[Federal Register Volume 68, Number 20 (Thursday, January 30, 2003)]
[Rules and Regulations]
[Pages 4684-4692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2199]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1738

RIN 0572-AB81


Rural Broadband Access Loans and Loan Guarantees

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) is amending its regulations 
in order to establish the Rural Broadband Access Loan and Loan 
Guarantee Program as authorized by the Farm Security and Rural 
Investment Act of 2002 (Pub. L. 101-171) (2002 Act). Section 6103 of 
the Farm Security and Rural Investment Act of 2002 amended the Rural 
Electrification Act of 1936, as amended (RE Act), to add Title VI, 
Rural Broadband Access, to provide loans and loan guarantees to fund 
the cost of construction, improvement, or acquisition of facilities and 
equipment for the provision of broadband service in eligible rural 
communities. This final rule prescribes the types of loans available, 
facilities financed, and eligible applicants, as well as minimum credit 
support requirements to be considered for a loan. In addition, the rule 
prescribes the process through which RUS will consider applicants under 
the priority consideration and the state allocations required in Title 
VI.

EFFECTIVE DATE: This rule is effective January 30, 2003.

FOR FURTHER INFORMATION CONTACT: Roberta D. Purcell, Assistant 
Administrator, Telecommunications Program, Rural Utilities Service, 
U.S. Department of Agriculture, 1400 Independence Avenue, SW., STOP 
1590, Room 4056, Washington, DC 20250-1590. Telephone number (202) 720-
9554, Facsimile (202) 720-0810.

SUPPLEMENTARY INFORMATION:

Notice and Comment

    Section 6103(b) of the 2002 Act requires that the regulations 
necessary to implement the Rural Broadband Access Loan and Loan 
Guarantee Program are to be promulgated without regard to the notice 
and comment provisions of 5 U.S.C. 553 or the Statement of Policy of 
the Secretary of Agriculture, effective July 24, 1971 (36 FR 13804), 
relating to notices of proposed rulemaking and public participation in 
rulemaking. Therefore, these regulations are issued as a final rule.

Executive Order 12866

    This rule has been determined to be significant for purposes of 
Executive Order 12866 and, therefore, has been reviewed by the Office 
of Management and Budget (OMB). In accordance with Executive Order 
12866, an Economic Impact Analysis was completed, outlining the costs 
and benefits of implementing this program in rural America. The 
complete analysis is available from RUS upon request.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. RUS has determined that this rule meets the applicable 
standards provided in section 3 of that Executive Order. In addition, 
all State and local laws and regulations that are in conflict with this 
rule will be preempted. No retroactive effect will be given to the rule 
and, in accordance with section 212(e) of the Department of Agriculture 
Reorganization Act of 1994 (7 U.S.C. 6912(e)), administrative appeal 
procedures must be exhausted before an action against the Department or 
its agencies may be initiated.

Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) is not 
applicable to this rule because the agency is not required by 5 U.S.C. 
553 or any other law to publish a notice of proposed rulemaking for the 
subject matter of this rule. The RUS broadband program provides loans 
to borrowers at interest rates and terms that are more favorable than 
those generally available from the private sector. RUS borrowers, as a 
result of obtaining federal financing, receive economic benefits that 
exceed any direct cost associated with complying with RUS regulations 
and requirements.

Information Collection and Recordkeeping Requirements

    Section 1601(c) of the 2002 Act provides that the promulgation of 
regulations necessary to implement the Rural Broadband Access Loan and 
Loan Guarantee Program shall be made without regard to chapter 5 of 
title 44 of the United States Code (the Paperwork Reduction Act).

Catalog of Federal Domestic Assistance

    The program described by this rule is listed in the Catalog of 
Federal Domestic Assistance Programs under No. 10.851, Rural Telephone 
Loans and Loan Guarantees; No. 10.852, Rural Telephone Bank Loans; and 
No. 10.857, Rural Broadband Access Loans and Loan Guarantees. This 
catalog is available on a subscription basis from the Superintendent of 
Documents, the United States Government Printing Office, Washington, DC 
20402. Telephone: (202) 512-1800.

Executive Order 12372

    This rule is excluded from the scope of Executive Order 12372, 
Intergovernmental Consultation, which may require consultation with 
State and local officials. See the final rule related notice entitled 
``Department Programs and Activities Excluded from Executive Order 
12372,'' (50 FR 47034).

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provision of Title II of the Unfunded Mandate Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandate Reform Act of 1995.

National Environmental Policy Act Certification

    RUS has determined that this rule will not significantly affect the 
quality of the human environment as defined by the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore, 
this action does not require an environmental impact statement or 
assessment.

