[Federal Register Volume 66, Number 198 (Friday, October 12, 2001)]
[Rules and Regulations]
[Pages 52270-52275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25648]



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Part III





Office of Management and Budget





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14 CFR Chapter VI and Part 1300



Regulations for Air Carrier Guarantee Loan Program Under Section 
101(a)(1) of the Air Transportation Safety and System Stabilization 
Act; Final Rule

  Federal Register / Vol. 66, No. 198 / Friday, October 12, 2001 / 
Rules and Regulations  

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OFFICE OF MANAGEMENT AND BUDGET

14 CFR Chapter VI and Part 1300


Regulations for Air Carrier Guarantee Loan Program Under Section 
101(a)(1) of the Air Transportation Safety and System Stabilization Act

AGENCY: Office of Management and Budget, Executive Office of the 
President.

ACTION: Final rule.

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SUMMARY: These regulations are issued under Section 102(c)(2)(B) of the 
Air Transportation Safety and System Stabilization Act. That section 
states that ``the Director of the Office of Management and Budget shall 
issue regulations setting forth procedures for application and minimum 
requirements * * * for the issuance of Federal credit instruments under 
Section 101(a)(1)'' of the Act. Section 101(a)(1) authorizes the Air 
Transportation Stabilization Board, which is established by section 
102(b)(1) of the Act, to issue Federal credit instruments (as defined 
in section 107(2) of the Act) that, in the aggregate, do not exceed $10 
billion. The purpose of these Federal credit instruments is to assist 
air carriers who suffered losses due to the terrorist attacks of 
September 11, 2001, and to whom credit is not otherwise reasonably 
available, in order to facilitate a safe, efficient, and viable 
commercial aviation system in the United States. The Act was signed 
into law on September 22, 2001, and directs the Office of Management 
and Budget (``OMB'') to issue implementing regulations ``[n]ot later 
than 14 days after the date of enactment of this Act.'' Consistent with 
this requirement, these regulations are issued on a final basis and are 
effective upon publication.

EFFECTIVE DATE: October 12, 2001.

FOR FURTHER INFORMATION CONTACT: Clare Doherty, Office of Management 
and Budget, Washington, DC 20503. Telephone (202) 395-5704.

