[Federal Register Volume 64, Number 240 (Wednesday, December 15, 1999)]
[Proposed Rules]
[Pages 69946-69962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31367]
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DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1744
RIN 0572-AB53
Post-Loan Policies and Procedures Common to Guaranteed and
Insured Loans
AGENCY: Rural Utilities Service, USDA.
ACTION: Proposed rule.
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SUMMARY: Recent changes in the telecommunications industry, including
deregulation and technological developments, have caused Rural
Utilities Service (RUS) borrowers and other organizations providing
telecommunications services to consider undertaking projects that
provide new telecommunications services and other telecommunications
services not ordinarily financed by RUS. The ability of
telecommunications providers to compete in an expanding number of
telecommunications services may be critical to their financial strength
and stability. Although some of these services may not be eligible for
financing under the Rural Electrification Act of 1936 (RE Act), these
services may nevertheless advance RE Act objectives where the borrower
obtains financing from private lenders. Rural subscribers will be the
beneficiaries of these services and, overall, the borrowers' financial
strength and the assurance of repayment of outstanding Government debt
will be improved as a result of providing such telecommunications
services. To facilitate the financing of those services, RUS is willing
to consider accommodating the Government's lien on telecommunications
borrowers' systems or subordinating the Government's lien on after-
acquired property of telecommunications borrowers.
DATES: Written comments on this proposed rule must be received by RUS
or carry a postmark or equivalent by February 14, 2000.
ADDRESSES: Written comments should be addressed to Roberta D. Purcell,
Assistant Administrator, Telecommunications Program, Rural
[[Page 69947]]
Utilities Service, U.S. Department of Agriculture, 1400 Independence
Avenue, SW., STOP 1590, Room 4056, South Building, Washington, DC
20250-1590. RUS requests a signed original and three copies of all
comments (7 CFR part 1700). All comments received will be made
available for public inspection at room 4056, South Building,
Washington, DC, between 8 a.m. and 4 p.m. (7 CFR part 1.27(b)).
Telephone number (202) 720-9554.
FOR FURTHER INFORMATION CONTACT: Jonathan P. Claffey, Deputy Assistant
Administrator, Telecommunications Program, Rural Utilities Service,
U.S. Depatment of Agriculture, 1400 Independence Avenue, SW., STOP
1590, Room 4056, Washington, DC 20250-1590. Telephone number (202) 720-
9556.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866 and therefore has not been reviewed by the Office
of Management and Budget (OMB).
Executive Order 12372
This rule is excluded from the scope of Executive Order 12372,
Intergovernmental Consultation, which may require a consultation with
State and local officials. A final rule related Notice entitled,
``Department Programs and Activities Excluded from Executive Order
12372'' (50 FR 47034) exempts RUS and Rural Telephone Bank loans and
loan guarantees from coverage under this Order.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. RUS has determined that this rule meets the applicable
standards provided in section 3 of the Executive Order. In addition,
all State and local laws and regulations that are in conflict with this
rule will be preempted, no retroactive effort will be given to this
rule, and, in accordance with Sec. 212(e) of the Department of
Agriculture Reorganization Act of 1994 (7 U.S.C. Sec. 6912(e)),
administrative appeal procedures, if any, must be exhausted before an
action against the Department or its agencies may be initiated.
Regulatory Flexibility Act Certification
RUS has determined that this proposed 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 RUS telecommunications program provides loans to borrowers at
interest rates and on terms that are more favorable than those
generally available from the private sector. RUS borrowers, as a result
of obtaining federal financing, receive economic benefits that exceed
any direct economic costs associated with complying with RUS
regulations and requirements.
Information Collection and Recordkeeping Requirements
This rule contains no new reporting or recordkeeping burdens under
OMB control number 0572-0079 that would require approval under the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
National Environmental Policy Act Certification
The Administrator of RUS has determined that this proposed 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 proposed rule is listed in the
Catalog of Federal Domestic Assistance Programs under number 10.851,
Rural Telephone Loans and Loan Guarantees; and number 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.
Unfunded Mandates
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for
State, local, and tribal governments or the private sector. Thus, this
rule is not subject to the requirements of section 202 and 205 of the
Unfunded Mandates Reform Act of 1995.