[[Page 4685]]

Background

    Section 6103 of the 2002 Act amended the RE Act, to add Title VI, 
Rural Broadband Access, to provide loans and loan guarantees to fund 
the costs of construction, improvement, or acquisition of facilities 
and equipment for the provision of broadband service in eligible rural 
communities. Title VI defines eligible communities and entities, and 
sets forth the types of loans, as well as a state allocation system and 
a priority system for consideration of applicants.
    Section 6103(b) of the 2002 Act provides that the regulations for 
this program are exempt from the notice and comment provisions of 
section 553 of title 5, United States Code (Administrative Procedures 
Act). RUS held a public meeting on June 27, 2002, in order to obtain 
background information for consideration in the implementation and 
administration of the Rural Broadband Access program. There were 22 
presenters including lenders, telecommunications and broadband 
providers, trade associations, and capital market specialists. The 
presenter's written comments are available on the RUS Web site at 
http://www.usda.gov/rus/telecom/publicmeeting/public_meeting.htm.
    RUS considered the oral and written comments of the presenters as 
well as the Conference Report accompanying the 2002 Act (Report 107-
424) to formulate the regulations implementing the Rural Broadband 
Access Loan and Loan Guarantee Program.
    Types of loans. The Rural Broadband Access Loan and Loan Guarantee 
Program will offer three types of loans: (1) A direct cost-of-money 
loan, bearing interest at the cost of borrowing to the Department of 
the Treasury for obligations of comparable maturity; (2) a direct 4 
percent loan; and (3) a private lender guaranteed loan.
    Eligible entities can apply for a direct cost-of-money loan or a 
private lender guaranteed loan to provide service in any eligible rural 
community. Four-percent direct loans will be available only to provide 
service in the most rural, economically-challenged communities which 
currently do not have broadband service to residents.
    Four-percent direct loans will be available to eligible entities 
proposing to provide service in communities with no residential 
broadband service, population of 2,500 or less, and certain density and 
income requirements. The density requirement is a maximum number of 
persons per square mile of the applicant's defined service area. The 
income requirement is the average per capita income in the county 
containing the applicant's service area as a percent of the national 
average per capita income. This requirement will be set at a maximum 
number. The income and density requirements are subject to review and 
adjustment on an annual basis and will be published in the Federal 
Register at the beginning of each fiscal year.
    All the requirements for a 4-percent loan are in place to encourage 
build out of broadband facilities to the very poor, rural parts of the 
country. RUS feels that offering a fixed low interest rate program for 
these areas helps offset the high cost of serving remote areas which 
require more telecommunications plant per subscriber than the more 
densely populated communities.
    Credit support requirement. At the public hearing on June 27, RUS 
heard comments from lenders and equity capital specialists on financing 
broadband infrastructure projects. In all cases, the lender or investor 
would require the borrower to contribute support to the project, from 
35 to 100 percent of the cost of the project. This reflects the risk 
that lenders and investors perceive to exist in these projects. The 
contributions can be in the form of assets, cash, or guarantees from 
parent companies.
    RUS believes that prudent lending practice, especially in the 
current telecommunications environment, dictates a credit support 
requirement as well. RUS also considered what form of support would be 
appropriate.
    RUS set the requirement at a lower percent than other 
telecommunications lenders, 20 percent of the requested loan amount. 
This lower requirement is enhanced by the requirement that certain 
applicants have, at the time of application, sufficient cash on hand to 
support operations for one year. This amount can be part of the minimum 
20 percent requirement, or if the cash required for one year of 
operating expenses is in excess of 20 percent of the loan, that cash 
requirement will be the minimum requirement. RUS set this requirement 
for start-up broadband operations to assure that they have cash on hand 
to cover operations until revenues generate sufficient cash flows to 
pay expenses as they become due.
    RUS recognizes that the expenses of an ongoing telecommunications 
company can be covered through a regular stream of revenues, and 
therefore the need to have a large amount of cash on hand is 
unnecessary and imprudent. This requirement may deter operating 
telecommunications companies with a viable business plan from applying 
for funds to upgrade facilities for broadband, perhaps denying a rural 
community of broadband service. Therefore, RUS will waive the minimum 
cash requirement for an ongoing company that can show positive cash 
flow for the two calendar years immediately preceding the date of the 
application.
    Priority Consideration. Title VI directs RUS to give priority to 
eligible rural communities in which broadband service is not available. 
In addition, following Congressional guidance in the Conference Report 
accompanying the 2002 Act (H.R. Rpt. 107-424, 107th Cong. 2nd Sess., 
579), RUS will evaluate for expedited approval, any completed 
application which meets the priority criteria and to evaluate the 
priority classification of applications on hand at least once every 
three months.
    In addition, pursuant to Title VI, RUS will set up a State reserve 
in which, for the first 6 months of each fiscal year, the available 
funding for the fiscal year is allocated among the States, territories, 
and insular possessions based on the number of communities with 
populations of 2,500 or less in each State, territory, and insular 
possession in relation to the total number of such communities in the 
United States, its territories, and insular possessions.
    At the same time, RUS did not want completed, feasible applications 
which did not meet the priority consideration to go unfunded until the 
end of the fiscal year. Consequently, RUS came up with a priority 
system which allows for the funding of completed, feasible applications 
in a timely manner so long as funding is available in the applicant's 
state reserve or, after April 1 of the fiscal year, the national 
reserve.
    RUS will expedite for consideration for funding, applications 
proposing to provide service where none is physically available on a 
first-in, first-out basis. RUS will also give a lesser priority to 
those areas currently receiving service but (1) at rates that are not 
comparable to those in neighboring urban and suburban areas or (2) of 
quality that is considered unsatisfactory due to, among other criteria, 
data rate restrictions, system latency, or unreliable connections.
    One-time priority for pilot program applicants. Language in the 
Conference Report accompanying the 2002 Act (H.R. Rpt. 107-424, 107th 
Cong. 2nd Sess., 579), specifically states, ``The Managers expect the 
RUS to evaluate the priority status of all pending broadband 
applications as soon as practicable after the date of enactment. Any 
completed application which meets the priority criteria should be 
evaluated for expedited approval.''