SUPPLEMENTARY INFORMATION: On the morning of September 11, 2001, 
terrorists hijacked four commercial passenger airliners. Two of the 
planes crashed into the World Trade Center in New York City, causing 
the two towers to collapse and killing more than 5,000 people. A third 
plane crashed into the Pentagon, killing nearly 200 people. The fourth 
plane, apparently heading toward another target, crashed in western 
Pennsylvania, killing its crew and dozens of passengers. In response to 
these terrorist attacks, the Federal Aviation Administration issued a 
Federal ground stop order on September 11, 2001, prohibiting all 
flights to, from, and within the United States. Airports did not reopen 
until September 13 (except for Reagan National Airport, which partially 
reopened on October 4, 2001). Consumer demand for passenger air 
services has declined significantly since the terrorist attacks.
    In response to the terrorist attacks, Congress passed and President 
Bush signed into law on September 18, 2001, the Emergency Supplemental 
Appropriations Act for Recovery From and Response to Terrorist Attacks 
on the United States (Public Law 107-38). The Emergency Supplemental 
Appropriations Act provided $40 billion for the Federal response to the 
terrorist attacks, assistance to the victims of the attacks, and other 
consequences of the attacks.
    The U.S. commercial aviation industry suffered severe losses as a 
result of the terrorist attacks. As noted in the legislative history of 
the Act, these losses have placed the financial survival of many air 
carriers at risk, in part because these carriers do not have adequate 
access to credit markets. To address this problem, Congress passed and 
President Bush signed into law on September 22, 2001, the Air 
Transportation Safety and System Stabilization Act (Public Law 107-42) 
(the ``Act'').
    The Act addresses airline stabilization, aviation insurance, tax 
provisions, victim compensation, and air transportation safety. Section 
101(a)(2) of the Act provides $5 billion to compensate air carriers for 
the direct losses incurred as a result of the Federal ground stop order 
and incremental losses that they incur through December 31, 2001, as a 
result of the terrorist attacks. Section 101(a)(1) of the Act 
authorizes the issuance to air carriers of Federal credit instruments 
that, in the aggregate, shall not exceed $10 billion. The purpose of 
these Federal credit instruments is to assist air carriers who suffered 
losses due to the terrorist attacks of September 11, 2001, and to whom 
credit is not otherwise reasonably available, in order to facilitate a 
safe, efficient, and viable commercial aviation system in the United 
States. These final regulations are issued to implement section 
101(a)(1) of the statute.
    The Air Transportation Stabilization Board (the ``Board''), which 
is established by Section 102(b) of the Act, is empowered to enter into 
agreements to issue these loan guarantees and other Federal credit 
instruments authorized under section 102(b) of the Act. The Board is 
composed of the Chairman of the Board of Governors of the Federal 
Reserve System (who is Chairman of the Board), the Secretary of 
Transportation, the Secretary of the Treasury, and the Comptroller 
General (who is a nonvoting member), or their designees. Title I of the 
Act establishes a number of conditions and restrictions for the 
issuance of loan guarantees and other Federal credit instruments.
    Section 102(c)(2)(B) of the Act directs the Director of OMB to 
``issue regulations setting forth procedures for application and 
minimum requirements * * * for the issuance of Federal credit 
instruments under Section 101(a)(1)'' of the Act. Consistent with this 
requirement, OMB issues these regulations on a final basis, effective 
upon publication. Based on the very short deadline imposed upon it by 
the statute, OMB has determined it is appropriate to publish these 
rules without first obtaining public comment. Section 553(a) of the 
Administrative Procedure Act (``APA'') exempts from its rulemaking 
requirements those agency actions that concern ``loans, grants, 
benefits, or contracts.'' 5 U.S.C. 553(a). This loan guarantee program 
falls squarely within this exception to the requirements otherwise 
imposed by section 553.
    Moreover, to the extent that section 553's notice-and-comment 
requirements may apply to this action, we conclude that there is ``good 
cause'' under sections 553(b)(B) and 553(d), to issue the rule without 
prior public comment, effective immediately. The tight timeframe 
dictated by the statute makes compliance with these requirements 
impracticable and contrary to the public interest. See Methodist 
Hospital v. Shalala, 38 F.3d 1225, 1235 (D.C. Cir. 1994); Petry v. 
Block, 737 F.2d 1193, 1203 (D.C. Cir. 1984); Valiant Steel & Equipment 
v. Goldschmidt, 499 F. Supp. 410, 412 (D.D.C. 1980). In requiring OMB 
to issue the regulations within 14 days, Congress plainly intended to 
ensure that the loan guarantee program be implemented as swiftly as 
possible. The public interest is therefore served by having these 
regulations become effective upon publication, so that the Board can 
begin operations, and air carriers can submit applications to the Board 
at their earliest convenience.

Regulatory Impact

A. Executive Order 12866

    OMB's Office of Information and Regulatory Affairs (``OIRA'') has 
determined that this rule is an economically significant regulatory 
action under Executive Order 12866, Regulatory Planning and Review, 
based

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on its finding that the rule will have an annual effect on the economy 
of $100 million or more. The Director of OMB is required to issue 
implementing regulations under the Act not later than 14 days after the 
enactment of this statute. In accordance with the procedures regarding 
such emergency regulatory actions as discussed in section 6(a)(3)(D) of 
Executive Order 12866, OMB has, to the extent practicable, complied 
with the requirements of this Executive Order.
    This rule establishes the application procedure and minimum 
requirements that will apply to up to $10 billion in loan guarantees 
(or other Federal credit instruments) to air carriers to compensate 
them for the losses they incurred as a result of the terrorist attacks 
on the United States that occurred on September 11, 2001. The loan 
guarantees will translate into a ``credit subsidy'' of some amount not 
yet determined. This program is expected to generate social benefits by 
mitigating the costs incurred by the airline industry as a result of 
the September 11 attacks. Such costs include the transaction costs 
associated with business closings due to short-run financial or 
economic dislocations caused by the September 11 attacks, which could 
be followed by start-up costs when demand for air service increases and 
other financial problems resulting from the terrorist attacks ease. 
Such transaction costs for the airline industry may be more significant 
than for other industries, and society will benefit to the extent these 
costs are avoided through the loan guarantee program. In addition to 
the benefits that will result from the loan guarantee program, there 
will be some administrative costs of this rule to participants in the 
loan guarantee program. There are also unknown opportunity costs 
associated with this rule, because it may mean that finite resources, 
which would have been spent elsewhere absent this rule, are allocated 
to loan guarantees. There is also a risk of loss to the Federal 
government in the event of default on loans.

B. Other Regulatory Analyses

    This rule is not a ``significant energy action'' under Executive 
Order 13211, because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. Therefore, a 
Statement of Energy Effects under Executive Order 13211 is not 
required. This rule will not effect a taking of private property or 
otherwise have implications under Executive Order 12630, Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights. The rule meets applicable standards in sections 3(a) and 
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. This rule does not 
concern an environmental risk to health or risk to safety that may 
disproportionately affect children under Executive Order 13045, 
Protection of Children from Environmental Risks and Safety Risks.