Background
RUS is proposing to amend its regulations covering lien
accommodations under certain circumstances where the borrower's
financial strength is sufficient to protect security for the
Government's loans and the lender seeking a lien accommodation.
Since the passage of the Telecommunications Act of 1996, which
provides for a competitive, deregulated national telecommunications
policy framework, the Federal Communications Commission (FCC) has been
working to implement the provisions of the new law. As those provisions
begin to be integrated through the FCC's rulemaking process, the FCC is
focusing on the types of telecommunications service that must be made
available to all Americans; i.e. part of universal service, and the
benefits to all Americans from advanced services for schools,
libraries, and rural health care providers. The newly competitive
environment will undoubtedly affect the rural telecommunications
marketplace. For the industry as a whole--urban and rural--competition
will offer the means for delivering the universal service concept
envisioned by the Telecommunications Act of 1996. In the competitive
marketplace of the future, investment in infrastructure will be
lucrative in markets where local exchange carriers seek to attract
high-usage, low-cost subscribers. Competition will be fierce and
customers will be the winners as their demands for new and improved
service at affordable rates will be met. Yet in rural and high-cost
areas, where quality of service and advanced service offerings are just
as important, there is less potential for investment based on
competition. Investment will need to be encouraged in the form of
incentives through the universal support mechanisms and the lending
programs of RUS, as well as private sources of financing. RUS will
continue its partnership with rural America to ensure that
telecommunications providers will have the means to modernize their
networks; however, industry deregulation and new technological
developments have caused RUS borrowers and other organizations
providing telecommunications services to consider undertaking projects
that provide new telecommunications services and other
telecommunications services not ordinarily financed by RUS. Although
some of these services may not be eligible for financing under the
Rural Electrification Act of 1936 (RE Act), these services may
nevertheless advance RE Act objectives where the borrower obtains
financing from private lenders.
Due to the changing environment of the telecommunications industry,
large or predominately non-rural local exchange carriers (LECs) are
selling their more rural exchanges in order to concentrate on their
more lucrative service areas. This ``sell-off'' provides an opportunity
for rural LECs to expand their service territories. Typically, these
acquired exchanges will need
[[Page 69948]]
infrastructure improvements and the rural LECs will work hard to
provide state-of-the-art service. This will require increased
investment. RUS loans for infrastructure building can enable rural LECs
to upgrade plant and service territories that may have been neglected
for years. All subscribers, urban and rural, benefit from improvements
to the national network. While opportunities exist for rural LECs to
expand their markets and continue the tradition of providing the best
possible service available to rural residents, uncertainties regarding
future revenue streams and the availability of funds from universal
service support may hamper some small LECs' investment decisions. The
proposed amendments to this regulation will help to facilitate funding
from non-RUS sources in order to meet the growing capital needs of
rural LECs. Depending on the purposes for which a lien accommodation is
being sought, RUS will provide ``automatic'' approval for borrowers
that meet the financial tests described in this rule. RUS believes that
borrowers that are financially sound should be afforded more
flexibility with regard to financial arrangements with outside lenders
for the purpose of promoting rural telecommunications. The tests are
designed to ensure that the financial strength of the borrower is more
than sufficient to protect the government's loan security interests;
hence, the lien accommodations will not adversely affect the
government's financial interests.
In addition to providing for automatic lien accommodations, this
amendment will remove the requirement for borrowers seeking lien
accommodations to comply with competitive bid procedures under 7 CFR
part 1753. Further, RUS proposes to address other concerns involved in
the accommodation of the Government's lien for those borrowers that do
not qualify for an automatic lien accommodation in a subsequent
revision to this subpart.
List of Subjects in 7 CFR Part 1744
Accounting, Loan programs--communications, Reporting and
recordkeeping requirements, Rural areas, Telephone.
For reasons set out in the preamble, RUS proposes to amend 7 CFR
chapter XVII as follows:
PART 1744--POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED
AND INSURED TELEPHONE LOANS
1. The authority citation for part 1744 is revised to read as
follows:
Authority: 7 U.S.C. 901 et seq., 1921 et. seq., and 6941 et seq.
2. Sections 1744.20 and 1744.21 are revised to read as follows:
Subpart B--Lien Accommodations and Subordination Policy
Sec. 1744.20 General.
