirements. To qualify for a guaranteed loan, a borrower must 
have a projected TIER (including the proposed loan or loans) of at 
least 1.2 as determined by the feasibility study prepared in connection 
with the loan. * * *
    (c) Net worth requirements. RUS generally requires that borrowers 
seeking guaranteed loans have a net worth in excess of 20 percent of 
assets. RUS will, however, consider loan guarantees for borrowers with 
a net worth less than 20 percent.
* * * * *
    8. Section 1735.33 is added to read as follows:


Sec. 1735.33  Variable interest rate loans.

    After June 10, 1991, and prior to November 1, 1993, RUS made 
certain variable rate loans at interest rates less than 5 percent but 
not less than 2 percent. For those borrowers that received variable 
rate loans, this section describes the method by which interest rates 
are adjusted. The interest rate used in determining feasibility is the 
rate charged to the borrower until the end of the Forecast Period for 
that loan. At the end of the Forecast Period, the interest rate for the 
loan may be annually adjusted by the Administrator upward to a rate not 
greater than 5 percent, or downward to a rate not less than the rate 
determined in the feasibility study on which the loan was based, based 
on the borrower's ability to pay debt service and maintain a minimum 
TIER of 1.0. Downward and upward adjustments will be rounded down to 
the nearest one-half or whole percent. To make this adjustment, 
projections set forth in the loan feasibility study will be revised 
annually by RUS (beginning within four months after the end of the 
Forecast Period) to reflect updated revenue and expense factors based 
on the borrower's current operating condition. Any such adjustment will 
be effective on July 1 of the year in which the adjustment was 
determined. If the Administrator determines that the borrower is 
capable of meeting the

[[Page 46871]]

minimum TIER requirements of Sec. 1735.22(f) at a loan interest rate of 
5 percent on a loan made as described in this section, then the loan 
interest rate shall be fixed, for the remainder of the loan repayment 
period, at the standard interest rate of 5 percent.
    9. In Sec. 1735.43, the section heading is revised, paragraph (a) 
is revised, paragraph (b) is redesignated as new paragraph (f), and new 
paragraphs (b) through (e) are added to read as follows:


Sec. 1735.43  Payments on loans.

    (a) Except as described in this paragraph (a), RUS loans approved 
after October 6, 1997 must be repaid with interest within a period 
that, rounded to the nearest whole year, equals the expected composite 
economic life of the facilities to be financed, as calculated by RUS; 
expected composite economic life means the depreciated life plus three 
years. The expected composite economic life shall be based on the 
depreciation rates for the facilities financed by the loan. In states 
where the borrower must obtain state regulatory commission approval of 
depreciation rates, the depreciation rates used shall be the rates 
currently approved by the state commission or rates for which the 
borrower has received state commission approval. In cases where a state 
regulatory commission does not approve depreciation rates, the expected 
composite economic life shall be based on the most recent median 
depreciation rates published by RUS for all borrowers (see 7 CFR 
1737.70). Borrowers may request a repayment period that is longer or 
shorter than the expected composite economic life of the facilities 
financed. If the Administrator determines that a repayment period based 
on the expected composite economic life of the facilities financed is 
likely to cause the borrower to experience hardship, the Administrator 
may agree to approve a period longer than requested. A shorter period 
may be approved as long as the Administrator determines that the loan 
remains feasible.
    (b) Borrowers with RTB loans approved after October 6, 1997 with a 
maturity that exceeds the expected composite economic life of the 
facilities to be financed by the loan by a period of more than three 
years, release of funds included in the loan shall be conditioned upon 
the borrower establishing and maintaining, pursuant to a plan approved 
by RUS, a funded reserve in such an amount that the balance of the 
reserve plus the value of the facilities less depreciation shall at all 
times be at least equal to the remaining principal payments on the 
loan. Funding of the reserve must begin within one year of approval of 
release of funds and must continue regularly over the expected 
composite economic life of the facilities financed.
    (c) Borrowers that have demonstrated to the satisfaction of the 
Administrator an inability to maintain the funded reserve or net plant 
to secured debt ratio requirements, if any, contained in their 
mortgage, may elect to replace notes with an original maturity that 
exceeded the composite economic life of the facilities financed with 
notes bearing a shorter maturity approximating the expected composite 
economic life of the facilities financed, if this will result in a 
shorter maturity for the loan. The principal balance of the notes 
(hereinafter in this section called the ``refunding notes'') issued to 
refund and substitute for the original notes would be the unpaid 
principal balance of the original notes. The refunding notes would 
mature at a date no later than the remaining economic life of the 
facilities financed by the loan, plus three years, as determined by the 
original feasibility study prepared in connection with the loan. 
Interest on the original note must continue to be paid through the 
closing date. All other payment terms, including the rate of interest 
on the refunding notes, would remain unchanged. Disposition of funds in 
the funded reserve will be determined by RUS at the closing date. RUS 
will notify the borrower in writing of the amendment of loan payment 
requirements and the terms and conditions thereof.
    (d) A borrower qualifying under paragraph (c) of this section shall 
not be required to pay a prepayment premium on such portion of the 
payments under its new notes as exceeds the payments required under the 
notes being replaced.
    (e) To apply for refunding notes, borrowers must send to the Area 
Office the following:
    (1) A certified copy of a board resolution requesting an amendment 
of loan payment requirements and that certain notes be replaced;
    (2) If applicable, evidence of approval by the regulatory body with 
jurisdiction over the telecommunications service provided by the 
borrower to issue refunding notes; and
    (3) Such other documents as may be required by the RUS.
* * * * *
    10. In Sec. 1735.46, paragraphs (b), (c) and (d) are revised, 
paragraphs (e) and (f) are removed, and paragraphs (g) and (h) are 
redesignated as paragraphs (e) and (f) to read as follows:


