[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Rules and Regulations]
[Pages 41838-41849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16778]

[[Page 41837]]


Part IV

Department of Transportation


Federal Railroad Administration


49 CFR 260

Railroad Rehabilitation and Improvement Financing Program; Revisions; 
Final Rule

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules 
and Regulations

[[Page 41838]]



Federal Railroad Administration

49 CFR Part 260

[Docket No. FRA 1999-5663]
RIN 2130-AB26

Railroad Rehabilitation and Improvement Financing Program; 

AGENCY: Federal Railroad Administration (FRA), Department of 
Transportation (DOT).

ACTION: Final rule.


SUMMARY: The Department of Transportation (DOT) is issuing a final rule 
which implements the Railroad Rehabilitation and Improvement Financing 
Program (RRIF) to provide direct loans and loan guarantees to State and 
local governments, government sponsored authorities and corporations, 
railroads, and joint ventures that include at least one railroad. 
Eligible projects include: (1) acquisition, improvement or 
rehabilitation of intermodal or rail equipment or facilities (including 
tracks, components of tracks, bridges, yards, buildings, and shops), 
(2) refinancing outstanding debt incurred for these purposes, or (3) 
development or establishment of new intermodal or railroad facilities.
    The aggregate unpaid principal amounts of direct loans and loan 
guarantees made under this program cannot exceed $3.5 billion at any 
one time and not less than $1 billion is to be available solely for 
projects benefitting freight railroads other than Class I carriers.

EFFECTIVE DATE: The final rule is effective September 5, 2000.

Programs Division, RDV-12, Office of Passenger and Freight Services, 
FRA, 1120 Vermont Avenue, NW, MailStop 20, Washington, D.C. 20590 (202-
493-6379), or Joseph R. Pomponio, Senior Attorney, Office of Chief 
Counsel, FRA, 1120 Vermont Avenue, NW, MailStop 10, Washington, D.C. 
20590 (202-493-6065).


Electronic Access

    Internet users can access all comments received by the U.S. DOT 
Dockets, Room PL-401, by using the universal resource locator (URL): 
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year. Please follow the instructions online for more information and 
    An electronic copy of this document may be downloaded using a modem 
and suitable communication software from the Government Printing Office 
Electronic Bulletin Board Service at (202) 512-1661. Internet users may 
reach the Federal Register's home page at: http://www.nara.gov/fedreg 
and the Government Printing Office's database at: http://www.access.gpo.gov/nara.


    Prior to the enactment of the Transportation Equity Act of the 21st 
Century (``TEA 21''), Pub. L. No. 105-178 (June 9, 1998), Title V of 
the Railroad Revitalization and Regulatory Reform Act of 1976, as 
amended (the ``Act''), 45 U.S.C. 821 et seq., authorized FRA to provide 
railroad financial assistance through the purchase of preference shares 
(45 U.S.C. 825), and the issuance of loan guarantees (45 U.S.C. 831). 
The FRA regulations implementing the preference share program were 
eliminated on February 9, 1996, due to the fact that the authorization 
for the program expired (28 FR 4937). The FRA regulations implementing 
the loan guarantee provisions of Title V of the Act are contained in 49 
C.F.R. Part 260.
    Section 7203 of TEA 21 replaces the existing Title V financing 
programs. This final rule strikes the language in existing part 260 and 
replaces it with new procedures and requirements to cover applications 
of financial assistance in the form of direct loans and loan guarantees 
consistent with the changes made to Title V of the Act by section 7203 
of TEA-21.
    The revised program is referred to in TEA 21 as the Railroad 
Rehabilitation and Improvement Financing Program (``RRIF Program''). 
The Secretary has delegated his authority under the RRIF Program to the 
FRA Administrator.


    The FRA published a notice of proposed rulemaking (NPRM) on May 20, 
1999, in the Federal Register (64 FR 27488). Comments were filed by 92 
commenters. FRA is now issuing this final rule concerning 
administration of the RRIF Program. This rule reflects the FRA's 
consideration of the comments filed in response to the NPRM.

Discussion of Rulemaking Text

    The following discussion summarizes the comments submitted to the 
FRA by commenters on the NPRM, notes where and why changes have been 
made to the rule, and, where relevant, states why particular 
recommendations or suggestions have not been incorporated into the 
following regulations. Paragraph references are as designated in the 

Discussion of Comments and Responses by Section

    Section 260.9 Loan terms. Sixty-one commenters urged that the 
interest rate to be charged on direct loans made under the RRIF Program 
be set at the cost of money to the Government for debt obligations with 
terms equal to the term of the loan.
    FRA Response: Although FRA anticipated that direct loans would be 
assessed interest rates equal to the cost of money to the Government, 
as determined by the rate on Treasury securities of a similar term, the 
proposed regulations did not so specify. In order to clarify FRA's 
intent in this regard, section 260.9 has been changed to specify the 
interest rate to be charged.
    Section 260.23(o) Lender of last resort. Seventy-two commenters 
suggested that, as enacted by Congress, the RRIF Program was not 
intended to provide financial assistance only as a lender of last 
resort. Commenters noted that although in certain circumstances loans 
may be available from the private sector, the terms on which such loans 
are offered are prohibitive. Railroad assets typically have long 
economic lives (up to 30 years) while private sector loans, when 
available, offer no longer than a 7 year repayment period. Therefore, 
private sector financing of most railroad assets is not economically 
    Also notably, comments submitted by four members of the Committee 
on Transportation and Infrastructure, House of Representatives, 
including: Bud Shuster, Chairman, James L. Oberstar, Ranking Member, 
Thomas Petri, Chairman, Ground Transportation Subcommittee, and Nick J. 
Rahall, II, Ranking Member, Ground Transportation Subcommittee, suggest 
that TEA-21 does not require that the RRIF Program be a lender of last 
resort and ask that this requirement be deleted. Further, those 
comments indicate that the ``central purpose of the program is to 
facilitate rail and rail-intermodal infrastructure improvements that 
will confer public benefits beyond simple considerations of commercial 
lending, and may not be able to attract sufficient private capital.''
    FRA Response: Consistent with the intent of Congress FRA intends to 
implement this program in a way that will meet the needs of the rail 
industry for long term financing which is not available from the 
private sector. While FRA need not be a lender of last resort, it does 
not intend to replace private funding sources already available to the 
rail industry. Therefore, in order to

[[Page 41839]]

establish that private funding on terms necessary to the viability of 
the applicant's project is not available, FRA will require that 
railroad applicants provide a letter from a commercial lender denying 
funding for the project. Section 260.23(o) has been amended 
    Sections 260.23, 25, & 29. Information to be provided with 
applications. Sixty commenters suggested that the amount of information 
required to be submitted with applications for assistance under the 
RRIF Program will prove to be an undue burden on small businesses. 
Commenters have suggested that FRA should limit the amount of 
information required and eliminate the requirement that financial 
statements be audited.
    FRA Response: In an effort to reduce the burden on applicants while 
still assuring that adequate information is available to accurately 
evaluate each loan application and proposed project, FRA has amended 
sections 260.23(h) and 260.25(b)(1) of the regulation to provide that 
audited financial statements will only be required if they are 
available. Further, FRA has amended sections 260.25(b) and (c), and 
eliminated section 260.29.
    Section 260.31 Investigation charge. Sixty commenters have 
suggested that the investigation charge set by FRA at \1/2\% as 
permitted by statute is too high and may prove to be a burden on 
smaller applicants. Commenters suggested that the investigation charge 
be assessed based on actual cost to FRA to process each application.
    FRA Response: In order to avoid any unnecessary burden of future 
applicants FRA will estimate the processing costs and advise applicant 
at the pre-application meeting of the amount of the charge. That charge 
will still be payable in two installments, \1/2\ at the time the 
application is submitted and the remaining \1/2\ within 60 days 
thereafter. Section 260.11 has been amended accordingly. Further, in 
order to provide applicant more flexibility in controlling the total 
administrative costs of each application, FRA has included a new 
Section 260.29, which provides applicants with the option of 
contracting with a third party financial consultant, with FRA approval, 
to prepare a financial evaluation of the project and the applicant. 
Cost savings to FRA as a result of receiving such an evaluation will be 
reflected as reductions to the investigation charge.