(a) Recent changes in the telecommunications industry, including
deregulation and technological developments, have caused Rural
Utilities Service (RUS) borrowers and other organizations providing
telecommunications services to consider undertaking projects that
provide new telecommunications services and other telecommunications
services not ordinarily financed by RUS. Although some of these
services may not be eligible for financing under the Rural
Electrification Act of 1936 (RE Act), these services may nevertheless
advance RE Act objectives where the borrower obtains financing from
private lenders. The borrower's financial strength and the assurance of
repayment of outstanding Government debt may be improved as a result of
providing such telecommunications services.
(b) To facilitate the financing of new services and other services
not ordinarily financed by RUS, RUS is willing to consider
accommodating the Government's lien on telecommunications borrowers'
systems or accommodating or subordinating the Government's lien on
after-acquired property of telecommunications borrowers. To expedite
this process, requests for lien accommodations meeting the requirements
of Sec. 1744.30 will receive automatic approval from RUS.
(c) This subpart sets forth RUS policy with respect to all requests
for lien accommodations and subordinations for loans from private
lenders. For borrowers that do not qualify for automatic lien
accommodations in accordance with Sec. 1744.30, RUS will consider lien
accommodations for RE Act purposes under Sec. 1744.40 and non-Act
purposes under Sec. 1744.50.
Sec. 1744.21 Definitions.
The following definitions apply to this subpart:
Administrator means the Administrator of RUS and includes the
Governor of the RTB.
Advance means transferring funds from RUS, RTB, or a lender
guaranteed by RUS to the borrower's construction fund.
After-acquired property means property which is to be acquired by
the borrower and which would be subject to the lien of the Government
mortgage when acquired.
Amortization expense means the sum of the balances of the following
accounts of the borrower:
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Account names No.
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(1) Amortization expense..................................... 6560.2
(2) Amortization expense--tangible........................... 6563
(3) Amortization expense--intangible......................... 6564
(4) Amortization expense--other.............................. 6565
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Asset means a future economic benefit obtained or controlled by the
borrower as a result of past transactions or events.
Automatic lien accommodation means the approval, by RUS, of a
request to share the Government's lien on a pari passu or pro-rata
basis with a private lender in accordance with the provisions of
Sec. 1744.30.
Borrower means any organization that has an outstanding
telecommunications loan made or guaranteed by RUS, or that is seeking
such financing. See 7 CFR part 1735.
Construction Fund means the RUS Construction Fund Account into
which all advances of loan funds are deposited pursuant to the
provisions of the loan documents.
Debt Service Coverage (DSC) ratio means the ratio of the sum of the
borrower's net income, depreciation and amortization expense, and
interest expense, all divided by the sum of all payments of principal
and interest required to be paid by the borrower during the year on all
its debt from any source with a maturity greater than 1 year and
capital lease obligations.
Default means any event or occurrence which, unless corrected, will
with the passage of time and the giving of proper notices give rise to
remedies under one or more of the loan documents.
Depreciation expense means the sum of the balances of the following
accounts of the borrower:
[[Page 69949]]
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Account names No.
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(1) Depreciation expense..................................... 6560.1
(2) Depreciation expense--telecommunications plant in service 6561
(3) Depreciation expense--property held for future 6562
telecommunications use......................................
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Disbursement means a transfer of money by the borrower out of the
construction fund in accordance with the provisions of the fund.
Equity percentage means the total equity or net worth of the
borrower expressed as a percentage of the borrower's total assets.
FFB means the Federal Financing Bank.
Financial Requirement Statement (FRS) means RUS Form 481 (OMB--No.
0572-0023). (This RUS Form is available from RUS, Program Development
and Regulatory Analysis, Washington, DC 20250-1522.)
Government mortgage means any instrument to which the Government,
acting through the Administrator, is a party and which creates a lien
or security interest in the borrower's property in connection with a
loan made or guaranteed by RUS whether the Government is the sole
mortgagee or is a co-mortgagee with a private lender.
Hardship loan means a loan made by RUS under section 305(d)(1) of
the RE Act.
Interim construction means the purchase of equipment or the conduct
of construction under an RUS-approved plan of interim financing. See 7
CFR part 1737.
Interest expense means the sum of the balances of the following
accounts of the borrower:
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Account names No.