[[Page 4686]]

    The pending, unfunded applications received under the broadband 
pilot program were returned to the applicants as required in the 
Federal Register at 67 FR 3140. Therefore, RUS has given these 
applicants a 30-day window to reapply under the requirements of this 
section. Applications which are submitted and determined to be complete 
within 30 days of publication of this section will be given priority 
for funding over new applicants under this program. Only completed 
applications which are technically and economically feasible will be 
considered for funding.
    Availability of broadband service. As state above, Title VI directs 
RUS to give priority to eligible rural communities in which broadband 
service is not available. RUS took into consideration its long history 
in the telecommunications program in setting forth the criteria for 
determining the availability of broadband service and decided to 
consider not only whether broadband was physically available but also 
the quality of any existing broadband service in a community in 
granting priority status for funding.
    RUS will first consider applications proposing to provide service 
where none is physically available, the ``unserved'' communities.
    Second, RUS will consider applications proposing to provide service 
where rates are not comparable to similar service in urban and suburban 
areas, or quality of service is not satisfactory, the ``underserved'' 
communities.
    In determining whether broadband service is available, RUS requires 
the applicant to publish a legal notice stating its intent to provide 
service in a community and requesting any incumbent provider to submit 
certain information to RUS including service territory, cost of 
service, rates of data transmission. RUS understands that this may be 
Confidential Business Information and will protect the confidentiality 
of the information.
    Acquisitions. Title VI permits the use of loan funds for the 
acquisition of facilities and equipment for the provision of broadband 
facilities. However, RUS believes the primary intent of the legislation 
is to provide funding for broadband deployment in rural communities 
where residential service is not available. RUS will fund the 
acquisition of eligible facilities and equipment only if the applicant 
demonstrates it is necessary and incidental to furnishing or improving 
rural broadband service and the acquisition is less than 50 percent of 
the loan amount requested.
    Refinancing. Title VI permits RUS to refinance existing RUS 
telecommunications debt if the use of the proceeds will further the 
construction, improvement, or acquisition of facilities and equipment 
for broadband service. RUS will limit the funds lent for refinancing to 
40 percent of the total loan amount.
    Competition with Existing RUS Telecommunications Borrowers. RUS 
believes that loan security for an existing telecommunications borrower 
may be at risk should RUS fund a competing service which could also 
offer traditional telephone service in addition to broadband service. 
However, residents in RUS telecommunications borrower service areas 
should not be denied the opportunity to subscribe to broadband service 
if the incumbent is not willing to provide the service. RUS will give 
existing telecommunication borrowers a two-year window in which RUS 
would not consider applications proposing to offer broadband service in 
an existing RUS telecommunications borrower's service area if the 
existing borrower, not later than 90 days after RUS receipt of an 
application proposing to provide broadband service in the borrower's 
local exchange service territory, submits to RUS a letter of intent to 
provide or begin to construct residential broadband service in its 
local exchange service territory within two years.
    The incumbent RUS telecommunications borrower must provide, prior 
to October 1, 2004, support of its intent through submitting either a 
loan application to construct broadband facilities to RUS or another 
lender or proof that construction of broadband facilities has begun. 
Should the existing telecommunications borrower construct or begin to 
construct broadband facilities during the two-year window, RUS will not 
consider any applications proposing to provide competitive broadband 
service in that incumbent borrower's territory. RUS will monitor the 
incumbent's compliance with the letter of intent through onsite 
inspections or any other means necessary. If the borrower is not making 
satisfactory progress in providing broadband service in its local 
exchange service territory, RUS will consider applications proposing to 
provide broadband service in their territory.
    This same principle will hold for borrowers under the Rural 
Broadband Access Loan and Loan Guarantee Program. In order to protect 
loan security, RUS will not fund applications proposing to construct 
broadband facilities in communities served by borrowers using funds 
under this part regardless of the definition used for broadband service 
at the time of loan approval.
    Rate-of-data transmission criteria for defining broadband service. 
Title VI states that the Secretary shall review and recommend 
modifications of rate-of-data transmission criteria for purposes of the 
identification of broadband service technologies. Given the rate of 
change in technology RUS feels that the rate-of-data transmission 
criteria may need to be changed within the 6-year time frame of the 
broadband loan program. Therefore, RUS will publish the criteria in the 
Federal Register at the beginning of each fiscal year. The newly 
published rate will be the minimum for all new applicants in that 
fiscal year. Unfunded, complete applications from the previous fiscal 
year will not be required to meet the new rate-of-data transmission 
criteria. Those applications will be evaluated for approval on the 
basis of the criteria in place as of the date of completion.
    Conference language also suggests that RUS continue the use of the 
FCC definition of broadband service, as was used in the pilot program, 
in order to ``* * * continue the current high standard used by RUS in 
determining what broadband service is.'' In the broadband pilot 
program, RUS used the FCC standard for ``advanced telecommunications 
capability'' as the rate-of-data transmission criteria for broadband. 
As of the date of publication of this regulation, the FCC uses the term 
``advanced telecommunications capability'' to describe services and 
facilities with an upstream (customer-to-provider) and downstream 
(provider-to-customer) transmission speed exceeding 200 kilobits per 
second. RUS will continue to use this current standard for the rate-of-
data transmission criteria unless the FCC changes the rate used in 
``advanced telecommunications capability''. If FCC changes the rate, 
RUS will revisit its definition of broadband. RUS recognizes the value 
of coordinating with other agencies in determining rate-of-data 
transmission criteria for the purpose of determining broadband, and 
will continue to do so.
    Notice of application deadline. At the beginning of each fiscal 
year, RUS will publish in the Federal Register a Notice of Application 
Deadline. The notice will cover those items in the regulation which are 
subject to annual review and change, including loan levels in each type 
of loan, rate-of-data transmission criteria, density and income 
requirements for 4-percent direct loans, and the dollar amounts 
available in each State under the allocation.