C. 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. 
OMB has conducted a review of this final rule and certifies that it 
will not have a significant impact on a substantial number of small 
entities.
    It is possible that small entities will seek Federal credit 
instruments under this program. However, the cost to these entities of 
applying for this assistance program should be minimal since borrowers 
will normally have available the information needed to prepare 
applications for funding. In addition, participation in this program is 
voluntary. As such, OMB concludes that this rule will not have a 
significant impact on a substantial number of small entities.

D. Congressional Review Act

    This is a major rule under Section 804(2) of the Congressional 
Review Act (5 U.S.C. 801 et seq.). Under the Congressional Review Act, 
major rules, in general, can not take effect until 60 days after the 
rule is published in the Federal Register. However, Section 808(2) of 
the Congressional Review Act states that agencies may waive this 
effective date requirement for ``good cause'' and establish an earlier 
effective date. As explained above, to the extent that section 553's 
notice-and-comment requirements apply to this rulemaking, OMB has 
determined that there is ``good cause'' to issue this final rule 
without seeking prior public comment, effective immediately upon 
publication, because OMB is statutorily required to issue the 
regulations within 14 days of the enactment of the Act, and because it 
is important that the loan guarantee program began operations as soon 
as possible. For these same reasons, there is ``good cause'' under 
section 808(2) to make this rule effective immediately upon 
publication.

E. Paperwork Reduction Act

    The information collection requirements of this rule have been 
approved by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.) under emergency approval procedures at 5 CFR 1320.13. The 
OMB control number assigned to this collection is 0348-0059. OMB 
estimates that there may be up to 150 respondents under this program 
and estimates that the total annual burden to the public of the 
information collection activities associated with this rule would be 
6,000 hours using that high-end estimate of respondents. Based on a 
cost of $50 per hour, the monetized hour cost of this information 
collection is $300,000. The Paperwork Reduction Act provides that an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.

F. Unfunded Mandates Reform Act

    This rule is not subject to the analytical requirements of the 
Unfunded Mandates Reform Act, 2 U.S.C. 1531-1538, because it will not 
result in the expenditure by a State, local, or tribal government, in 
the aggregate, or by the private sector of $100 million or more in any 
one year.

G. Federalism and Indian Tribal Implications

    Executive Order 13132, entitled, ``Federalism,'' was issued on 
August 4, 1999, and took effect November 2, 1999. OMB has reviewed this 
rule for federalism implications, and certifies that this rule will not 
have a substantial effect on the States, the relationship between the 
Federal Government and the States, or the distribution of power and 
responsibilities among the various levels of government. Also, this 
rule does not have tribal implications under Executive Order 13175, 
entitled ``Consultation and Coordination with Indian Tribal 
Governments.'' The rule does not have a substantial direct effect on 
one or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes, or on the distribution of power and 
responsibility between the Federal Government and Indian tribes.

H. National Environmental Policy Act

    OMB has determined that this rulemaking does not constitute a major 
Federal action significantly affecting the quality of the human 
environment under the National Environmental Policy Act of 1969, 42 
U.S.C. 4321 et seq., Public Law 91-190 (NEPA). If necessary, loans 
sought to be guaranteed under the program will be assessed by the Board 
to determine appropriate compliance with NEPA. In this regard, we note 
that the Board is authorized to

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issue supplemental regulations for the air carrier loan guarantee 
program.

List of Subjects in 14 CFR Part 1300

    Air carriers, Disaster assistance, Loan programs--transportation, 
Reporting and recordkeeping requirements.

    Dated: October 5, 2001.
Mitchell E. Daniels, Jr.,
Director, Office of Management and Budget.

    For the reasons set forth in the preamble, the Office of Management 
and Budget establishes in title 14 of the Code of Federal Regulations a 
new chapter VI consisting of part 1300 to read as follows:

Chapter VI--Office of Management and Budget

PART 1300--AVIATION DISASTER RELIEF--AIR CARRIER GUARANTEE LOAN 
PROGRAM

Subpart A--General
Sec.
1300.1   Purpose.
1300.2   Definitions.

Subpart B--Minimum Requirements and Application Procedures

1300.10   General standard for Board issuance of Federal credit 
instruments.
1300.11   Eligible borrower.
1300.12   Eligible lender.
1300.13   Guarantee amount.
1300.14   Guarantee percentage.
1300.15   Loan terms.
1300.16   Application process.
1300.17   Application evaluation.
1300.18   Issuance of the guarantee.
1300.19   Assignment or transfer of loans.
1300.20   Lender responsibilities.
1300.21   Guarantee.
1300.22   Termination of obligations.
1300.23   Participation in guaranteed loans.