General Comments

    Fifty-six commenters asked that the limitation imposed by section 
260.53, which provides that the Administrator will only guarantee up to 
80% of the total obligation, be deleted so that 100% of an obligation 
can be guaranteed.
    FRA Response: The 80% limitation is imposed on all Federal loan 
guarantees by the Office of Management and Budget, as iterated in 
circular A-129. The FRA cannot guarantee more than 80%.
    Sixty-four commenters requested that the calculation of the Credit 
Risk Premium be simplified so as to be easily understood.
    FRA Response: The calculation of the Credit Risk Premium is based 
on a process which evaluates many indicators of the financial viability 
of the applicant. In order to accurately assess the risk of default 
associated with each loan or loan guarantee FRA must consider all 
aspects of the applicant's organization and business. Therefore, this 
estimation process necessarily is complex. However, FRA will provide 
potential applicants with estimates of the size of the Credit Risk 
Premium that may be required based on discussions at the preapplication 
meeting provided under section 260.19.
    One commenter requested that FRA accept a note from an applicant as 
payment of the Credit Risk Premium in lieu of a cash payment.
    FRA Response: Based on FRA's interpretation of the statutory 
language this option is not permitted. Section 502(e)(3) provides that 
``the credit risk premium under this section shall be paid to the 
Secretary before the disbursement of loan amounts''. Acceptance of a 
note would not constitute payment.
    Two commenters suggested that priority consideration be given to 
projects that would avoid the abandonment of a rail line; one commenter 
asked for priority for projects benefitting railroad employees, and one 
commenter requested that, FRA provide priority for a project included 
in a state transportation plan.
    FRA Response: The types of projects identified for priority 
consideration in section 260.7 reflect the areas of priority detailed 
by the enabling legislation. FRA has elected not to add to these 
criteria at this time.
    Two commenters asked that the cost of a right-of-way be made an 
eligible cost of the project that receives financial assistance under 
the RRIF Program.
    FRA Response: The statutory language does not clearly state whether 
the cost of right-of-way acquisition may be considered as part of the 
project. While it is possible that in certain circumstances such costs 
could be considered eligible cost of the project, it is also possible 
that in other situations they would not. A determination regarding 
whether the costs of rights-of-way may be considered eligible costs 
will be made in each case after a careful review of the circumstances.
    Three commenters suggested that the collection of a Credit Risk 
Premium is too heavy a burden to be placed on applicants and asked that 
FRA not charge a Credit Risk Premium.
    FRA Response: Before FRA can disburse any direct loan or loan 
guarantee it must set aside such amounts as are necessary to offset 
anticipated costs to the Federal government of making such loans and 
guarantees. Under this program such funds may come from funds 
appropriated for this purpose by Congress, a Credit Risk Premium, or 
any combination of appropriated funds and Credit Risk Premium. Where no 
Congressional appropriation exists, and there is none for RRIF at this 
time, FRA cannot approve a loan or loan guarantee without collecting a 
Credit Risk Premium.
    One commenter requested that FRA provide financial assistance under 
this program for terms of up to 30 years.
    FRA Response: Section 502(g)(1) of the Act requires that the 
Administrator (as the Secretary's designee), shall not make a loan or a 
loan guarantee unless the Administrator has made a finding that 
repayment of the obligation is required to be made in a term of not 
more than 25 years.
    One commenter questioned our consideration of the ``size'' of an 
applicant in determining the credit risk, and suggested that no 
application should be denied solely because of the applicant's size.
    FRA Response: FRA recognizes that the RRIF Program is intended, in 
part, to provide financial assistance to small railroads and it will 
not use a small applicant's size as a basis to deny financial 
assistance. However, the size of the applicant is a significant factor 
which must be considered along with all other factors outlined in 
determining the credit risk of providing financial assistance. Size 
would also be important if the applicant were large and the amount of 
assistance sought by the applicant together with all other assistance 
already provided to large applicants would result in less than $1 
billion being available to small railroads.
    One commenter requested that the term ``common carrier'' be removed 
from the definition of a railroad provided in section 260.3(r), in 
order to permit railroad shortlines providing only contract carrier 
services to a limited number of small shippers to be

[[Page 41840]]

eligible for financial assistance under the RRIF Program.
    FRA Response: Section 7203 of TEA-21, which established the RRIF 
Program by amending Title V of the Act, does not define ``railroad.'' 
However, section 102 of the Act, as amended, provides that ``as used in 
this Act'' * * * ``(7) `railroad' means rail carrier subject to part A 
of subtitle IV of title 49, United States Code.'' FRA has no discretion 
to expand the definition provided by the Act but clarify the definition 
by incorporating the statutory definition.
    One commenter asked that the term ``equipment'', as used in section 
260.5, ``Eligible purposes,'' be defined to clarify that it does 
include railroad cars and locomotives.
    FRA Response: The term ``equipment'' was not defined in the 
proposed regulations because it includes a variety of items which are 
used in the operation of a railroad. While rail cars and locomotives 
are certainly railroad equipment, further determinations regarding what 
will be considered ``equipment'' will be made as necessary.
    One commentor suggests that the inclusion of all loans and loan 
guarantees into one cohort each fiscal year is inappropriate because 
the default of any obligation within that cohort will reduce the 
likelihood that other obligations will receive a rebate of their credit 
risk premium.
    FRA Response: A default of any obligation in a cohort will produce 
losses that must be covered by the credit risk premiums collected from 
other obligations within that cohort. The fewer obligations a cohort 
contains, the greater the likelihood that a default will consume all 
the credit risk premiums and that none will remain to be returned to 
the borrowers. Similarly, a cohort containing more obligations is more 
likely to have sufficient credit risk premiums to cover the losses and 
still be able to provide a rebate. Therefore, FRA has determined that 
it will not necessarily limit cohorts to a one year period. Rather each 
cohort will remain open until FRA has determined that it contains an 
adequate pool of obligations, based on both size of the obligations and 
the total credit risk premiums collected, to increase the possibility 
that a rebate will be available upon the repayment of all the 
obligations contained in the cohort. Also, to that end separate cohorts 
will be established for direct loans and loan guarantees. Section 
260.15 has been amended accordingly.