[[Page 4687]]

List of Subjects in 7 CFR Part 1738

    Broadband, Loan programs-communications, Rural areas, Telephone, 
Telecommunications.

    For reasons set out in the preamble, RUS amends chapter XVII of 
title 7 of the Code of Federal Regulations by adding a new part 1738 to 
read as follows:

PART 1738--RURAL BROADBAND ACCESS LOANS AND LOAN GUARANTEES

Subpart A--General
Sec.
1738.1 General statement.
1738.2 Definitions.
1738.3--1738.9 [Reserved]
Subpart B--Loan Purposes and Basic Policies
1738.10 General.
1738.11 Availability of broadband service.
1738.12 Location of facilities.
1738.13 Allocation of funds.
1738.14 One-time priority for unfunded applications from the 
broadband pilot program
1738.15 Priorities.
1738.16 Eligible entities.
1738.17 Civil rights.
1738.18 Minimum and maximum loan amount.
1738.19 Facilities financed.
1738.20 Equity requirement.
1738.21 Interim financing.
1738.22 Loan security.
1738.23--1738.29 [Reserved].
Subpart C--Types of Loans
1738.30 Rural broadband access loans and loan guarantees.
1738.31 Full faith and credit.
1738.32--1738.39 [Reserved]
Subpart D--Terms of Loans
1738.40 General.
1738.41 Payments on loans.
1738.42--1738.49 [Reserved]

    Authority: Pub. L. 107-171, 7 U.S.C. 901 et seq.

Subpart A--General


Sec.  1738.1  General statement.

    (a) This part sets forth the general policies, types of loans and 
loan guarantees, and program requirements under the Rural Broadband 
Access Loan and Loan Guarantee Program to provide funds for the costs 
of the construction, improvement, and acquisition of facilities and 
equipment for broadband service in eligible rural communities.
    (b) Additional information regarding the Rural Broadband Access 
Loan and Loan Guarantee Program can be found in RUS Bulletin 1738-1, 
``Rural Broadband Access Loan and Loan Guarantee Application Guide'' 
and RUS Bulletin 1738-2, ``Rural Broadband Access Loan and Loan 
Guarantee Advance and Construction Procedures Guide''.
    (c) When reference is made in this part to existing RUS 
regulations, an applicant or borrower under this part will follow the 
requirements applicable to an RUS telecommunications borrower.


Sec.  1738.2  Definitions.

    As used in this part:
    Acquisition means the purchase of operating broadband facilities or 
another broadband system whether by acquiring broadband facilities or 
equipment, or majority stock interest of one or more organizations.
    Administrator means the Administrator of the Rural Utilities 
Service, or his or her designee.
    Affiliate means an organization that directly, or indirectly 
through one or more intermediaries, controls or is controlled by, or is 
under common control with, the applicant.
    Applicant means an eligible entity requesting approval of a loan or 
loan guarantee under this part.
    Borrower means any organization that has an outstanding loan made 
or guaranteed by RUS.
    Broadband pilot program means that program implemented through 
Notices of Funds Availability, published in the Federal Register at 65 
FR 75920 and at 67 FR 3140.
    Broadband service means any technology identified by the 
Administrator as having the capacity to transmit data to enable a 
subscriber to the service to originate and receive high-quality voice, 
data, graphics, and video. To qualify as broadband, the project must 
offer data transmission services, and may provide voice, graphics, 
video, and other services. At the beginning of each fiscal year, RUS 
will publish a notice in the Federal Register defining the minimum 
rate-of-data transmission criteria to qualify as broadband service 
during that fiscal year's funding period.
    Composite economic life means the weighted (by dollar amount of 
each class of facility in the loan) average economic life of all 
classes of facilities in the loan.
    Economic life means the estimated useful service life of an asset 
as determined by RUS.
    Eligible rural community means any incorporated or unincorporated 
place in the United States, its territories and insular possessions 
(including any area within the Federated States of Micronesia, the 
Republic of the Marshall Islands, and the Republic of Palau) that:
    (1) Has no more than 20,000 inhabitants based on the most recent 
available population statistics of the Bureau of the Census and
    (2) Is not located in an area designated as a standard metropolitan 
statistical area. For purposes of this part, ``place'' may include any 
area located outside the boundaries of any incorporated or 
unincorporated city, village or borough having a population exceeding 
20,000 that is not within an area designated as a standard metropolitan 
statistical area.
    Feasibility study means the pro forma financial analysis prepared 
by the applicant, and acceptable to RUS, to determine the economic 
feasibility of a loan.
    Fiscal year means the fiscal year of the federal government.
    Forecast period means the time period beginning on the date (base 
date) of the applicant's balance sheet used in preparing the 
feasibility study and ending on a date equal to the base date plus the 
number of years estimated in the feasibility study for completion of 
the construction covered by the loan. Feasibility projections are 
usually for 5 years.
    Initial loan means the first loan made under section 601 of the RE 
Act to each eligible entity.
    Interim construction means the construction, improvement, or 
acquisition of facilities and equipment prior to loan approval and 
release of funds.
    Interim financing means funding for a project that RUS has 
acknowledged could be included in a loan prior to approving the loan.
    Loan means any loan made or guaranteed under this part by RUS, 
unless otherwise noted.
    Loan contract means the loan agreement between RUS and the 
borrower, including all amendments thereto.
    Loan documents means the loan contract, note, and security 
instrument between the borrower and RUS and any associated document 
pertaining to a loan.
    Loan funds means funds provided pursuant to a loan made or 
guaranteed under this part by RUS.
    Mortgage means the security document between the borrower, as 
debtor, and RUS, as creditor, including any amendments and supplements 
thereto.
    Private loan guarantee means a loan made by a non-Federal lender 
and guaranteed by RUS.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Release of funds means a determination by RUS that an applicant has 
complied with all of the conditions