    Authority: Title I of Pub. L. 107-42, 115 Stat. 230 (49 U.S.C. 
40101 note).

Subpart A--General


Sec. 1300.1  Purpose.

    This part is issued by the Office of Management and Budget, (OMB) 
pursuant to Title I of the Air Transportation Safety and System 
Stabilization Act, Public Law 107-42, 115 Stat. 230 (``Act''). 
Specifically, Section 102(c)(2)(B) directs OMB to issue regulations 
setting forth procedures for application and minimum requirements for 
the issuance of Federal credit instruments under section 101(a)(1) of 
the Act.


Sec. 1300.2  Definitions.

    (a) Act means the Air Transportation Safety and System 
Stabilization Act, Public Law 107-42, 115 Stat. 230 (49 U.S.C. 40101 
note).
    (b) Administer, administering and administration, mean the lender's 
actions in making, disbursing, servicing (including, but not limited to 
care, preservation and maintenance of collateral), monitoring, 
collecting, and liquidating a loan and security.
    (c) Agent means that lender authorized to take such actions, 
exercise such powers, and perform such duties on behalf and in 
representation of all lenders party to a guarantee of a single loan, as 
is required by, or necessarily incidental to, the terms and conditions 
of the guarantee.
    (d) Air carrier means an air carrier as defined in 49 U.S.C. 40102.
    (e) Applicant means one or more air carriers applying for a Federal 
credit instrument issued by the Board under the program.
    (f) The Board, for purposes of any operational and decisionmaking 
functions in connection with individual loan guarantees, means the 
voting members of the Air Transportation Stabilization Board 
established under Section 102 of the Act. The voting members of the 
Board are the Chairman of the Board of Governors of the Federal Reserve 
System (who is the Chairman of the Board), the Secretary of the 
Treasury and the Secretary of Transportation, or their designees. The 
Comptroller General, who is a nonvoting member, will not participate in 
the review, operations, or deliberations of the Board in connection 
with individual loan guarantees, or otherwise participate in the 
Board's exercise of any executive power, but may provide such audit, 
evaluation and other support to the Board as the Board may request, 
consistent with applicable auditing standards.
    (g) Borrower means an ``Obligor,'' as defined in Section 102(a)(4) 
of the Act, and includes an air carrier that is primarily liable for 
payment of the principal of and interest on a Federal credit 
instrument, which party may be a corporation, partnership, joint 
venture, trust, or governmental entity, agency, or instrumentality.
    (h) Federal credit instrument, as defined in Section 107(2) of the 
Act, means any guarantee or other pledge by the Board issued under the 
program to pledge the full faith and credit of the United States to pay 
all or part of any of the principal of and interest on a loan issued by 
a borrower and funded by a lender.
    (i) Financial obligation, as defined in Section 102(a)(2) of the 
Act, means any note, bond, debenture, or other debt obligation issued 
by a borrower in connection with financing under the program.
    (j) Guarantee means the written agreement between the Board and one 
or more lenders, pursuant to which the Federal government guarantees 
repayment of a specified percentage of the principal of and/or interest 
on the loan. Unless otherwise specified, guarantee includes any other 
pledge issued under a Federal credit instrument.
    (k) Lender means any non-Federal qualified institutional buyer, as 
defined in Section 102(a)(3) of the Act, that funds a financial 
obligation subject to a guarantee issued by the Board. With respect to 
a guarantee of a single loan to which more than one lender is a party, 
the term lender means agent.
    (l) Loan, unless otherwise specified, includes any financial 
obligation (i.e., note, bond, debenture, or other debt obligation) 
issued by a borrower.
    (m) Loan documents mean the loan agreement and all other 
instruments, and all documentation between the lender and the borrower 
evidencing the making, disbursing, securing, collecting, or otherwise 
administering of the loan. (References to loan documents also include 
comparable agreements, instruments, and documentation for other 
financial obligations for which a guarantee is requested or issued.)
    (n) Program means the air carrier guarantee loan program 
established by section 101(a)(1) and the related provisions of Title I 
of the Act.
    (o) Security means all property, real or personal, required by the 
provisions of the guarantee or by the loan documents to secure 
repayment of any indebtedness of the borrower under the loan documents 
or guarantee.

Subpart B--Minimum Requirements and Application Procedures


Sec. 1300.10  General standards for Board issuance of Federal credit 
instruments.