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(1) Interest and related items......................... 7500
(2) Interest on funded debt............................ 7510
(3) Interest expense--capital leases................... 7520
(4) Amortization of debt issuance expense.............. 7530
(5) Less Allowance for funds used during construction.. 7340/7300.4
(6) Other interest deductions.......................... 7540
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Interim financing means funding for a project which RUS has
acknowledged may be included in a loan, should said loan be approved,
but for which RUS loan funds have not yet been made available.
Lien accommodation means sharing the Government's lien on a pari
passu or pro-rata basis with a private lender.
Loan means any loan made or guaranteed by RUS.
Loan documents means the loan contract, note and mortgage between
the borrower and RUS and any associated document pertinent to a loan.
Loan funds means the proceeds of a loan made or guaranteed by RUS.
Material and supplies means any of the items properly recordable in
the following account of the borrower:
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Account names No.
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(1) Material and Supplies.................................... 1220.1
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Net income/Net margins means the sum of the balances of the
following accounts of the borrower:
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Account names No.
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(1) Local Network Services 5000 through 5069.
Revenues.
(2) Network Access Services 5080 through 5084.
Revenues.
(3) Long Distance Network 5100 through 5169.
Services Revenues.
(4) Miscellaneous Revenues...... 5200 through 5270.
(5) Nonregulated Revenues....... 5280.
(6) Less Uncollectible Revenues. 5200 through 5302.
(7) Less Plant Specific 6110 through 6441.
Operations Expense.
(8) Less Plant Nonspecific 6510 through 6565.
Operations Expense.
(9) Less Customer Operations 6610 through 6623.
Expense.
(10) Less Corporate Operations 6710 through 6790.
Expense.
(11) Other Operating Income and 7100 through 7160.
Expense.
(12) Less Operating Taxes....... 7200 through 7250/7200.5.
(13) Nonoperating Income and 7300 through 7370.
Expense.
(14) Less Nonoperating Taxes.... 7400 through 7450/7400.5.
(15) Less Interest and Related 7500 through 7540.
Items.
(16) Extraordinary Items........ 7600 through 7640/7600.4.
(17) Jurisdictional Differences 7910 through 7990.
and Nonregulated Income Items.
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Net plant means the sum of the balances of the following accounts
of the borrower:
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Account names No.
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(1) Property, Plant and 2001 through 2007.
Equipment.
(2) Less Depreciation and 3100 through 3600.
Amortization
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Notes means evidence of indebtedness secured by or to be secured by
the Government mortgage.
Pari Passu means equably; ratably; without preference or
precedence.
Plant means any of the items properly recordable in the following
accounts of the borrower:
[[Page 69950]]
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Account names No.
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(1) Property, Plant and 2001 through 2007.
Equipment.
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Private lender means any lender other than the RUS or the lender of
a loan guaranteed by RUS.
Private lender notes means the notes evidencing a private loan.
Private loan means any loan made by a private lender.
RE Act (Act) means the Rural Electrification Act of 1936 (7 U.S.C.
901 et seq.)
RTB means the Rural Telephone Bank.
RUS means the Rural Utilities Service, and includes its
predecessor, the Rural Electrification Administration. The term also
includes the RTB, unless otherwise indicated.
RUS cost-of-money loan means a loan made under section 305(d)(2) of
the RE Act.
Subordination means allowing a private lender to have a lien on
specific property which will have priority over the Government's lien
on such property.
Tangible plant means any of the items properly recordable in the
following accounts of the borrower:
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Account names No.
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(1) Telecommunications Plant in 2110 through 2124.
Service--General Support Assets.
(2) Telecommunications Plant in 2210 through 2232.
Service--Central Office Assets.
(3) Telecommunications Plant in 2310 through 2362.
Service--Information
Origination/Termination Assets.
(4) Telecommunications Plant in 2410 through 2441.
Service--Cable and Wire
Facilities Assets.
(5) Amortizable Tangible Assets 2680 through 2682.
(6) Nonoperating Plant.......... 2006.
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Telecommunication services means any service for the transmission,
emission, or reception of signals, sounds, information, images, or
intelligence of any nature by optical waveguide, wire, radio, or other
electromagnetic systems and shall include all facilities used in
providing such service as well as the development, manufacture, sale,
and distribution of such facilities.
Times interest earned ratio (TIER) means the ratio of the
borrower's net income or net margins plus interest expense, divided by
said interest expense.