[[Page 4688]]

prerequisite to the advance of funds as set forth in the loan contract.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, and successor to the Rural 
Electrification Administration.
    RUS telecommunications borrower means any organization that has an 
outstanding telecommunications loan made or guaranteed by RUS under 
Titles II, III, or IV of the RE Act.
    Service area means the geographical area within which the applicant 
proposes to make broadband service available with a loan provided under 
this part.
    Telecommunications means the transmission and reception of voice, 
data, sounds, signals, pictures, writings, or signs of all kinds, by 
wire, fiber, radio, light, or other visual or electromagnetic means.
    TIER means Times Interest Earned Ratio. TIER is the ratio of an 
applicant's net income (after taxes) plus interest expense, all divided 
by interest expense. For the purpose of this calculation, all amounts 
will be annual figures and interest expense will include only interest 
on debt with a maturity greater than one year.


Sec. Sec.  1738.3-1738.9  [Reserved]

Subpart B--Loan Purposes and Basic Policies


Sec.  1738.10  General.

    (a) The purpose of the Rural Broadband Access Loan and Loan 
Guarantee Program is to provide loans to provide funds, on a technology 
neutral basis, for the costs of construction, improvement, and 
acquisition of facilities and equipment for broadband service in 
eligible rural communities.
    (b) The proceeds of any loan made under this part may be used to 
refinance an outstanding obligation on another telecommunications loan 
made under the RE Act if the use of the proceeds will further the 
construction, improvement, or acquisition of facilities in eligible 
rural communities.
    (1) Funds used for refinancing may not constitute more than 40 
percent of the loan. The remainder of the proceeds shall only be used 
for the construction or improvement of facilities and equipment for 
broadband services.
    (2) In calculating the expected composite economic life under Sec.  
1738.41 of this part, the economic life of any loan refinanced under 
this section will be based on the remaining economic life of the assets 
underlying that loan.
    (c) RUS will not assess fees or charges for any loan made under 
this part.
    (d) Loans will only be made under this part if the applicant's 
financial operations, taking into account the impact of the facilities 
financed with the proceeds of the loan and the associated debt, are 
economically feasible, as determined by RUS.


Sec.  1738.11  Availability of broadband service.

    (a) As provided in Sec.  1738.15 of this part, priority will be 
given to loans to finance service to eligible rural communities in 
which broadband service is not available to residential customers in 
the applicant's proposed service area.
    (b) RUS shall consider the following criteria in determining 
whether broadband service is not available to residential customers:
    (1) Broadband service is not being provided to residential 
customers in the applicant's proposed service area and no entity is 
committed to provide such service before the service would reasonably 
be expected to be available pursuant to the loan application;
    (2) Broadband service is not provided at rates comparable to those 
of similar services in neighboring urban and suburban areas, as 
determined by RUS; and
    (3) The quality of existing service, including, but not limited to, 
the availability of specified data rates, system latency, and data rate 
restrictions, is not satisfactory as determined by RUS.
    (c) All applicants, as part of submitting a completed application, 
shall:
    (1) Certify to RUS the extent to which paragraphs (b)(1) through 
(b)(3) of this section, apply to residential customers in the proposed 
service area, and
    (2) Publish legal notice stating the applicant's intent to offer 
broadband service in a particular community.
    (i) The notice must set forth the applicant's proposed service 
area, and request any incumbent broadband service provider to submit to 
RUS within 30 days:
    (A) The number of residential customers receiving broadband service 
in the applicant's proposed service area, the rates of data 
transmission, and the cost of each level of service, or proof of 
commitment to provide service in the proposed service area, and
    (B) A map of its service territory.
    (ii) The notice must satisfy all other requirements to constitute 
legal notice within the areas proposed to be served.
    (iii) The notice must be published in state and local newspapers 
covering the applicant's proposed service area if such publication is 
not included in the legal notice requirement.


Sec.  1738.12  Location of facilities.