    (a) In accordance with section 102(c)(1) of the Act, the Board may 
enter into agreements with one or more borrowers to issue Federal 
credit instruments only if the Board determines, in its discretion and 
in accordance with the minimum requirements set forth in this part, 
that--
    (1) The borrower is an air carrier for which credit is not 
reasonably available at the time of the transaction;
    (2) The intended obligation by the borrower is prudently incurred; 
and
    (3) Such agreement is a necessary part of maintaining a safe, 
efficient, and viable commercial aviation system in the United States.
    (b) In accordance with section 102(c)(2)(A) of the Act, the Board 
shall enter into an agreement to issue a Federal credit instrument in 
such form

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and on such terms and conditions and subject to such covenants, 
representations, warranties, and requirements (including requirements 
for audits) as the Board determines are appropriate for satisfying the 
requirements of this part and any supplemental requirements issued by 
the Board under section 102(c)(2)(B) of the Act.
    (c) In accordance with section 102(d)(1) of the Act, in entering 
into agreements to issue Federal credit instruments, the Board shall, 
to the extent feasible and practicable and in accordance with the 
requirements in this part, ensure that the Federal Government is 
compensated for the risk assumed in making guarantees.
    (d) In accordance with Section 102(d)(2) of the Act, the Board is 
authorized to enter into contracts under which the Federal Government, 
contingent on the financial success of the air carrier, would 
participate in the gains of the air carrier or its security holders 
through the use of such instruments as warrants, stock options, common 
or preferred stock, or other appropriate equity instruments, except 
that the Board shall not accept an equity interest in an air carrier 
that gives the Federal Government voting rights.
    (e) In accordance with Section 104(a) of the Act, the Board may 
only issue a Federal credit instrument to an air carrier after the air 
carrier enters into a legally binding agreement with the Board 
regarding certain employee compensation.


Sec. 1300.11  Eligible borrower.

    (a) An eligible borrower must be an air carrier that can 
demonstrate, to the satisfaction of the Board, that:
    (1) It has incurred (or is incurring) losses as a result of the 
terrorist attacks on the United States that occurred on September 11, 
2001, which may include losses due to the unavailability of credit or 
the decrease in demand for that air carrier's services;
    (2) It is not under bankruptcy protection or receivership when the 
application is submitted or when the Board issues the guarantee, unless 
the guarantee and the underlying financial obligation is to be part of 
a bankruptcy court-certified reorganization plan;
    (3) It has agreed to permit such audits and reviews prior to the 
issuance of a guarantee, as the Board may deem appropriate, by an 
independent auditor acceptable to the Board;
    (4) It has agreed to permit such audits and reviews during the 
period the loan is outstanding and three years after payment in full of 
the guaranteed loan, as the Board may deem appropriate, by an 
independent auditor acceptable to the Board or by the Comptroller 
General;
    (5) In conducting audits and reviews pursuant to paragraphs (a) (3) 
and (4) of this section, it has agreed to provide access to the 
officers and employees, books, records, accounts, documents, 
correspondence, and other information of the borrower, its 
subsidiaries, affiliates, financial advisers, consultants, and 
independent certified accountants that the Board or the Comptroller 
General consider necessary.
    (b) Status as an eligible borrower under this section does not 
ensure that the Board will issue the guarantee sought or preclude the 
Board from declining to issue a guarantee.


Sec. 1300.12  Eligible lender.

    (a) A lender eligible to receive a Federal credit instrument 
approved by the Board must be a non-Federal qualified institutional 
buyer as defined in Section 102(a)(3) of the Act.
    (b) If more than one institution participates as a lender in a 
single loan for which a Federal credit instrument is requested, each 
one of the institutions on the application must meet the requirements 
to be an eligible lender. An application for a guarantee of a single 
loan, for which there is more than one lender, must identify one of the 
institutions to act as agent for all. This agent is responsible for 
administering the loan and shall have those duties and responsibilities 
required of an agent, as set forth in the guarantee.
    (c) Each lender, irrespective of any indemnities or other 
agreements between the lenders and the agent, shall be bound by all 
actions, and/or failures to act, of the agent. The Board shall be 
entitled to rely upon such actions and/or failures to act of the agent 
as binding the lenders.
    (d) Status as an eligible lender under this section does not assure 
that the Board will issue the guarantee sought, or otherwise preclude 
the Board from declining to issue a guarantee.


Sec. 1300.13  Guarantee amount.

    (a) Under Section 101(a)(1) of the Act, the Board is authorized to 
enter into agreements to issue Federal credit instruments that, in the 
aggregate, do not exceed $10 billion.
    (b) The loan amount guaranteed to a single air carrier may not 
exceed that amount that, in the Board's sole discretion, the air 
carrier (or its successor) needs in order for it to provide commercial 
air services.