Total assets means the sum of the balances of the following
accounts of the borrower:
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Account names No.
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(1) Current Assets.............. 1100s through 1300s.
(2) Noncurrent Assets........... 1400s through 1500s.
(3) Total telecommunications 2001 through 2007.
plant.
(4) Less accumulated 3100 through 3300s.
depreciation.
(5) Less accumulated 3400 through 3600s.
amortization.
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Total equity or net worth means the excess of a borrower's total
assets over its total liabilities.
Total liabilities means the sum of the balances of the following
accounts of the borrower:
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Account names No.
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(1) Current Liabilities......... 4010 through 4130.2.
(2) Long-Term Debt.............. 4210 through 4270.3.
(3) Other Liabilities and 4310 through 4370.
Deferred Credits.
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Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Total long-term debt means the sum of the balances of the following
accounts of the borrower:
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Account names No.
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(1) Long-Term Debt.............. 4210 through 4270.3
------------------------------------------------------------------------
Note: All references to account numbers are to the Uniform System of
Accounts (7 CFR part 1770, subpart B).
Weighted-average life of the loans or notes means the average life
of the loans or notes based on the proportion of original loan
principal paid during each year of the loans or notes. It shall be
determined by calculating the sum of all loan or note principal
payments expressed as a fraction of the original loan or note principal
amount, times the number of years and fractions of years elapsed at the
time of each payment since issuance of the loan or note. For example,
given a $5 million loan, with a maturity of 5 years and equal principal
payments of $1 million due on the
[[Page 69951]]
anniversary date of the loan, the weighted-average life would be:
(.2)(1 year) + (.2)(2 years) + (.2)(3 years) + (.2)(4 years) + (.2)(5
years) = .2 years + .4 years + .6 years + .8 years + 1.0 years = 3.0
years. If instead the loan had a balloon payment of $5 million at the
end of 5 years, the weighted-average life would be: ($5 million/$5
million)(5 years) = 5 years.
Weighted-average remaining life of the loans or notes means the
remaining average life of the loans or notes based on the proportion of
remaining loan or note principal expressed in years remaining to
maturity of the loans or notes. It shall be determined by calculating
the sum of the remaining principal payments of each loan or note
expressed as a fraction of the total remaining loan or note amounts
times the number of years and fraction of years remaining until
maturity of the loan or note.
Weighted-average remaining useful life of the assets means the
estimated original average life of the assets to be acquired with the
proceeds of the private lender notes expressed in years based on
depreciation rates less the number of years those assets have been in
service (or have been depreciated). It shall be determined by
calculating the sum of each asset's remaining value expressed as a
fraction of the total remaining value of the assets, times the
estimated number of years and fraction of years remaining until the
assets are fully depreciated.
Wholly-owned subsidiary means a corporation owned 100 percent by
the borrower.
3. Sections 1744.30, 1744.40, and 1744.50 are redesignated as
Secs. 1744.40, 1744.50, and 1744.55, respectively.
4. New section 1744.30 is added to read as follows:
Sec. 1744.30 Automatic lien accommodations.
(a) Purposes and requirements for approval. Automatic lien
accommodations are available only for refinancing and refunding of
notes secured by the borrower's existing Government mortgage; financing
assets, to be owned by the borrower, to provide telecommunications
services; or financing assets, to be owned by a wholly-owned subsidiary
of the borrower, to provide telecommunications services in accordance
with the procedures set forth below.
(b) Private lender responsibility. The private lender is
responsible for ensuring that its notes, for which an automatic lien
accommodation has been approved as set forth in this section are
secured under the mortgage. The private lender is responsible for
ensuring that the supplemental mortgage is a valid and binding
instrument enforceable in accordance with its terms, and recorded and
filed in accordance with applicable law. If the private lender
determines that additional documents are required or that RUS must take
additional actions to secure the notes under the mortgage, the private
lender shall follow the procedures set forth in Sec. 1744.40 or
Sec. 1744.50, as appropriate.