    RUS will make broadband loans for facilities which RUS determines 
are necessary to serve subscribers located in eligible rural 
communities. RUS may determine that it is necessary for facilities 
financed with loan funds to be located outside of eligible rural 
communities.


Sec.  1738.13  Allocation of funds.

    (a) On October 1, of each fiscal year, or as soon as possible after 
funds become available, RUS will:
    (1) Establish a national reserve for broadband loans, and
    (2) Allocate amounts in the reserve to each State, territory, and 
insular possession, based on the ratio of the number of communities 
with a population of 2,500 inhabitants or less in the state, territory, 
and insular possession to the number of communities with a population 
of 2,500 inhabitants or less in all states, territories, and insular 
possessions. Population will be based upon the Bureau of the Census' 
latest decennial census.
    (b) To be considered eligible for funding from the State reserve 
during the fiscal year, an application, determined by RUS to be 
complete, must be postmarked no later than January 31 of the fiscal 
year.
    (c) On April 1 of each fiscal year, RUS will return all unobligated 
amounts in each state's reserve to the national reserve and will make 
the national reserve available to eligible entities in any state.
    (d) To be considered eligible for funding from the national reserve 
during the current fiscal year, a completed application, satisfactory 
to RUS, must be postmarked no later than July 31 of the fiscal year.
    (e) Completed applications that are economically and technically 
feasible, as determined by RUS, will be considered for funding in 
accordance with the priority requirements set forth in Sec.  1738.15 of 
this part.


Sec.  1738.14  One-time priority for unfunded applications from the 
broadband pilot program.

    (a) Each application that was submitted and remains unfunded from 
the broadband pilot program will be given a one-time priority for 
funding for a loan under this part.
    (b) Each applicant will be given 30 days from the date of 
publication of this part in the Federal Register to resubmit

[[Page 4689]]

a completed application in accordance with the provisions of this part.
    (c) Completed applications submitted within the 30-day time-frame 
will be considered for financing:
    (1) First, where broadband service is not available to residential 
customers, as set forth in Sec.  1738.11 of this part.
    (i) Completed applications will be funded on a first-in, first-out 
basis, as long as funds remain available in the applicable state's 
reserve.
    (ii) When the state reserve is not adequate to fund the next 
completed application on a first-in, first-out basis, RUS will consider 
subsequent completed applications for that state for funding on a 
first-in, first-out basis. All unfunded, completed applications will be 
carried forward for consideration for funding from the national 
reserve.
    (2) Second, where broadband service is available to residential 
customers:
    (i) On January 1, 2003, after all new applications submitted under 
this part proposing to provide service where none is available have 
been considered under Sec.  1738.15(b) of this part, all completed 
applications will be considered for funding on a first-in, first-out 
basis, as long as funds remain available in the applicable state's 
reserve.
    (ii) When the state reserve is not adequate to fund the next 
completed application on a first-in, first-out basis, RUS will consider 
subsequent completed applications for that state for funding on a 
first-in, first-out basis. All unfunded, completed applications will be 
carried forward for consideration for funding from the national 
reserve.


Sec.  1738.15  Priorities.

    Subject to the one-time priority set forth in Sec.  1738.14 of this 
part, in making loans under this part, priority will be given to 
eligible entities submitting completed applications for the 
construction, improvement, or acquisition of facilities and equipment 
for broadband service in eligible rural communities as follows:
    (a) As of October 1 of the fiscal year, completed applications 
remaining unfunded from the previous fiscal year where broadband 
service is not available to residential customers, as set forth in 
Sec.  1738.11(b)(1) of this part, will be considered for funding on a 
first-in, first-out basis, as long as funds remain available in the 
applicable state's reserve. When the state reserve is not adequate to 
fund the next completed application on a first-in, first-out basis, RUS 
will consider subsequent completed applications for that state for 
funding on a first-in, first-out basis. All unfunded, completed 
applications will be carried forward for consideration for funding from 
the national reserve.
    (b) New completed applications proposing to provide service where 
none is available to residential customers, as set forth in Sec.  
1738.11 of this part, will be considered for funding, from the state 
reserve prior to April 1 and the national reserve after April 1, on a 
first-in, first-out basis, as long as funds remain available. As 
applications are processed using the first-in, first-out process, RUS 
may expedite for consideration for funding applications proposing to 
provide service where none is available, as set forth in Sec.  
1738.11(b)(1). When funds are not adequate to fund the next completed 
application on a first-in, first-out basis, RUS will consider 
subsequent completed applications for funding on a first-in, first-out 
basis.
    (c) On January 1, March 30, April 1, July 1 and September 30 of the 
fiscal year, all unfunded, completed applications on hand will be 
prioritized and considered for funding, from the state reserve prior to 
April 1 and the national reserve after April 1, as follows:
    (1) First, where broadband service is not available to residential 
customers, as set forth in Sec.  1738.11(b)(1) of this part, on a 
first-in, first-out basis, as long as funds remain available.
    (2) Second, where broadband service is not available to residential 
customers, as set forth in Sec.  1738.11(b)(2) and (3) of this part, on 
a first-in, first-out basis, as long as funds remain available.
    (3) Third, where broadband service is available to residential 
customers, on a first-in, first-out basis, so long as funds remain 
available.


Sec.  1738.16  Eligible entities.