Regulatory Impact

E.O. 12866, SBREFA and DOT Regulatory Policies and Procedures

    This final rule has been evaluated in accordance with existing 
regulatory policies and is considered to be economically significant 
within the meaning of Executive Order 12866 and is a significant rule 
under DOT regulatory policies and procedures (44 Fed. Reg., February 
26, 1979). Additionally, this is a major rule under the Small Business 
Regulatory Enforcement Fairness Act (5 U.S.C. 804(2)) because the rule 
may have an annual effect on the economy of $100 million or more.
    Executive Order 12866 requires that for all economically 
significant regulations, agencies provide an assessment, including the 
underlying analysis, of the costs and benefits anticipated from the 
regulatory action. In addition, the agency must analyze the costs and 
benefits of potentially effective and reasonably feasible alternatives 
to the planned regulations. While the agency has not produced a 
quantified analysis of this rule, DOT has produced the following 
qualitative assessment:
    Potential Benefits. The financing made available through this final 
rule may provide environmental and safety benefits, and avoid increased 
highway maintenance costs. Of the $3.5 billion made available for 
direct loans and loan guarantees, $1 billion is reserved for projects 
benefitting small railroads. Shortline and regional railroads are one 
of the transportation modes that connect rural America and small 
communities to the national railroad system. A recent survey by the 
American Association of State Highway and Transportation Officials has 
found that 200 small railroads need more than $2 billion in external 
financing to upgrade their track to safely accommodate the 286,000 
pound cars that major carriers are now using. Shortline and regional 
railroads that cannot safely handle these heavier cars will lose 
traffic critical to their viability and continued operation. If these 
railroads are abandoned, the traffic will be moved by less energy 
efficient trucks. A 1991 FRA study entitled Rail vs. Truck Fuel 
Efficiency found that on routes typically served by shortline 
railroads, trains were 5.93 to 9 times more energy efficient than 
    Additional truck traffic may increase adverse health and 
environmental effects. It is unclear how significant the incremental 
changes in health and environmental effects will be because the agency 
has not estimated the incremental pollution reductions that may occur 
from this rule. In addition, some of the reductions that do occur are 
likely to be in sparsely populated areas.
    This rule may also provide safety benefits by reducing track-
related accidents. From 1986 through 1991, small railroads experienced 
over 3 track-related accidents for every million miles operated. During 
the same period, major railroads had only 1.45 track-related accidents 
for every million miles operated. Since 1991, the situation has 
worsened. From 1992 through 1996, shortline and regional railroads 
experienced more than 5 track-related accidents per million miles 
operated while major railroads had only 1.28. On the other hand, it is 
not clear that trucking the traffic carried by shortline and regional 
railroads would be less safe.
    Potential Costs. There are administrative costs associated with 
this rule. Prospective borrowers will be required to file an 
application containing certain financial information. This information 
collection has been approved by the Office of Management and Budget. 
The approved control number is 2130-0548. The estimated annual burden 
hours are 5,881 hours and the annual costs are $543,866. The total 
estimated administrative costs to the Federal government are $325,000.
    Default costs also may occur as a result of this rule. If the cost 
of borrowers' defaults exceeds the credit risk premiums collected there 
will be a cost to the federal government.
    There are also opportunity costs associated with this rule, since 
it may reallocate finite resources to railroads that necessarily would 
have been spent elsewhere absent this rule. FRA has observed that the 
private sector will not provide funds to many railroads on terms that 
will support long term improvement projects. Under the assumption that 
private markets are working properly, this rule will displace more 
valuable investments and will result in costs to society. Because the 
private credit market generally allocates resources (including credit) 
efficiently to meet societal demand, only under certain circumstances 
(see examples below) may government intervention in the credit market 
increase societal benefits.
    If one assumes that the private sector is not providing credit to 
railroads because an economic market failure exists, then government 
intervention may improve the outcome. Reasons for economic market 
failure of the credit market include information failures, 
externalities, economic disequilibrium, failure of competition and 
incomplete markets. Under these circumstances,

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government intervention may generate positive net societal benefits 
through a combination of private and social benefits, taking into 
account the factors identified in the discussion of potential benefits 
    Cost-Benefit Comparison. Under Executive Order 12866, agencies may 
propose or adopt a regulation only upon a reasoned determination that 
the benefits of the regulation justify the costs. Based on numerous 
project benefit-cost analyses completed by State Departments of 
Transportation, DOT believes that the rule can lead to carefully 
selected projects that will generate benefits sufficient to outweigh 
the costs of this rule.
    Future Analysis of this Program. FRA will periodically review the 
public benefits and costs of the RRIF program to ensure that there is a 
net societal benefit from this program. FRA recognizes that only under 
certain circumstances will government intervention in the credit market 
generate net societal benefits. Therefore, FRA will the reason for the 
failure of the market to provide credit to rail projects, and will 
assess the private and social costs and benefits of these projects to 
determine if they are likely to result in net societal benefits.
    The Office of Management and Budget Circular A-94 establishes 
guidelines for analysis of the expected benefits and costs to society 
of Federal programs. The purpose of A-94 is to promote efficient 
resource allocation through well-informed decision-making by the 
Federal Government.

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) 
requires a review of rules to assess their impact on small entities. 
FRA has conducted a regulatory flexibility assessment of this final 
rule and FRA certifies that it does not have a significant impact on a 
substantial number of small entities.
    It is not likely that small governmental entities will seek 
financial assistance under the RRIF Program. In response to a public 
notice on the enactment of the program, only large metropolitan areas, 
like the City of Indianapolis and the Memphis and Shelby County Port 
Commission, indicated an interest in RRIF financing. The cost to 
governmental entities of applying for the program would be minimal 
since borrowers will normally have available the information needed to 
prepare applications for funding.
    In addition to small governmental entities, the small entities 
directly affected by this rule are class III railroads. The cost to 
small railroads will be minimal since the information needed to 
complete applications will normally be available. Moreover, 
participation in the RRIF Program is strictly voluntary. Therefore, FRA 
has concluded that there are no substantial economic impacts for small 
units of government, business, or other organizations.

Paperwork Reduction Act

    This information collection has been approved by the Office of 
Management and Budget. The approved control number is 2130-0548. FRA 
cannot impose a penalty on persons for violating information collection 
requirements which do not display a current OMB control number.

Environmental Impact

    FRA has evaluated this regulation in accordance with its procedures 
for ensuring full consideration of the potential environmental impacts 
of FRA actions, as required by the National Environmental Policy Act 
(42 U.S.C. 4321 et seq.), other environmental statutes, Executive 
Orders, and related directives. This regulation meets the criteria that 
establish this as a non-major action for environmental purposes.

Federalism Implications

    This rule will not have a substantial effect on the States, on the 
relationship between the Federal Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. Thus, input by state and local officials, under Executive 
Orders 13132, is not warranted.

Compliance With the Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995 (Public Law 
104-4) each federal agency ``shall, unless otherwise prohibited by law, 
assess the effects of Federal Regulatory actions on State, local, and 
tribal governments, and the private sector (other than to the extent 
that such regulations incorporate requirements specifically set forth 
in law).'' Sec. 201. Section 202 of the Unfunded Mandates Reform Act 
further requires that ``before promulgating any general notice of 
proposed rulemaking that is likely to result in promulgation of any 
rule that includes any Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100,000,000 or more (adjusted annually 
for inflation) in any 1 year, and before promulgating any final rule 
for which a general notice of proposed rulemaking was published, the 
agency shall prepare a written statement * * *'' detailing the effect 
on State, local and tribal governments and the private sector. The 
final rules issued today will not result in the expenditure, in the 
aggregate, of $100,000,000 or more in any one year, and thus 
preparation of a statement was not required.

List of Subjects in 49 CFR Part 260

    Loan programs--Transportation; Railroads.

The Final Rule

    In consideration of the foregoing, Part 260 of Title 49, Code of 
Federal Regulations, is revised to read as follows:


Subpart A--Overview
260.1   Program authority.
260.3   Definitions.
260.5   Eligible purposes.
260.7   Priority consideration.
260.9   Loan terms.
260.11   Investigation charge.
260.13   Credit reform.
260.15   Credit risk premium.
Subpart B--FRA Policies and Procedures for Evaluating Applications for 
Financial Assistance
260.17   Credit risk premium analysis.
260.19   Preapplication meeting.
Subpart C--Applications for Financial Assistance
260.21   Eligibility.
260.23   Form and content of application generally.
260.25   Additional information for applicants not having a credit 
260.27   Additional information for loan guarantees.
260.29   Third party consultants.
260.31   Execution and filing of application.
260.33   Information requests.
260.35   Environmental assessment.
Subpart D--Standards for Maintenance of Facilities Involved in the 
260.37   Applicability.
260.39   Maintenance standards.
260.41   Inspection and reporting.
260.43   Impact on other laws.
Subpart E--Procedures To Be Followed in the Event of Default
260.45   Events of default for guaranteed loans.
260.47   Events of default for direct loans.
260.49   Avoiding defaults.
Subpart F--Loan Guarantees--Lenders
260.51   Conditions of guarantees.
260.53   Lender's functions and responsibilities.

[[Page 41842]]

260.55   Lender's loan servicing.

    Authority: 45 U.S.C. 821, 822, 823; 49 CFR 1.49.

Subpart A--Overview

Sec. 260.1  Program authority.

    Section 502 of the Railroad Revitalization and Regulatory Reform 
Act of 1976, as amended, 45 U.S.C. 821 et seq., authorizes the 
Secretary of Transportation to provide direct loans and loan guarantees 
to State and local governments, government sponsored authorities and 
corporations, railroads, and joint ventures that include at least one 
railroad. The Secretary's authority has been delegated to the 
Administrator of the Federal Railroad Administration, an agency of the 
Department of Transportation.

Sec. 260.3  Definitions.