(c) Refinancing and refunding. The Administrator will automatically
approve a borrower's execution of private lender notes and the securing
of such notes on a pari passu or pro-rata basis with all other notes
secured under the Government mortgage, when such private lender notes
are issued for the purpose of refinancing or refunding any notes
secured under the Government mortgage, provided that all of the
following conditions are met:
(1) No default has occurred and is continuing under the Government
mortgage;
(2) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be
substantially in the form set forth in Appendix A of this subpart,
providing that:
(i) No default has occurred and is continuing under the Government
mortgage;
(ii) The principal amount of such refinancing or refunding notes
will not be greater than 105 percent of the then outstanding principal
balance of the notes being refinanced or refunded;
(iii) The weighted-average life of the private loan evidenced by
the private lender notes will not exceed the weighted-average remaining
life of the notes being refinanced or refunded;
(iv) The private lender notes will provide for substantially level
debt service or level principal amortization over a period not less
than 5 years;
(v) Except as provided in the Government mortgage, the borrower has
not agreed to any restrictions or limitations on future loans from RUS;
and
(vi) If the private lender determines that a supplemental mortgage
is necessary, the borrower will comply with those procedures set forth
in paragraph (h) of this section for the preparation, execution, and
delivery of a supplemental mortgage and take such additional action as
may be required to secure the notes under the Government mortgage.
(d) Financing assets to be owned directly by a borrower. The
Administrator will automatically approve a borrower's execution of
private lender notes and the securing of such notes on a pari passu or
pro-rata basis with all other notes secured under the Government
mortgage, when such private lender notes are issued for the purpose of
financing the purchase or construction of plant and material and
supplies to provide telecommunication services and when such assets are
to be owned and the telecommunications services are to be offered by
the borrower, provided that all of the following conditions are met:
(1) The borrower has achieved a TIER of not less than 1.5 and a DSC
of not less than 1.25 for each of the borrower's two fiscal years
immediately preceding the issuance of the private lender notes;
(2) The ratio of the borrower's net plant to its total long-term
debt at the end of any calendar month ending not more than 90 days
prior to execution of the private lender notes is not less than 1.2, on
a pro-forma basis, after taking into account the effect of the private
lender notes on the total long-term debt of the borrower;
(3) The borrower's equity percentage, as of the most recent fiscal
year-end, was not less than 25 percent;
(4) No default has occurred and is continuing under the Government
mortgage;
(5) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification by an independent certified public accountant that the
borrower has met each of the requirements in paragraphs (d)(1) and
(d)(3) of this section, such certification to be substantially in the
form in Appendix B of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be
substantially in the form in Appendix C of this subpart: provided,
that:
(i) The borrower has met each of the requirements in paragraphs
(d)(2) and (d)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for
the construction or purchase of the plant and materials and supplies to
provide telecommunications services in accordance with this section and
such construction or purchase is expected to be completed not later
than 4 years after execution of such notes;
[[Page 69952]]
(iii) The weighted-average life of the private loan evidenced by
the private lender notes does not exceed the weighted-average remaining
useful life of the assets being financed;
(iv) The private lender notes will provide for substantially level
debt service or level principal amortization over a period not less
than 5 years;
(v) All of the assets financed by the private loans will be
purchased or otherwise procured in bona fide arm's length transactions;
(vi) The financing agreement with the private lender will provide
that the private lender shall cease the advance of funds upon receipt
of written notification from RUS that the borrower is in default under
the RUS loan documents;
(vii) Except as provided in the Government mortgage, the borrower
has not agreed to any restrictions or limitations on future loans from
RUS; and
(viii) If the private lender determines that a supplemental
mortgage is necessary, the borrower will comply with those procedures
set forth in paragraph (h) of this section for the preparation,
execution, and delivery of a supplemental mortgage and take such
additional action as may be required to secure the notes under the
Government mortgage.