Sec. 1300.14  Guarantee percentage.

    A guarantee issued by the Board must be less than 100 percent of 
the amount of principal and accrued interest of the loan guaranteed.


Sec. 1300.15  Loan terms.

    (a) A loan guaranteed under the program shall be due and payable in 
full no later than seven years from the date on which the first 
disbursement of the loan is made.
    (b) Loans guaranteed under the program must bear a rate of interest 
determined by the Board to be reasonable. In determining the 
reasonableness of an interest rate, the Board shall consider the 
percentage of the guarantee, any collateral, other loan terms, and 
current average yields on outstanding obligations of the United States 
with maturity comparable to the term of the loan guaranteed. The Board 
may reject an application to guarantee a loan if it determines the 
interest rate on such loan to be unreasonable.
    (c) An eligible lender may assess and collect from the borrower 
such other fees and costs associated with the application and 
origination of the loan as are reasonable and customary, taking into 
consideration the amount and complexity of the credit. The Board may 
take such other fees and costs into consideration when determining 
whether to offer a guarantee to the lender.


Sec. 1300.16  Application process.

    (a) Applications are to be submitted by the borrower. Borrowers may 
submit applications to the Board any time after October 12, 2001 
through June 28, 2002. All applications must be received by the Board 
no later than 5 p.m. EDT, June 28, 2002, in the Board's offices. 
Borrowers should submit an original application and four copies. 
Applications will not be accepted via facsimile machine transmission or 
electronic mail. No application will be accepted for review if it is 
not received by the Board on or before June 28, 2002.
    (b) Applications shall contain the following:
    (1) A completed Form ``Application for Air Carrier Guaranteed 
Loan';
    (2) All loan documents that will be signed by the lender and the 
borrower, if the application is approved, including all terms and 
conditions of, and security or additional security (if any), to assure 
the borrower's performance under, the loan;
    (3) A certification by the borrower that the borrower meets each of 
the requirements of the program as set forth in the Act, the 
regulations in this part, and any supplemental requirements issued by 
the Board;
    (4) A certification by the lender that the lender meets each of the

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requirements of the program as set forth in the Act, the regulations in 
this part, and any supplemental requirements issued by the Board, and 
that the lender will provide the loan under the terms outlined in the 
loan documents if the Board approves the requested guarantee;
    (5) A statement that the borrower is not under bankruptcy 
protection or receivership when the application is submitted, unless 
the guarantee and the underlying financial obligation is to be part of 
a bankruptcy court-certified reorganization plan;
    (6) Consolidated financial statements of the borrower for the 
previous five years that have been audited by an independent certified 
public accountant, including any associated notes, as well as any 
interim financial statements and associated notes for the current 
fiscal year;
    (7) Copies of the financial evaluations and forecasts concerning 
the air carrier's air service operations that were prepared by or for 
the air carrier within the three months prior to September 11, 2001;
    (8) The borrower's business plan on which the loan is based that 
includes the following:
    (i) A description of how the loan fits within the borrower's 
business plan, the purposes for which the borrower will use the loan, 
and an analysis showing that the loan is prudently incurred. If loan 
funds are to be used to purchase an existing firm (or the substantial 
assets of an existing firm), the business plan of the combined entity 
shall contain a discussion of the way in which any required regulatory 
or judicial approvals will be obtained, including antitrust approval 
for any proposed acquisition;
    (ii) A discussion of a complete cost accounting and a range of 
revenue, operating cost, and credit assumptions;
    (iii) A discussion of the financing plan on which the loan is 
based, showing that the operational needs of the borrower will be met 
during the term of the plan;
    (iv) An analysis demonstrating that, at the time of the 
application, there is a reasonable assurance that the borrower will be 
able to repay the loan according to its terms, and a complete 
description of the operational and financial assumptions on which this 
demonstration is based;
    (v) A discussion of the borrower's five-year history and five-year 
projection for revenue, cash flow, average realized prices, and average 
realized operating costs and a demonstration that the borrower will be 
able to continue operations if the requested guarantee is approved; and
    (vi) If appropriate, a description of a plan to restructure the 
borrower's obligations, contracts, and costs. In preparing this 
description, the borrower shall jointly develop, with its existing 
secured and unsecured creditors, employees, or vendors, an agreed-upon 
plan to restructure the borrower's obligations, contracts and costs and 
incorporate this into the business plan submitted;
    (9) A description of the losses that the borrower incurred (or is 
incurring) as a result of the terrorist attacks on the United States 
that occurred on September 11, 2001, including losses due to the 
unavailability of credit on reasonable terms or a decrease in demand 
for the air carrier's services;
    (10) An analysis that demonstrates that the issuance of the 
guaranteed loan is a necessary part of maintaining a safe, efficient, 
and viable commercial aviation system in the United States and that 
credit is not reasonably available at the time of the transaction;
    (11) A description of all security (if any) for the loan, 
including, as applicable, current appraisals of real and personal 
property, copies of any appropriate environmental site assessments, and 
current personal and corporate financial statements of any guarantors 
for the same period as required for the borrower. Appraisals of real 
property shall be prepared by State licensed or certified appraisers, 
and be consistent with the ``Uniform Standards of Professional 
Appraisal Practice,'' promulgated by the Appraisal Standards Board of 
the Appraisal Foundation. Financial statements of guarantors shall be 
prepared by independent certified public accountants;
    (12) If appropriate, a description of the Federal government's 
ability to participate, contingent on the financial success of the 
borrower, in the gains of the borrower or its security holders through 
the use of such instruments as warrants, stock options, common or 
preferred stock, or other appropriate equity instruments; and
    (13) Any other information requested by the Board.
    (c) The collections of information in this section and elsewhere in 
this part that are subject to the Paperwork Reduction Act (44 U.S.C. 
3501 et seq.) have been approved by OMB and assigned control number 
0348-0059. Under the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.