    (a) RUS makes broadband loans to legally organized entities 
providing, or proposing to provide, broadband services in eligible 
rural communities.
    (1) Types of eligible entities include cooperative, nonprofit, 
limited dividend or mutual associations, limited liability companies, 
commercial organizations and Indian tribes and tribal organizations as 
defined in 25 U.S.C. 450b (b) and (c). Individuals or partnerships of 
individuals are not eligible entities.
    (2) An entity is not eligible if it serves more than 2 percent of 
the telephone subscriber lines installed in the United States.
    (3) To be eligible, an entity must have sufficient authority to 
enter into a contract with RUS and to carry out the purposes of the 
proposed loan.
    (b) A State or local government, including any agency, subdivision, 
or instrumentality thereof (including consortia thereof) shall be 
eligible for a broadband loan only if, not later than April 30, 2003, 
no other eligible entity is already offering or has committed to offer 
broadband services to the eligible rural community. RUS will determine 
whether the commitment is sufficient for purposes of this paragraph.


Sec.  1738.17  Civil rights.

    Applicants are required to comply with certain regulations on 
nondiscrimination and equal employment opportunity. See RUS Bulletin 
1790-1, ``Nondiscrimination Among Beneficiaries of RUS Programs'' and 
RUS Bulletin 20-15:320-15, ``Equal Employment Opportunity in 
Construction Financed with RUS Loans''; 7 CFR parts 15 and 15b and 45 
CFR part 90.


Sec.  1738.18  Minimum and maximum loan amount.

    Recognizing plant costs, the applicant's cost of system design, and 
RUS' administrative costs, RUS will not consider applications for loans 
or loan guarantees of less than $100,000. Maximum loan amounts apply 
only to an applicant for a direct 4-percent broadband loan, as provided 
for in Sec.  1738.30(b)(2) of this part.


Sec.  1738.19  Facilities financed.

    (a) RUS makes broadband loans to finance the construction, 
improvement, and acquisition of facilities and equipment to provide 
broadband service in eligible rural communities.
    (b) RUS makes broadband loans to finance broadband facilities 
leased under the terms of a capital lease as defined in generally 
accepted accounting principles. RUS will not make a broadband loan to 
finance facilities leased under the terms of an operating lease as 
defined in generally accepted accounting principles.
    (c) RUS makes broadband loans to finance an acquisition by an 
eligible entity only when the acquisition is necessary and incidental 
to furnishing or improving rural broadband service.
    (d) RUS will not approve the use of broadband loans to acquire any 
stock or any facilities or equipment of an affiliate of the applicant.
    (e) RUS will not make a broadband loan to finance the following 
items:
    (1) Customer terminal equipment (including modems) not owned by the 
applicant during its economic life and any associated inside wiring;
    (2) Vehicles not used primarily in construction; and
    (3) Operating expenses.
    (f) RUS will not make a broadband loan to finance systems or 
facilities that

[[Page 4690]]

have not been designed and constructed to RUS' satisfaction. See RUS' 
Bulletins 1738-1 and 1738-2.
    (g) Prior to October 1, 2004, RUS will not make a broadband loan 
under this part to provide broadband service in an area receiving local 
exchange telephone service from an RUS telecommunications borrower to 
any entity other than the incumbent RUS telecommunications borrower if, 
not later than 90 days after RUS receives an application proposing to 
provide broadband service in the borrower's local exchange service 
territory, the incumbent RUS telecommunications borrower submits to RUS 
a letter of intent to provide or begin to construct residential 
broadband service in its local exchange service territory prior to 
October 1, 2004. The incumbent RUS telecommunications borrower must 
provide, prior to October 1, 2004, support of their intent to provide 
broadband service through submitting either a loan application to 
construct broadband facilities or proof that construction of broadband 
facilities has begun. Thereafter, unless the RUS telecommunications 
borrower has constructed or begun to construct broadband facilities in 
its service area, RUS will consider an application for a loan under 
this part to provide the broadband service in an area served by an RUS 
telecommunications borrower according to the criteria for determining 
broadband availability in Sec.  1738.11(b) of this part.
    (h) RUS will not approve loans to more than one applicant to 
provide broadband service within the same eligible rural community, nor 
to an applicant proposing to provide service in a community served by a 
borrower using funds under this part regardless of the definition of 
broadband service at the time of loan approval.
    (i) If an unadvanced loan, or a portion thereof, is rescinded, a 
new loan shall not be made to the same applicant for the same purposes 
as in the rescinded loan.


Sec.  1738.20  Credit support requirement.

    (a) To be eligible for a loan, RUS will require an applicant to 
provide credit support in an amount equal to 20 percent of the 
requested loan amount.
    (b) The applicant must have, as part of the minimum 20 percent 
requirement, cash or, in the case of State and local governments, cash 
equivalents in an amount equal to operating expenses for the first full 
year of providing service, as determined by a feasibility study 
satisfactory to RUS. This cash requirement will be waived for 
applicants operating as telecommunications companies which have 
positive cash flow for the two calendar years immediately preceding the 
date of application.
    (c) The remainder of the minimum requirement can be met by 
undepreciated assets which would normally be financed as part of a loan 
under this part, additional cash or cash equivalents, licenses, or an 
unconditional letter of credit, or the equivalent, satisfactory to RUS.
    (d) For purposes of this section, assets and licenses will be 
valued based on the lower of cost or market value, net of liens or 
other obligations of payments for those assets and licenses.