(e) Financing assets to be owned by a wholly-owned subsidiary of
the borrower. The Administrator will automatically approve a borrower's
execution of private lender notes and the securing of such notes on a
pari passu or pro-rata basis with all other notes secured under the
Government mortgage, when such private lender notes are issued for the
purpose of financing the purchase or construction of tangible plant and
material and supplies to provide telecommunication services and when
such services are to be offered and the associated tangible assets are
to be owned by a wholly-owned subsidiary of the borrower, provided that
all of the following conditions are met:
(1) The borrower has achieved a TIER of not less than 2.5 and a DSC
of not less than 1.5 for each of the borrower's two fiscal years
immediately preceding the issuance of the private lender notes;
(2) The ratio of the borrower's net plant to its total long-term
debt at the end of any calendar month ending not more than 90 days
prior to execution of the private lender notes is not less than 1.6, on
a pro-forma basis, after taking into account the effect of the private
lender notes on the total long-term debt of the borrower;
(3) The borrower's equity percentage, as of the most recent fiscal
year-end, was not less than 45 percent;
(4) No default has occurred and is continuing under the Government
mortgage;
(5) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification by an independent certified public accountant that the
borrower has met each of the requirements in paragraphs (e)(1) and
(e)(3) of this section, such certification to be substantially in the
form in Appendix D of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be
substantially in the form in Appendix E of this subpart; providing
that:
(i) The borrower has met each of the requirements in paragraphs
(e)(2) and (e)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for
the construction or purchase of the tangible plant and materials and
supplies to provide telecommunications services in accordance with this
section and such construction or purchase is expected to be completed
not later than 4 years after execution of such notes;
(iii) The weighted-average life of the private loan evidenced by
the private lender notes does not exceed the weighted-average remaining
useful life of the assets being financed;
(iv) The private lender notes will provide for substantially level
debt service or level principal amortization over a period of time not
less than 5 years;
(v) All of the assets financed by the private loans will be
purchased or otherwise procured in bona fide arm's length transactions;
(vi) The proceeds of the private lender notes will be lent to a
wholly-owned subsidiary of the borrower pursuant to terms and
conditions agreed upon by the borrower and subsidiary;
(vii) The borrower will, whenever requested by RUS, provide RUS
with a copy of the financing or guarantee agreement between the
borrower and the subsidiary or any similar or related material
including security instruments, loan contracts, or notes issued by the
subsidiary to the borrower;
(viii) The borrower will promptly report to the Administrator any
default by the subsidiary or other actions that impair or may impair
the subsidiary's ability to repay its loans;
(ix) The financing agreement with the private lender will provide
that the private lender shall cease the advance of funds upon receipt
of written notification from RUS that the borrower is in default under
the RUS loan documents;
(x) Except as provided in the Government mortgage, the borrower has
not agreed to any restrictions or limitations on future loans from RUS;
and
(xi) If the private lender determines that a supplemental mortgage
is necessary, the borrower will comply with those procedures set forth
in paragraph (h) of this section for the preparation, execution, and
delivery of a supplemental mortgage and take such additional action as
may be required to secure the notes under the Government mortgage.
(f) Borrower notification. The borrower shall notify RUS of its
intention to obtain an automatic lien accommodation under this section
by providing the following:
(1) The board resolution cited in Sec. 1744.55(b)(1) and the
opinion of counsel cited in Sec. 1744.55(b)(2);
(2) The applicable certification or certifications required by
paragraph (c)(2); paragraphs (d)(5) and (d)(6); or paragraphs (e)(5)
and (e)(6), respectively, of this section, in substantially the form
set forth in the applicable appendices to this subpart.
(g) RUS acknowledgment. Within 5 business days of receipt of the
completed certifications and any other information required under this
section, RUS will review the information and provide written
acknowledgment to the borrower of its qualification for an automatic
lien accommodation. Upon receipt of the acknowledgment, the borrower
may execute the private lender notes.
(h) Supplemental mortgage. If the private lender determines that a
supplemental mortgage is required to secure the private lender notes on
a pari passu or pro-rata basis with all other notes secured under the
Government mortgage, the private lender may prepare the supplemental
mortgage using the form attached as Appendix F to this subpart or the
borrower may request RUS to prepare such supplemental mortgage in
accordance with the following procedures:
(1) The private lender preparing the supplemental mortgage shall
execute and forward the completed document to RUS. Upon ascertaining
the correctness of the form and the information concerning RUS, RUS
will execute and forward the supplemental mortgage to the borrower.
[[Page 69953]]
(2) When requested by the borrower, RUS will expeditiously prepare
the supplemental mortgage, using the form in Appendix F to this
subpart, upon submission by the private lender of:
(i) The name of the private lender;
(ii) The Property Schedule for inclusion as supplemental mortgage
Schedule B, containing legally sufficient description of all real
property owned by the borrower; and
(iii) The amount of the private lender note.