    As used in this part--
    (a) Act means the Railroad Revitalization and Regulatory Reform Act 
of 1976, as amended, 45 U.S.C. 821 et seq.
    (b) Administrator means the Federal Railroad Administrator, or his 
or her representative.
    (c) Applicant means any State or local government, government 
sponsored authority or corporation, railroad, or group of two or more 
entities, at least one of which is a railroad, participating in a joint 
venture, that submits an application to the Administrator for a direct 
loan or the guarantee of an existing obligation under which it is an 
obligor or for a commitment to guarantee a new obligation.
    (d) Borrower means an Applicant that has been approved for, and has 
received, financial assistance under this part.
    (e) Credit risk premium means that portion of the total subsidy 
cost to the Government of a direct loan or loan guarantee that is not 
covered by Federal appropriations and which must be paid by Applicant 
or its non-Federal infrastructure partner before that direct loan can 
be disbursed or loan guarantee can be issued.
    (f) Direct loan means a disbursement of funds by the Government to 
a non-federal borrower under a contract that requires the repayment of 
such funds.
    (g) FRA means the Federal Railroad Administration.
    (h) Financial assistance means a direct loan, or a guarantee of a 
new loan issued under this part.
    (i) Holder means the current owner of an obligation or the entity 
retained by the owner to service and collect an obligation which is 
guaranteed under the provisions of this part.
    (j) Including means including but not limited to.
    (k) Infrastructure partner means any non-Federal source of the 
Credit Risk Premium which must be paid to the Administrator in lieu of, 
or in combination with, an appropriation in connection with financial 
assistance provided under this part.
    (l) Intermodal means of or relating to the connection between rail 
service and other modes of transportation, including all parts of 
facilities at which such connection is made.
    (m) Lender means the non-Federal entity making a loan to an 
Applicant for which a loan guarantee under this part is sought.
    (n) Loan guarantee means any guarantee, insurance, or other pledge 
with respect to the payment of all or a part of the principal or 
interest on any debt obligation of a non-Federal borrower to a non-
Federal Lender, but does not include the insurance of deposits, shares, 
or other withdrawable accounts in financial institutions.
    (o) Obligation means a bond, note, conditional sale agreement, 
equipment trust certificate, security agreement, or other obligation.
    (p) Obligor means the debtor under an obligation, including the 
original obligor and any successor or assignee of such obligor.
    (q) Project means the purpose for which financial assistance is 
    (r) Railroad means a rail carrier subject to part A of subtitle IV 
of title 49, United States Code.
    (s) Subsidy cost of a direct loan means the net present value, at 
the time when the direct loan is disbursed, of the following estimated 
cash flows:
    (1) Loan disbursements;
    (2) Repayments of principal; and
    (3) Payments of interest and other payments by or to the Government 
over the life of the loan after adjusting for estimated defaults, 
prepayments, fees, penalties, and other recoveries; including the 
effects of changes in loan terms resulting from the exercise by the 
borrower of an option included in the loan contract.
    (t) Subsidy cost of a loan guarantee means the net present value, 
at the time when the guaranteed loan is disbursed, of the following 
estimated cash flows:
    (1) Payments by the Government to cover defaults, delinquencies, 
interest subsidies, or other payments; and
    (2) The payments to the Government including origination and other 
fees, penalties and recoveries.

Sec. 260.5  Eligible purposes.

    (a) Financial assistance under this part is available solely to:
    (1) Acquire, improve, or rehabilitate intermodal or rail freight or 
passenger equipment or facilities, including track, components of 
track, bridges, yards, buildings, and shops;
    (2) Refinance outstanding debt incurred for purposes described in 
paragraph (a)(1) of this section; or
    (3) Develop or establish new intermodal or railroad facilities.
    (b) Financial assistance under this part cannot be used for 
railroad operating expenses.

Sec. 260.7  Priority consideration.

    When evaluating applications, the Administrator will give priority 
consideration (but not necessarily in the following order) to projects 
    (a) Enhance public safety;
    (b) Enhance the environment;
    (c) Promote economic development;
    (d) Enable United States companies to be more competitive in 
international markets;
    (e) Are endorsed by the plans prepared under section 135 of title 
23, United States Code, by the State or States in which they are 
located; or
    (f) Preserve or enhance rail or intermodal service to small 
communities or rural areas.

Sec. 260.9  Loan terms.

    The maximum repayment period for direct loans and guaranteed loans 
under this part is 25 years from the date of execution. The interest 
rate on direct loans will be equal to the rate on Treasury securities 
of a similar term. In general, the financial assistance provided will 
be required to be repaid prior to the end of the useful life of the 
project it is used to fund.

Sec. 260.11  Investigation charge.

    (a) Applicants for financial assistance under this part may be 
required to pay an investigation charge of up to one-half of one 
percent of the principal amount of the direct loan or portion of the 
loan to be guaranteed.
    (b) When an investigation charge is assessed, one-half of the 
investigation charge shall be paid by Applicant at the time a formal 
application is submitted to FRA.
    (c) Within 60 days after the date of filing of the application, 
Applicant shall pay to the Administrator the balance of the 
investigation charge.

Sec. 260.13  Credit reform.

    The Federal Credit Reform Act of 1990, 2 U.S.C. 661, requires 
Federal agencies to set aside the subsidy cost of new credit assistance 
provided in the form of direct loans or loan guarantees. The subsidy 
cost will be the estimated

[[Page 41843]]

long term cost to the Government of the loan or loan guarantee. The 
subsidy cost associated with each direct loan or loan guarantee, which 
the Administrator must set aside, may be funded by Federal 
appropriations, direct payment of a Credit Risk Premium by the 
Applicant or a non-Federal infrastructure partner on behalf of the 
Applicant, or any combination thereof.

Sec. 260.15  Credit risk premium.

    (a) Where available Federal appropriations are inadequate to cover 
the subsidy cost, a non-Federal infrastructure partner may pay to the 
Administrator a Credit Risk Premium adequate to cover that portion of 
the subsidy cost not covered by Federal appropriations. Where there is 
no Federal appropriation, the Credit Risk Premium must cover the entire 
subsidy cost.
    (b) The amount of the Credit Risk Premium required for each direct 
loan or loan guarantee, if any, shall be established by the 
Administrator. The Credit Risk Premium shall be determined based on the 
credit risk and anticipated recovery in the event of default, including 
the recovery of collateral.
    (c) The Credit Risk Premium must be paid before the disbursement of 
a direct or guaranteed loan. Where the borrower draws down the direct 
or guaranteed loan in several increments, the borrower may pay a 
portion of the total Credit Risk Premium for each increment equal to 
the proportion of that increment to the total amount of the direct or 
guaranteed loan.
    (d) Each direct loan and loan guarantee made by the Administrator 
will be included in one cohort of direct loans or one cohort of loan 
guarantees, respectively, made during that same fiscal year, or longer 
period, as may be determined by the Administrator. When all obligations 
in a cohort have been satisfied or liquidated, the amount of Credit 
Risk Premiums, paid by applicants or infrastructure partners, remaining 
in the cohort, after deductions made to mitigate losses from any loan 
or loan guarantee in the cohort, together with interest accrued 
thereon, will be repaid on a pro rata basis to each original payor of a 
Credit Risk Premium for any obligation which was fully satisfied. If 
the Administrator's estimate of the default risk cost of each loan is 
accurate, the aggregate of Credit Risk Premiums associated with each 
cohort of loans will fully offset all losses in the cohort and none 
will remain to be returned to the payees.

Subpart B--FRA Policies And Procedures For Evaluating Applications 
For Financial Assistance

Sec. 260.17  Credit risk premium analysis.

