[Federal Register Volume 63, Number 165 (Wednesday, August 26, 1998)]
[Notices]
[Pages 45464-45465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22932]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service


Issuance of Additional Secured Debt by Electric Distribution 
Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Notice.

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SUMMARY: The Rural Utilities Service (RUS) hereby issues a generic 
notice to those electric distribution borrowers that presently have 
mortgages that prohibit the issuance of additional secured debt without 
the consent of RUS (i.e., most mortgages entered into before 1996) that 
RUS hereby approves their issuance of additional secured notes, 
provided that the terms and conditions contained in the model forms of 
mortgage and loan contract in use by RUS since January 1996 are 
satisfied.

DATES: This generic approval extends to electric distribution borrowers 
who notified RUS of their intention to issue additional secured debt on 
or after February 20, 1998, under the circumstances set out in this 
notice.

FOR FURTHER INFORMATION CONTACT: Sue Arnold, Office of the Assistant 
Administrator, Electric Program, Rural Utilities Service, United States 
Department of Agriculture, 1400 Independence Avenue, SW, Stop 1560, 
Room 4024-S, Washington, DC 20250-1500. Phone: 202-690-1078. FAX: 202-
690-0717. E-mail: [email protected].

SUPPLEMENTARY INFORMATION: The Rural Utilities Service (RUS) makes and 
guarantees loans for electric facilities to serve consumers in rural 
areas pursuant to the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.) (RE Act). These loans are ordinarily secured 
through the use of a common mortgage with RUS and at least one 
supplemental lender.
    Under the form of common mortgage RUS used from the early 1970's 
until early 1996 (Old Mortgage), the borrower could not issue 
additional secured debt without first obtaining the approval of RUS. 
RUS exercised broad discretion in exercising its right to approve 
additional secured debt case-by-case. The exercise of rights in these 
cases is sometimes referred to as approving a ``lien accommodation,'' 
(although that broad term also encompasses many other similar actions 
by RUS that are not

[[Page 45465]]

covered by this notice). As the RUS program matured, this case-by-case 
approach to approving all additional secured debt became less workable 
for RUS, its borrowers, and supplemental lenders.
    On July 18, 1995, at 60 FR 36881, RUS published 7 CFR Part 1718, 
Loan Security Documents for Electric Borrowers, that issued a new model 
form of mortgage (New Mortgage) for electric distribution borrowers. In 
a related action, on December 29, 1995, at 60 FR 67395, RUS amended 7 
CFR Part 1718 to issue a new model form of loan contract (New Loan 
Contract) for electric distribution borrowers. The New Mortgage and New 
Loan Contract went into use for all electric distribution loans or 
guarantees approved by RUS after January 29, 1996.
    Among other things, these new forms of loan documents replaced many 
subjective standards and practices that required RUS, as mortgagee, to 
review borrower requests for routine additional financings case-by-
case. Sections 2.01 and 2.02 of the New Mortgage and Secs. 6.13 and 
6.14 of the New Loan Contract establish objective tests for the 
issuance of new debt that qualifies as secured under the borrower's 
mortgage. No lien accommodations are required for additional financing 
that complies. Because of the success of the objective approach, RUS is 
extending it to those electric distribution borrowers still operating 
under the Old Mortgage. RUS expects that this action will also 
eliminate the confusion associated with maintaining two different 
standards for the routine issuance of electric distribution debt during 
the period the RUS program transitions from the Old Mortgage form to 
the New Mortgage form.
    This Federal Register Notice is a generic notice of approval, under 
7 CFR 1717.600(c), allowing electric distribution borrowers operating 
under the Old Mortgage to issue additional debt without prior RUS 
approval under the same terms and conditions as borrowers with the New 
Mortgage and New Loan Contract.
    Specifically, an electric distribution borrower with an Old 
Mortgage may now, without first obtaining any RUS approval, issue 
additional debt to refinance or refund existing secured debt or to 
acquire, procure, or construct eligible property additions if the 
borrower satisfies the terms and conditions for the issuance of such 
debt contained in the New Mortgage and New Loan Contract.
    The model forms of the New Mortgage and New Loan Contract are 
published in RUS regulations as appendices to 7 CFR 1718, subparts B 
and C, respectively. The applicable provisions in the New Mortgage are 
Secs. 1.01, 2.01 and 2.02 and Exhibit A. The applicable provisions in 
the New Loan Contract are Article I--Definitions, Secs. 6.13 and 6.14 
of Article VI--Negative Covenants, and Exhibits C-1 and C-2 (forms of 
certifications). The regulation, including appendices, is available on 
the RUS homepage at www.usda.gov/rus.
    RUS may, upon written notice to a borrower, prospectively amend or 
annul this approval as set forth in 7 CFR 1717.600. Nothing in this 
notice of approval is intended to affect the rights of any other 
lender. Any electric distribution borrower that does not qualify for 
the approval contained in this notice, must continue to refer to its 
existing mortgage and RUS loan contract and RUS regulations including 7 
CFR 1717, subparts R and S for the terms and conditions for issuing 
additional secured debt.

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

    Dated: August 21, 1998.
Christopher A. McLean,
Acting Administrator, Rural Utilities Service.
[FR Doc. 98-22932 Filed 8-25-98; 8:45 am]
BILLING CODE 3410-15-P