Sec. 1300.17  Application evaluation.

    (a) Eligibility screening. Applications will be reviewed to 
determine whether the lender and borrower are eligible, the information 
required under Sec. 1300.16(b) is complete, and the proposed loan 
complies with applicable statutes and regulations. The Board may at any 
time reject an application that does not meet these requirements.
    (b) Evaluation criteria. Applications that are determined to be 
eligible pursuant to paragraph (a) of this section shall be subject to 
a substantive review by the Board. In addition to the general standards 
for Board issuance of Federal credit instruments set forth in 
Sec. 1300.10, the Board shall consider the following evaluation 
factors:
    (1) Reasonable assurance that the borrower will be able to repay 
the loan by the date specified in the loan document, which shall be no 
later than seven years from the date on which the first disbursement of 
the loan is made;
    (2) The adequacy of the proposed provisions to protect the Federal 
Government, including sufficiency of any security provided by the 
borrower and the percentage of guarantee requested;
    (3) The ability of the lender to administer the loan in full 
compliance with the requisite standard of care. In making this 
determination, the Board will assess:
    (i) The lender's level of regulatory capital, in the case of 
banking institutions, or net worth, in the case of other institutions;
    (ii) Whether the lender possesses the ability to administer the 
loan, including its experience with loans to air carriers; and
    (iii) Any other matter the Board deems material to its assessment 
of the lender; and
    (4) The ability of the borrower to demonstrate, to the Board's 
satisfaction, one or more of the following criteria. The Board shall 
give preference to applications that satisfy one or more of these 
criteria, giving greater preference to those applications that meet the 
greatest number of these criteria, as follows:
    (i) A demonstration that the air carrier has presented a plan 
demonstrating that its business plan is financially sound;
    (ii) A demonstration of greater participation in the loan by non-
Federal entities;
    (iii) A demonstration of greater participation in the loan by 
private entities, as opposed to public non-Federal entities;
    (iv) A demonstration that the proposed instruments would ensure 
that the Federal Government will, contingent

[[Page 52275]]