    (a) When Federal appropriations are not available to cover the 
total subsidy cost, the Administrator will determine the Credit Risk 
Premium necessary for each direct loan or loan guarantee by estimating 
the credit risk and the potential recovery in the event of a default of 
each project evaluating the factors described in paragraphs (b) and (c) 
of this section.
    (b) Establishing the credit risk.
    (1) Where an Applicant has received a recent credit rating from one 
or more nationally recognized rating agencies, that rating will be used 
to estimate the credit risk.
    (2) Where an Applicant has not received a credit rating from a 
credit rating agency, the Administrator will determine the credit risk 
based on an evaluation of the following factors:
    (i) Business risk, based on Applicant's:
    (A) Industry outlook;
    (B) Market position;
    (C) Management and financial policies;
    (D) Capital expenditures; and
    (E) Operating efficiency.
    (ii) Financial risk, based on Applicant?s past and projected:
    (A) Profitability;
    (B) Liquidity;
    (C) Financial strength;
    (D) Size; and
    (E) Level of capital expenditures; and
    (iii) Project risk, based on the proposed project's:
    (A) Potential for improving revenues, profitability and cash flow 
from operations; and
    (B) Reliance on third parties for success.
    (c) The potential recovery in the event of a default will be based 
    (1) The nature of the Applicant's assets; and
    (2) Liquidation value of the collateral offered, including the 
terms and conditions of the lien securing the collateral.

Sec. 260.19  Preapplication meeting.

    Potential Applicants may request a meeting with the FRA Associate 
Administrator for Railroad Development to discuss the nature of the 
project being considered. Applicants must be prepared to provide at 
least the following information:
    (a) Applicant's name, address, and contact person;
    (b) Name of the proposed infrastructure partner(s), if any, 
including the identification of potential amounts of funding from each;
    (c) Amount of the direct loan or loan guarantee request, and a 
description of the technical aspects of the project including a map of 
the existing railroad lines with the location of the project indicated;
    (d) Brief description and estimate of the economic impact, 
including future demand for service, improvements that can be achieved, 
the project's relation to the priorities listed in Sec. 260.7, along 
with any feasibility, market or other studies that may have been done 
as attachments;
    (e) Amount of Applicant's equity and a description of collateral 
offered, with estimated values, including the basis of such, to be 
offered as security for the loan;
    (f) If applicable, the names and addresses of the Applicant's 
parent, affiliates, and subsidiary corporations, if any, and a 
description of the ownership relationship and the level of guarantee, 
if any, to be offered;
    (g) For existing companies, a current balance sheet and an income 
statement not more than 90 days old and financial statements for the 
borrower and any parent, affiliates, and subsidiaries for at least the 
four most recent years; and
    (h) Information relevant to the potential environmental impacts of 
the project in the context of applicable Federal law.

Subpart C--Applications for Financial Assistance

Sec. 260.21  Eligibility.

    The Administrator may make a direct loan to an Applicant, or 
guarantee the payment of the principal balance and any interest of an 
obligation of an Applicant prior to, on, or after the date of execution 
or the date of disbursement of such obligation, if the proceeds of such 
direct loan or obligation shall be, or have been, used by the Applicant 
for the eligible purposes listed in Sec. 260.5(a)(1), (2), and (3).

Sec. 260.23  Form and content of application generally.

    Each application shall include, in the order indicated and 
identified by applicable paragraph numbers and letters corresponding to 
those used in this section, the following information:
    (a) Full and correct name and principal business address of the 
    (b) Date of Applicant's incorporation, or organization if not a 
corporation, and name of the government, State or territory under the 
laws of which it was incorporated or organized. If Applicant

[[Page 41844]]

is a partnership, association, or other form of organization other than 
a corporation, a full description of the organization should be 
    (c) Name, title, and address of the person to whom correspondence 
regarding the application should be addressed.
    (d) A statement of whether the project involves another railroad or 
other participant, through joint execution, coordination, or otherwise; 
if so, description of the relative participation of Applicant and such 
other railroad or participant, including financial statements (if 
applicable) and financing arrangements of each participant, portion of 
the work to be performed by each participant, and anticipated level of 
usage of the equipment or facility of each participant when the work is 
completed, along with a statement by a responsible officer or official 
of the other railroad or participant that the information provided 
reflects their agreement on these matters;
    (e) A detailed description of the amount and timing of the 
financial assistance that is being requested and its purpose or 
purposes, including:
    (1) Detailed description of the project and its purpose or 
    (2) A description of all facilities or equipment and the physical 
condition of such facilities or equipment included in or directly 
affected by the proposed project;
    (3) Each part or sub-part into which the project may reasonably be 
divided and the priority and schedule of expenditure for each part or 
sub-part; and
    (4) Proposed dates of commencement and completion of the project 
and estimated timing of the expenditure of the proceeds of the 
    (5) A map of Applicant's existing railroad with location of project 
indicated, if appropriate.
    (f) A listing and description of the collateral to be offered the 
Administrator in connection with any financial assistance provided; 
Applicant's opinion of the value of this security and the basis for 
such opinion; in the case of leased equipment to be rehabilitated or 
improved with the proceeds of the obligation proposed to be guaranteed, 
Applicant shall state, in addition to the above, whether the lease 
provides for, or the lessor will permit, encumbrance of the leasehold 
or subordination of the lessor's interest in the equipment to the 
    (g) A statement, in summary form, showing financial obligations to 
or claims against the United States or obligations for which the United 
States is guarantor, if any, by Applicant or any affiliated corporate 
entity of the Applicant or the Applicant's parent as of the date of the 
application, including:
    (1) Status of any claims under litigation; and
    (2) Any other debits or credits existing between the Applicant and 
the United States, showing the department or agency involved in such 
loans, claims and other debts;
    (h) To the extent such information is available, an analysis that 
    (1) a statement, together with supporting evidence including copies 
of all market analyses and studies that have been performed to 
determine present and future demand for rail services or facilities, 
that the financing is justified by present and future probable demand 
for rail services or facilities, will meet existing needs for such 
services or facilities, and will provide shippers or passengers with 
improved service;
    (2) Description of the impact of the project upon the projected 
freight or passenger traffic to be originated, terminated, or carried 
by the Applicant for at least the five years immediately following 
completion of the project;
    (3) Explanation of the manner in which the project will increase 
the economical and efficient utilization of equipment and facilities; 
    (4) Description of cost savings or any other benefit which would 
accrue to the Applicant from the project;
    (i) A statement as to how the project will contribute to, or 
enhance, the safe operation of the railroad, considering such factors 
as the occupational safety and health of the employees and the 
improvement of the physical and other conditions that have caused or 
may cause serious injury or loss of life to the public or significant 
property damage;
    (j) A statement of the Applicant's maintenance program for its 
entire rail system and planned maintenance program for the equipment or 
facilities financed by the proceeds of the financial assistance;
    (k) A certified statement in the form contained in Sec. 260.31(d) 
that Applicant will pay to the Administrator, in accordance with 
Sec. 260.11, the investigation charge with respect to the application.
    (l) Information relevant to the potential environmental impacts of 
the project in the context of applicable Federal laws;
    (m) Any additional information that the Applicant deems appropriate 
to convey a full and complete understanding of the project, the 
project's relations to the priorities listed in Sec. 260.7, and its 
impact, or to assist the Administrator in making the statutorily 
prescribed findings; and
    (n) Any other information which the Administrator may deem 
necessary concerning an application filed under this part.
    (o) Railroad applicants must also submit a copy of application for 
financing for the project in the private sector, including terms 
requested, from at least one commercial lender, and its response 
refusing to provide such financing.