(3) The private lender is responsible for ensuring that the
supplemental mortgage has been executed by all parties and is a valid
and binding instrument enforceable in accordance with its terms, and
recorded and filed in accordance with applicable law. If the private
lender determines that additional security instruments or other
documents are required or that RUS must take additional actions to
secure the private lender notes under the mortgage, the private lender
shall follow the procedures set forth in Secs. 1744.40 or 1744.50, as
appropriate. When processing of the supplemental mortgage has been
completed to the satisfaction of the private lender, the borrower shall
provide RUS with the following:
(i) A fully executed counterpart of the supplemental mortgage,
including all signatures, seals, and acknowledgements; and
(ii) Copies of all opinions rendered by borrower's counsel to the
private lender.
(i) Other approvals. (1) The borrower is responsible for meeting
all requirements necessary to issue private lender notes and to
accommodate the lien of the Government mortgage to secure the private
lender notes including, but not limited to, those of the private
lender, of any other mortgagees secured under the existing RUS
mortgage, and of any governmental entities with jurisdiction over the
issuance of notes or the execution and delivery of the supplemental
mortgage.
(2) To the extent that the borrower's existing mortgage requires
RUS approval before the borrower can make an investment in an
affiliated company, approval is hereby given for all investments made
in affiliated companies with the proceeds of private lender notes
qualifying for an automatic lien accommodation under paragraph (e) of
this section. Any reference to an approval by RUS under the mortgage
shall apply only to the rights of RUS and not to any other party.
5. Revise newly redesignated Sec. 1744.50(a)(3), to read as
follows:
Sec. 1744.50 Non-Act purposes.
(a) * * *
(3) Approval of the request is in the interests of the Government
with respect to the financial soundness of the borrower and other
matters, such as assuring that the borrower's system is constructed
cost-effectively using sound engineering practices.
* * * * *
6. In newly redesignated Sec. 1744.55, revise paragraph (a), remove
paragraph (b)(5), and redesignate paragraph (b)(6) as paragraph (b)(5),
to read as follows:
Sec. 1744.55 Application procedures.
(a) Requests for information regarding applications for lien
accommodations or subordination under this part should be addressed to
the Assistant Administrator, Telecommunications Program, Rural
Utilities Service, Washington, DC 20250-1590.
* * * * *
7. Appendices A, B, C, D, E, and F are added to subpart B to read
as follows:
BILLING CODE 3410-15-P
[[Page 69954]]
Appendix A to Subpart B of Part 1744--Statement, Certification, and
Agreement of President of Board of Directors Regarding Refinancing
and Refunding Notes Pursuant to 7 CFR 1744.30(c)
[GRAPHIC] [TIFF OMITTED] TP15DE99.001
[[Page 69955]]
Appendix B to Subpart B of Part 1744--Certification of Independent
Certified Public Accountant Regarding Notes To Be Issued Pursuant
to 7 CFR 1744.30(c)
[GRAPHIC] [TIFF OMITTED] TP15DE99.002
[[Page 69956]]
Appendix C to Subpart B of Part 1744--Statement, Certification, and
Agreement of President of Board of Directors Regarding Notes to be
Issued Pursuant to 7 CFR 1744.30(d)
[GRAPHIC] [TIFF OMITTED] TP15DE99.003
[[Page 69957]]
Appendix D to Subpart B of Part 1744--Certification of Independent
Certified Public Accountant Regarding Notes To Be Issued Pursuant
to 7 CFR 1744.30
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[[Page 69958]]
Appendix E to Subpart B of Part 1744--Statement, Certification, and
Agreement of President of Board of Directors Regarding Notes To Be
Issued Pursuant to 7 CFR 1744.30(e)
[GRAPHIC] [TIFF OMITTED] TP15DE99.005
[[Page 69959]]
[GRAPHIC] [TIFF OMITTED] TP15DE99.006
[[Page 69960]]
Appendix F to Subpart B of Part 1744--Form of Supplemental Mortgage
[GRAPHIC] [TIFF OMITTED] TP15DE99.007
[[Page 69961]]
[GRAPHIC] [TIFF OMITTED] TP15DE99.008
[[Page 69962]]
[GRAPHIC] [TIFF OMITTED] TP15DE99.009
Dated: November 22, 1999.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 99-31367 Filed 12-14-99; 8:45 am]
BILLING CODE 3410-15-C