on the financial success of the air carrier, participate in the gains 
of the air carrier and its security holders;
    (v) A demonstration of concessions by the air carrier's security 
holders, other creditors, or employees that will improve the financial 
condition of the air carrier in a manner that will enable it to repay 
the loan in accordance with its terms and provide commercial air 
services on a financially sound basis after repayment;
    (vi) A demonstration that guaranteed loan proceeds will be used for 
a purpose other than the payment or refinancing of existing debt;
    (vii) A demonstration that the proposed instruments contain 
financial structures that minimize the Federal government's risk and 
cost associated with making loan guarantees. Examples include, but are 
not limited to, requests for guarantees that contain the following:
    (A) A maturity period that is less than the maximum permitted under 
the rules in this part;
    (B) Pledges of collateral;
    (C) Agreements by the borrower's parent or other entities to 
reimburse the Federal government for any payments that the Federal 
government may make under the guarantee;
    (D) A grant to the Federal government of favorable priority in the 
event of bankruptcy reflecting other creditors' agreement to 
subordinate their debts as a condition of the loan guarantee;
    (E) Limitation of the borrower's issuance of dividends and/or the 
borrower's payments to its parent or subsidiaries or related companies;
    (F) Limitation of the borrower's ability to incur additional debt, 
and/or the borrower's ability to incur capital expenditures, beyond 
that set forth in the business and financial plans that the Borrower 
submitted with the application;
    (G) A demonstration of reasonable liquidity;
    (H) A demonstration of favorable debt ratios; and
    (I) A demonstration that any proceeds raised from private sector 
financing subsequent to disbursement of the federally guaranteed loan 
be used to repay the federally guaranteed loan.
    (c) No guarantee will be made if either the borrower or lender has 
an outstanding delinquent Federal debt, including tax liabilities, 
until:
    (1) The delinquent debt has been paid in full;
    (2) A negotiated repayment schedule is established; or
    (3) Other arrangements, satisfactory to the agency responsible for 
collecting the debt are made.
    (d) Decisions by the Board. The Board shall approve or deny 
applications received on or before June 28, 2002, in a timely manner as 
such applications are received. The Board may limit the amount of a 
loan guarantee made to initial applicants to ensure that sufficient 
funds remain available for subsequent applicants. The Board shall 
notify the borrower in writing of the approval or denial of an 
application. Approvals for loan guarantees shall be conditioned upon 
compliance with Sec. 1300.18.


Sec. 1300.18  Issuance of the guarantee.

    (a) The Board's decisions to approve any application for a 
guarantee under Sec. 1300.17 is conditioned upon:
    (1) The lender and borrower obtaining any required regulatory or 
judicial approvals;
    (2) Evidence showing, to the Board's satisfaction, that the lender 
and borrower are legally authorized to enter into the loan under the 
terms and conditions submitted to the Board in the application;
    (3) The Board's receipt of the loan documents and any related 
instruments, in form and substance satisfactory to the Board, and the 
guarantee, all properly executed by the lender, borrower, and any other 
required party other than the Board; and
    (4) No material adverse change in the borrower's ability to repay 
the loan or any of the representations and warranties made in the 
application between the date of the Board's approval and the date the 
guarantee is to be issued.
    (b) The Board may withdraw its approval of an application and 
rescind its offer of guarantee if the Board determines that the lender 
or the borrower cannot, or is unwilling to, provide adequate 
documentation and proof of compliance with paragraph (a) of this 
section within the time provided for in the offer.
    (c) Only after receipt of all the documentation required by this 
section, will the Board sign and deliver the guarantee.
    (d) A borrower receiving a loan guaranteed by the Board under this 
program shall pay an annual fee, in an amount and payable as determined 
by the Board. At the time that the guarantee is issued, the Board shall 
ensure that this annual fee will escalate for each year that the loan 
is outstanding and that such annual escalation reflects the borrower's 
potential ability to obtain credit in the private credit markets, in 
addition to any other factors the Board may deem appropriate.


Sec. 1300.19  Assignment or transfer of loans.

    Neither the loan documents nor the guarantee of the Board, or any 
interest therein, may be modified, assigned, conveyed, sold or 
otherwise transferred by the lender, in whole or in part, without the 
prior written approval of the Board.


Sec. 1300.20  Lender responsibilities.

    The lender shall have such obligations and duties to the Board as 
are set forth in the guarantee.


Sec. 1300.21  Guarantee.

    The Board shall adopt a form of guarantee to be used by the Board 
under the program. Modifications to the provisions of the form of 
guarantee must be approved and adopted by the Board.


Sec. 1300.22  Termination of obligations.

    The Board shall have such rights to terminate the guarantee as are 
set forth in the guarantee.


Sec. 1300.23  Participation in guaranteed loans.

    (a) Subject to paragraph (b) of this section, a lender may 
distribute the risk of a portion of a loan guaranteed under the program 
by sale of participations therein if:
    (1) Neither the loan note nor the guarantee is assigned, conveyed, 
sold, or transferred in whole or in part;
    (2) The lender remains solely responsible for the administration of 
the loan; and
    (3) The Board's ability to assert any and all defenses available to 
it under the guarantee and the law is not adversely affected.
    (b) The following categories of entities may purchase 
participations in loans guaranteed under the program:
    (1) Eligible lenders;
    (2) Private investment funds and insurance companies that do not 
usually invest in commercial loans;
    (3) Air Carrier company suppliers or customers, who are interested 
in participating as a means of commencing or solidifying the supplier 
or customer relationship with the borrower; or
    (4) Any other entity approved by the Board on a case-by-case basis.

[FR Doc. 01-25648 Filed 10-11-01; 8:45 am]
BILLING CODE 3110-01-P