Sec. 260.25  Additional information for Applicants not having a credit 

    Each application submitted by Applicants not having a recent credit 
rating from one or more nationally recognized rating agencies shall 
include, in the order indicated and identified by applicable numbers 
and letters corresponding to those used in this section, the following 
    (a) A narrative statement detailing management's business plan to 
enhance Applicant's ability to provide rail services including a 
discussion of the following:
    (1) Applicant's current and prospective traffic base, including by 
commodity and geographic region, major markets served, major 
interchange points, and market development plans;
    (2) Applicant's current operating patterns, and plans, if any, to 
enhance its ability to serve its current and prospective traffic base;
    (3) System-wide plans to maintain equipment and rights-of-way at 
current or improved levels; and
    (4) Specific plans for rationalization of marginal or uneconomic 
    (b) Detailed financial information, including:
    (1) Financial statements prepared by a Certified Public Accountant 
(audited, if available), for the four calendar years immediately 
preceding the date of filing of the application, including:
    (i) A copy of Applicant's most recent year-end general balance 
sheet and a copy of Applicant's most recent unaudited general balance 
sheet; and
    (ii) Applicant's most recent annual income statement and a spread 
sheet showing unaudited monthly and year-to-date income statement data 
up to the date the application is filed;
    (2) Projected financial statements, including spread sheets showing 
for each of the four years subsequent to the year in which the 
application is filed, both before and after giving effect to the 
proceeds of the assistance requested in the application:
    (i) Forecasted annual income statement;
    (ii) Forecasted year-end balance sheets. These spread sheets shall 

[[Page 41845]]

accompanied by a statement setting forth the bases for such forecasts; 
    (iii) A spread sheet showing changes in financial position for the 
year in which the application is filed, including the period ending on 
the date of the application based upon actual data and the period from 
the date of the application to the end of the year, based upon 
estimated and forecasted data;
    (c) Capital spending plans for the next five years;
    (d) Cash flow projections;
    (e) Contingency plans for termination of the project before 
completion, if necessary; and
    (f) A narrative description of Applicant's management team, 
    (1) Rail experience of top management;
    (2) Management's plans for achieving growth and its long-term 
capital spending plan; and
    (3) A narrative description of Applicant's workforce and the 
historical rate of employee turnover.

Sec. 260.27  Additional information for loan guarantees.

    Applications for a loan guarantee shall also include in the order 
indicated and identified by applicable numbers and letters 
corresponding to those used in this section, the following information:
    (a) With respect to each existing obligation to be refinanced or 
proposed obligation:
    (1) A certified copy of proposed or executed obligation agreements;
    (2) A detailed description of the obligation, and a description of 
the series or issue of which the obligation is, or will be, a part, 
    (i) Effective date, or anticipated effective date;
    (ii) Where a guarantee is sought for an outstanding obligation 
being refinanced, actual effective rate of interest; or where the 
obligation is new, the terms of the proposed obligation including the 
proposed effective rate of interest; and
    (iii) All related documents, whether executed or proposed;
    (3) For an existing obligation, the Applicant's payment history on 
that obligation; and
    (b) With respect to each existing Lender, Holder, or prospective 
Lender, a statement as to:
    (1) Full and correct name and principal business address;
    (2) Reference to applicable provisions of law and the charter or 
other governing instruments conferring authority to do business on the 
Lender, Holder, or prospective Lender;
    (3) Brief statement of the circumstances and negotiations leading 
to the agreement by the Lender, Holder, or prospective Lender to make 
the loan;
    (4) Brief statement of the nature and extent of any affiliation or 
business relationship between the Lender, Holder, or prospective Lender 
and the Applicant or any of Applicant's directors, partners, or 
principal executive officers; and.
    (5) Full and complete statement of all sums to be provided by the 
Lender or Holder, or to be provided by the prospective Lender in 
connection with the proposed obligation including:
    (i) Name and address of each person to whom the payment has been 
made or will be made and nature of any affiliation, association, or 
prior business relationship between any person named in this paragraph 
and the Lender, Holder or prospective Lender or any of its directors, 
partners, or officers; and
    (ii) Amount of the cash payment, or the nature and value of other 

Sec. 260.29  Third party consultants.

    Applicants may utilize independent third-party consultants to 
prepare a financial evaluation of the proposed project and the 
applicant, if approved by FRA. Providing such an evaluation would 
greatly assist FRA in the evaluation of the application and would 
significantly reduce the time necessary for FRA to process the 
application. We encourage the use of third party consultants.

Sec. 260.31  Execution and filing of the application.

    (a) The original application shall bear the date of execution, be 
signed in ink by or on behalf of the Applicant, and shall bear the 
corporate seal in the case of an Applicant which is a corporation. 
Execution shall be by all partners if a partnership, unless 
satisfactory evidence is furnished of the authority of a partner to 
bind the partnership, or if a corporation, an association or other 
similar form of organization, by its president or other executive 
officer having knowledge of the matters therein set forth. Persons 
signing the application on behalf of the Applicant shall also sign a 
certificate in form as follows:

    (Name of official) certifies that he or she is the (Title of 
official) of the (Name of Applicant); that he or she is authorized 
on the part of the Applicant to sign and file with the Administrator 
this application and exhibits attached thereto; that the consent of 
all parties whose consent is required, by law or by binding 
commitment of the Applicant, in order to make this application has 
been given; that he or she has carefully examined all of the 
statements contained in such application and the exhibits attached 
thereto and made a part thereof relating to the aforesaid (Name of 
Applicant); that he or she has knowledge of the matters set forth 
therein and that all such statements made and matters set forth 
therein are true and correct to the best of his or her knowledge, 
information, and belief; and that Applicant will pay the balance of 
the investigation charge in accordance with Sec. 260.11.

(Signature of official)
    (b) There shall be made a part of the original application the 
following certificate by the Chief Financial Officer or equivalent 
officer of the Applicant:

    (Name of officer) certifies that he or she is (Title of officer) 
of (Name of Applicant); that he or she has supervision over the 
books of accounts and other financial records of the affected 
Applicant and has control over the manner in which they are kept; 
that such accounts are maintained in good faith in accordance with 
the effective accounting practices; that such accounts are adequate 
to assure that proceeds from the financing being requested will be 
used solely and specifically for the purposes authorized; that he or 
she has examined the financial statements and supporting schedules 
included in this application and to the best of his or her knowledge 
and belief those statements accurately reflect the accounts as 
stated in the books of account; and that, other than the matters set 
forth in the exceptions attached to such statements, those financial 
statements and supporting schedules represent a true and complete 
statement of the financial position of the Applicant and that there 
are no undisclosed assets, liabilities, commitments to purchase 
property or securities, other commitments, litigation in the courts, 
contingent rental agreements, or other contingent transactions which 
might materially affect the financial position of the Applicant.

(Signature of official)

    (c) The Applicant shall pay the investigation charge in accordance 
with Sec. 260.11.
    (d) The application shall be accompanied by a transmittal letter in 
form as follows:

Federal Railroad Administrator, c/o Associate Administrator for 
Railroad Development, Federal Railroad Administration, Washington, 
D.C. 20590
    Re: Application for financial assistance under the Railroad 
Rehabilitation and Improvement Financing Program.

    Dear Sir or Madam: Being duly authorized by (jointly and 
severally/if more than one) (the ``Applicant'') to convey the 
understandings hereinafter set forth, I respectfully submit this 
application and remit its investigation fee in the amount equal to 
one-half the total investigation fee established by the 
Administrator. By this filing, Applicant requests the Administrator 
to investigate the application and make the necessary findings upon 
which Applicant's eligibility for a direct loan or loan guarantee 
may be determined. Applicant understands

[[Page 41846]]

that neither the acceptance of this filing, the deposit of the 
investigation charge, nor the commencement of an investigation 
acknowledges the sufficiency of the application's form, content or 
merit. Furthermore, Applicant understands that the Administrator 
will incur numerous expenses by this filing with respect to the 
investigation of the application, the appraisal of security being 
offered, and the making of the necessary determinations and 
findings, and promises to pay, within 60 days, the remainder of the 
investigation fee required by the Administrator. Applicant 
understands that the Administrator will establish the amount of 
Credit Risk Premium due from Applicant, if any, as provided in 
Sec. 260.15. Applicant agrees to pay such Credit Risk Premium prior 
to the disbursement of direct or guaranteed loan, as appropriate. 
Such Credit Risk Premium may be refunded as provided in Sec. 260.15.
        Respectfully submitted.

Seal(s) by Its(Their).

    (e) The original application and supporting papers, and two copies 
thereof for the use of the Administrator, shall be filed with the 
Associate Administrator for Railroad Development of the Federal 
Railroad Administration, 1120 Vermont Ave., NW., MailStop 20, 
Washington, DC 20590. Each copy shall bear the dates and signatures 
that appear in the original and shall be complete in itself, but the 
signatures in the copies may be stamped or typed.

Sec. 260.33  Information requests.

    If an Applicant desires that any information submitted in its 
application or any supplement thereto not be released by the 
Administrator upon request from a member of the public, the Applicant 
must so state and must set forth any reasons why such information 
should not be released, including particulars as to any competitive 
harm which would probably result from release of such information. The 
Administrator will keep such information confidential to the extent 
permitted by law.