Sec. 1735.46  Loan security documents.

* * * * *
    (b) Loan security documents of borrowers with loans approved after 
October 6, 1997 will provide limits on allowable cash distributions in 
any calendar year as follows:
    (1) No more than 25 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 1 percent 
of its total assets after the distribution is made;
    (2) No more than 50 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 20 percent 
of its total assets after the distribution is made;
    (3) No more than 75 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 30 percent 
of its total assets after the distribution is made; or
    (4) No limit on distributions if the borrower's net worth is at 
least 40 percent of its total assets after the distribution is made.
    (c) Borrowers that have not received a loan after October 6, 1997 
may request the Administrator to apply these requirements to them. 
Borrowers may request in writing that RUS substitute the new 
requirements described in paragraphs (b)(1) through (b)(4) of this 
section. Upon request by the borrower, the provisions of the borrower's 
loan documents restricting cash distributions or investments shall not 
be enforced to the extent that such provisions are inconsistent with 
this section.
    (d) Rural development investments meeting the criteria set forth in 
7 CFR part 1744, subpart D, will not be counted against a borrower's 
allowable cash distributions in any calendar year (7 U.S.C. 926).
* * * * *


Sec. 1735.60  [Amended]

    11. Sec. 1735.60, paragraph (a) introductory text is amended by 
removing the reference ``(see 7 CFR part 1758)'' and paragraph (a)(3) 
is removed.


Sec. 1735.76  [Amended]

    12. Sec. 1735.76, the second ``or'' is removed and the word ``of'' 
is added in its place.

PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED 
TELECOMMUNICATIONS LOANS

    13. The part heading for part 1737 is revised as set forth above.
    14. The authority citation for part 1737 is revised to read as 
follows:

    Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354, 
108 Stat. 3178 (7 U.S.C. 6941 et. seq.).

[[Page 46872]]

Sec. 1737.70  [Amended]

    15. In Sec. 1737.70, paragraph (d) is removed and reserved.

PART 1739--[REMOVED]

    16. Part 1739 is removed.

PART 1746--[REMOVED]

    17. Part 1746 is removed.

    Dated: August 28, 1997.
Inga Smulkstys,
Acting Under Secretary, Rural Development.
[FR Doc. 97-23580 Filed 9-4-97; 8:45 am]
BILLING CODE 3410-15-P