Sec. 260.35  Environmental assessment.

    (a) The provision of financial assistance by the Administrator 
under this Part is subject to a variety of environmental and historic 
preservation statutes and implementing regulations including the 
National Environmental Policy Act (``NEPA'') (42 U.S.C. 4332 et seq.), 
Section 4(f) of the Department of Transportation Act (49 U.S.C. 
303(c)), the National Historic Preservation Act (16 U.S.C. 470(f)), the 
Coastal Zone Management Act (16 U.S.C. 1451), and the Endangered 
Species Act (16 U.S.C. 1531). Appropriate environmental/historic 
preservation documentation must be completed and approved by the 
Administrator prior to a decision by the Administrator on the 
applicant's financial assistance request. FRA's ``Procedures for 
Considering Environmental Impacts'' (``FRA's Environmental 
Procedures'') (65 FR 28545 (May 26, 1999)) or any replacement 
environmental review procedures that the FRA may later issue and the 
NEPA regulation of the Council on Environmental Quality (``CEQ 
Regulation'') (40 CFR Part 1500) will govern the FRA's compliance with 
applicable environmental/historic preservation review requirements.
    (b) The Administrator, in cooperation with the applicant, has the 
responsibility to manage the preparation of the appropriate 
environmental document. The role of the applicant will be determined by 
the Administrator in accordance with the CEQ Regulation and 
Environmental Procedures.
    (c) Depending on the type, size and potential environmental impact 
of the project for which the applicant is seeking financial assistance, 
FRA will need to determine whether the project is categorically 
excluded from detailed environmental review under FRA's Environmental 
Procedures and, if not, to prepare or have prepared an Environmental 
Assessment leading to an Environmental Impact Statement (EIS) or a 
Finding of No Significant Impact. At the discretion of the 
Administrator, Applicants may be required to prepare and submit an 
environmental assessment of the proposed project or to submit adequate 
documentation to support a finding that the project is categorically 
excluded from detailed environmental review. If the applicant is a 
public agency that has statewide jurisdiction or is a local unit of 
government acting through a statewide agency, and meets the 
requirements of section 102(2)(D) of NEPA, the applicant may be 
requested to prepare the EIS and other environmental documents under 
the Administrator's guidance.
    (d) Applicants are strongly urged to consult with the Associate 
Administrator for Railroad Development at the earliest possible stage 
in project development in order to assure that the environmental/
historic preservation review process can be completed in a timely 
    (e) Applicants may not initiate any activities that would have an 
adverse environmental impact or limit the choice of reasonable 
alternatives in advance of the completion of the environmental review 
process. This does not preclude development by applicants of plans or 
designs or performance of other work necessary to support the 
application for financial assistance.

Subpart D--Standards for Maintenance of Facilities Involved in the 

Sec. 260.37  Applicability.

    This subpart prescribes standards governing the maintenance of 
facilities that are being, or have been, acquired, rehabilitated, 
improved, or constructed with the proceeds of a direct loan or a 
guaranteed loan issued under this part for the period during which any 
portion of the principal or interest of such obligation remains unpaid.

Sec. 260.39  Maintenance standards.

    (a) When the proceeds of a direct loan or an obligation guaranteed 
by the Administrator under this part are, or were, used to acquire, 
rehabilitate, improve or construct track, roadbed, and related 
structures, Borrower shall, as long as any portion of the principal or 
interest of such obligation remains unpaid, maintain such facilities in 
at least the highest track class, as defined by FRA Track Safety 
Standards in part 213 of this chapter, specified in the Application at 
which the rehabilitated, improved, acquired, or constructed track is to 
be operated upon completion of the project.
    (b) When the proceeds of a direct loan or an obligation guaranteed 
by the Administrator under this part are, or were, used for equipment 
or facilities, the Borrower shall, during the period in which any 
portion of the principal or interest in such obligation remains unpaid, 
maintain such equipment or facilities in a manner consistent with sound 
engineering and maintenance practices and in a condition that will 
permit the level of use that existed upon completion of the 
acquisition, rehabilitation, improvement or construction of such 
equipment or facilities.

Sec. 260.41  Inspection and reporting.

    (a) Equipment or facilities subject to the provisions of this 
subpart may be inspected at such times as the Administrator deems 
necessary to assure compliance with the standards set forth in 
Sec. 260.39. Each Borrower shall permit representatives of the FRA to 
enter upon its property to inspect and examine such facilities at 
reasonable times and in a reasonable manner. Such representatives shall 
be permitted to use such testing devices as the Administrator deems 
necessary to insure that the maintenance standards imposed by this 
subpart are being followed.
    (b) Each Borrower shall submit annually to the Administrator 

[[Page 41847]]

records and other documents detailing the maintenance and inspections 
performed which demonstrate that the Borrower has complied with the 
standards in Sec. 260.39.

Sec. 260.43  Impact on other laws.

    Standards issued under this subpart shall not be construed to 
relieve the Borrower of any obligation to comply with any other 
Federal, State, or local law or regulation.

Subpart E--Procedures To Be Followed in the Event of Default

Sec. 260.45  Events of default for guaranteed loans.

    (a) If the Borrower is more than 30 days past due on a payment or 
is in violation of any covenant or condition of the loan documents and 
such violation constitutes a default under the provisions of the loan 
documents, Lender must notify the Administrator in writing and must 
continue to submit this information to the Administrator each month 
until such time as the loan is no longer in default; and the 
Administrator will pay the Lender of the obligation, or the Lenders's 
agent, an amount equal to the past due interest on the guaranteed 
portion of the defaulted loan. This payment will in no way reduce the 
Borrower's obligation to the Lender to make all payments of principal 
and interest in accordance with the note. If the loan is brought 
current, the Lender will repay to the Agency any interest payments made 
by the Agency, plus accrued interest at the note rate.
    (b) If the default has continued for more than 90 days, the 
Administrator will pay to the Lender, or the Lender's agent, 90 percent 
of the unpaid guaranteed principal. If, subsequent to this payment 
being made, the default is cured and liquidation is no longer 
appropriate, the Lender will repay such funds to the Administrator, 
plus interest at the note rate.
    (c) After the default has continued for more than 90 days, the 
Lender shall expeditiously submit to the Administrator, in writing, its 
proposed detailed plan to resolve the default by liquidating the 
collateral or by any other means. If the resolution will require the 
liquidation of the collateral, then the Lender's plan shall include:
    (1) Proof adequate to establish that the Lender is legally in 
possession of the obligation, or is the agent for a Holder who is 
legally in possession of the obligation, and a statement of the current 
loan balance and accrued interest to date and the method of computing 
the interest;
    (2) A full and complete list of all collateral, including any 
personal and corporate guarantees;
    (3) The recommended liquidation methods for making the maximum 
collection possible and the justification for such methods, including 
recommended action for acquiring and disposing of all collateral and 
collecting from any guarantors;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the Borrower's latest available financial statements;
    (6) Copies of any guarantor's latest available financial 
    (7) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense;
    (8) A schedule to periodically report to the FRA on the progress of 
    (9) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined;
    (10) If a voluntary conveyance is considered, the proposed amount 
to be credited to the guaranteed debt;
    (11) Legal opinions, as appropriate;
    (12) The Lender will obtain an independent appraisal on all 
collateral securing the loan which will reflect the fair market value 
and potential liquidation value. In order to formulate a liquidation 
plan that maximizes recovery, the appraisal shall consider the presence 
of hazardous substances, petroleum products, or other environmental 
hazards, which may adversely impact the market value of the collateral; 
    (13) The anticipated expenses associated with the liquidation will 
be considered a cost of liquidation.
    (d) The Administrator will inform the Lender in writing whether the 
Administrator concurs in the Lender's liquidation plan. Should the 
Administrator and the Lender not agree on the liquidation plan, 
negotiations will take place between the Administrator and the Lender 
to resolve the disagreement. When the liquidation plan is approved by 
the Administrator, the Lender will proceed expeditiously with 
liquidation. The liquidation plan may be modified when conditions 
warrant. All modifications must be approved in writing by the 
Administrator prior to implementation.
    (e) Lender will account for funds during the period of liquidation 
and will provide the Administrator with reports at least quarterly on 
the progress of liquidation including disposition of collateral, 
resulting costs, and additional procedures necessary for successful 
completion of the liquidation.
    (f) Within 30 days after final liquidation of all collateral, the 
Lender will prepare and submit to the Administrator a final report in 
which the Lender must account for all funds during the period of 
liquidation, disposition of the collateral, all costs incurred, and any 
other information necessary for the successful completion of 
liquidation. Upon receipt of the final accounting and report of loss, 
the Administrator may audit all applicable documentation to confirm the 
final loss. The Lender will make its records available and otherwise 
assist the Administrator in making any investigation.
    (g) The Administrator shall be subrogated to all the rights of the 
Lender, or if Lender is agent for a Holder then to all of the rights of 
the Holder, with respect to the Borrower to the extent of the 
Administrator's payment to the Lender under this section.
    (h) When the Administrator finds the final report to be proper in 
all respects:
    (1) All amounts recovered in liquidation shall be paid to the 
Administrator; and
    (2) The remaining obligation of the Administrator to the Lender 
under the guarantee, if any, will be paid directly to Lender by the 
    (i) The Administrator shall not be required to make any payment 
under paragraphs (a) and (b) of this section if the Administrator 
finds, before the expiration of the periods described in such 
subsections, that the default has been remedied.
    (j) The Administrator shall have the right to charge Borrower 
interest, penalties and administrative costs, including all of the 
United States' legally assessed or reasonably incurred expenses of its 
counsel and court costs in connection with any proceeding brought or 
threatened to enforce payment or performance under applicable loan 
documents, in accordance with OMB Circular A-129 (www.whitehouse.gov/omb.), as it may be revised from time to time.

Sec. 260.47  Events of default for direct loans.

    (a) Upon the Borrower's failure to make a scheduled payment, or 
upon the Borrower's violation of any covenant or condition of the loan 
documents which constitutes a default under the provisions of the loan 
documents, the Administrator, at the Administrator's discretion may:
    (1) Exercise any and all remedies available under the provisions of 
the loan agreement and other loan

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documents, including any guarantees, or inherent in law or equity;
    (2) Terminate further borrowing of funds;
    (3) Take possession of assets pledged as collateral; and
    (4) Liquidate pledged collateral.
    (b) The Administrator shall have the right to charge Borrower 
interest, penalties and administrative costs, including all of the 
United States' legally assessed or reasonably incurred expenses of its 
counsel and court costs in connection with any proceeding brought or 
threatened to enforce payment or performance under applicable loan 
documents, in accordance with OMB Circular A-129, as it may be revised 
from time to time.

Sec. 260.49  Avoiding defaults.

    Borrowers are encouraged to contact the Administrator prior to the 
occurrence of an event of default to explore possible avenues for 
avoiding such an occurrence.

Subpart F--Loan Guarantees--Lenders

Sec. 260.51  Conditions of guarantee.

    (a) The percentage of the obligation for which Applicant seeks a 
guarantee is a matter of negotiation between the Lender and the 
Applicant, subject to the Administrator's approval. The maximum 
percentage of the total obligation that the Administrator will 
guarantee is 80 percent. The amount of guarantee allowed will depend on 
the total credit quality of the transaction and the level of risk 
believed to be assumed by the Administrator.
    (b) A guarantee under this part constitutes an obligation supported 
by the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which a Lender or Holder has 
actual knowledge at the time it becomes such Lender or Holder or which 
a Lender or Holder participates in or condones. In addition, the 
guarantee will be unenforceable by the Lender or the Holder to the 
extent any loss is occasioned by the violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which the Administrator acquires knowledge thereof. Any losses 
occasioned will be unenforceable to the extent that loan funds are used 
for purposes other than those specifically approved by FRA in its 
    (c) The Administrator may guarantee an Applicant's obligation to 
any Lender provided such Lender can establish to the satisfaction of 
the Administrator that it has the legal authority and sufficient 
expertise and financial strength to operate a successful lending 
program. Loan guarantees will only be approved for Lenders with 
adequate experience and expertise to make, secure, service, and collect 
the loans.
    (d) The Lender may sell all of the guaranteed portion of the loan 
on the secondary market, provided the loan is not in default, or retain 
the entire loan.
    (e) When a guaranteed portion of a loan is sold to a Holder, the 
Holder shall succeed to all rights of the Lender under the loan 
guarantee to the extent of the portion purchased. The Lender will 
remain bound to all obligations under the loan guarantee and the 
provisions of this part. In the event of material fraud, negligence or 
misrepresentation by the Lender or the Lender's participation in or 
condoning of such material fraud, negligence or misrepresentation, the 
Lender will be liable for payments made by the Agency to any Holder.

Sec. 260.53  Lenders' functions and responsibilities.

    Lenders have the primary responsibility for the successful delivery 
of the program consistent with the policies and procedures outlined in 
this part. All Lenders obtaining or requesting a loan guarantee from 
the Administrator are responsible for:
    (a) Loan processing. Lender shall be responsible for all aspects of 
loan processing, including:
    (1) Processing applications for the loan to be guaranteed;
    (2) Developing and maintaining adequately documented loan files;
    (3) Recommending only loan proposals that are eligible and 
financially feasible;
    (4) Obtaining valid evidence of debt and collateral in accordance 
with sound lending practices;
    (5) Supervising construction, where appropriate;
    (6) Distributing loan funds;
    (7) Servicing guaranteed loans in a prudent manner, including 
liquidation if necessary; and
    (8) Obtaining the Administrator's approval or concurrence as 
required in the loan guarantee documentation;
    (b) Credit evaluation. Lender must analyze all credit factors 
associated with each proposed loan and apply its professional judgment 
to determine that the credit factors, considered in combination, ensure 
loan repayment. The Lender must have an adequate underwriting process 
to ensure that loans are reviewed by other than the originating 
officer. There must be good credit documentation procedures;
    (c) Environmental responsibilities. Lender has a responsibility to 
become familiar with Federal environmental requirements; to consider, 
in consultation with the prospective borrower, the potential 
environmental impacts of their proposals at the earliest planning 
stages; and to develop proposals that minimize the potential to 
adversely impact the environment. Lender must alert the Administrator 
to any controversial environmental issues related to a proposed project 
or items that may require extensive environmental review. Lender must 
assist borrowers as necessary to comply with the environmental 
requirements outlined in this part. Additionally, Lender will assist in 
the collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems;
    (d) Loan closing. The Lender will conduct or arrange for loan 
closings; and
    (e) Fees and Charges. The Lender may establish charges and fees for 
the loan provided they are similar to those normally charged other 
Applicants for the same type of loan in the ordinary course of 

Sec. 260.55  Lender's loan servicing.

    (a) The lender is responsible for servicing the entire loan and for 
taking all servicing actions that are prudent. This responsibility 
includes but is not limited to the collection of payments, obtaining 
compliance with the covenants and provisions in the loan documents, 
obtaining and analyzing financial statements, verification of tax 
payments, and insurance premiums, and maintaining liens on collateral.
    (b) The lender must report the outstanding principal and interest 
balance on each guaranteed loan semiannually.
    (c) At the Administrator's request, the Lender will periodically 
meet with the Administrator to ascertain how the guaranteed loan is 
being serviced and that the conditions and covenants of the loan 
documents are being enforced.
    (d) The Lender must obtain and forward to the Administrator the 
Borrower's annual financial statements within 120 days after the end of 
the Borrower's fiscal year and the due date of other reports as 
required by the loan documents. The Lender must analyze the financial 
statements and provide the Agency with a written summary of the 
Lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the Borrower.
    (e) Neither the Lender nor the Holder shall alter, nor approve any

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amendments of, any loan instrument without the prior written approval 
of the Administrator.

    Issued in Washington, DC on June 27.
Jolene M. Molitoris,
[FR Doc. 00-16778 Filed 7-5-00; 8:45 am]