Sec.  1738.21  Interim financing.

    (a) Upon notification by RUS that an applicant's application is 
considered complete, the applicant may enter into an interim financing 
agreement with a lender other than RUS or use its own internally 
generated funds for interim construction.
    (b) For an applicant to preserve the option of obtaining loan funds 
for reimbursement of interim financing, the following procedures must 
be followed:
    (1) Interim construction shall be conducted in accordance with RUS 
Bulletin 1738-2 and 7 CFR part 1788, except that the applicant shall 
not begin interim construction until all necessary licenses, permits, 
and other governmental approvals have been obtained;
    (2) Equal employment opportunity requirements apply to interim 
construction. See RUS Bulletin 20-15: 320-15; and
    (3) Interim construction shall be covered by an Environmental 
Report prepared in accordance with 7 CFR part 1794 and approved by RUS.
    (c) RUS approval of interim financing is not a commitment that RUS 
will make loan funds available.


Sec.  1738.22  Loan security.

    (a) RUS makes loans only if, in the judgment of the Administrator, 
the security therefore is reasonably adequate and the loan will be 
repaid within the time agreed.
    (b) RUS generally requires that an applicant provide RUS with a 
first lien, in form and substance satisfactory to RUS, on all of the 
applicant's property and such additional security as RUS may require. 
If necessary, RUS will share in the first lien with another lender 
provided the RUS loan is adequately secured and will be repaid within 
the time agreed.
    (c) Unless otherwise approved by RUS, the applicant shall purchase 
and own the collateral for the loan free from liens or security 
interests, other than those securing the RUS loan.
    (d) In the case of loans that include the financing of broadband 
facilities that do not constitute self-contained operating systems or 
units, the applicant shall, in addition to the mortgage lien on all of 
the applicant's facilities financed by RUS, furnish adequate assurance, 
in the form of contractual or other arrangements, satisfactory to RUS, 
that continuous and efficient broadband service will be rendered.
    (e) Beginning with the first calendar year following the end of the 
forecast period, RUS will require the recipient of a broadband loan to 
maintain, at a minimum, a TIER at least equal to the projected TIER 
determined by the feasibility study prepared in connection with the 
loan, but at least 1.25 and not greater than 2.0.
    (f) Additional financial, investment, operational, and managerial 
controls appear in the loan documents required by RUS.


Sec. Sec.  1738.23--1738.29  [Reserved]

Subpart C--Types of Loans


Sec.  1738.30  Rural broadband access loans and loan guarantees.

    (a) Direct cost-of-money broadband loans shall bear interest at a 
rate (the ``Cost of Money Interest Rate'') equal to the cost of 
borrowing to the Department of Treasury for obligations of comparable 
maturity. The Cost of Money Interest Rate will be provided by RUS when 
the funds are advanced to the borrower.
    (b) Direct 4 percent broadband loan.
    (1) To be eligible for a direct loan bearing an interest rate of 4 
percent, the applicant must be proposing to serve:
    (i) A community that:
    (A) Has a population of less than 2,500 inhabitants;
    (B) Is not currently receiving broadband service as set forth in 
Sec.  1738.11(b)(1) of this part, and
    (C) Is located in a county with per capita personal income that is 
less than or equal to that percent of the national average per capita 
personal income which RUS will publish in the Federal Register at the 
beginning of each fiscal year. County per capita personal income as a 
percent of the national average per capita personal income is published 
by the Bureau of Economic Analysis, U.S. Department of Commerce, at 
http://www.bea.doc.gov/bea/regional/reis/. RUS will use the most recent 
statistics published on October 1 of the fiscal year in which the 
application is deemed complete by RUS; and
    (ii) A service area with a certain maximum population density,

[[Page 4691]]

calculated as the total number of persons in the service area divided 
by the square miles of the service area. The maximum population density 
requirement will be published by RUS in the Federal Register at the 
beginning of each fiscal year.
    (2) The total amount of financing made available by RUS, in each 
fiscal year, for direct loans bearing an interest rate of 4 percent and 
the maximum of any one loan will be published by RUS in the Federal 
Register at the beginning of each fiscal year.
    (3) When an approved application exceeds the maximum amount of 4 
percent financing that may be made available to the borrower, a direct 
loan made at 4 percent may be made simultaneously with a ``Cost-of-
Money Interest Rate'' loan.
    (4) A 4 percent direct loan may be made simultaneously with a Cost-
of-Money Interest Rate loan or a private loan guarantee.
    (c) Private loan guarantees. A private loan guarantee shall bear 
interest at a rate set by the lender consistent with the current 
applicable market rate for a loan of comparable maturity.
    (1) A private loan guarantee is available to any legally organized 
lending agency which includes commercial banks, trust companies, 
mortgage banking firms, insurance companies, and any other 
institutional investor authorized by law to loan money, hereafter 
referred to as ``lender''. At the time of application, applicants must 
provide RUS the name of the lender who will be providing the funding 
and a commitment from that lender to provide the funds.
    (i) The lender shall be subject to credit examination and 
supervision by a Federal or state agency unless RUS determines that 
alternative examination and supervisory mechanisms are adequate.
    (ii) The lender shall demonstrate to RUS the capability to 
adequately service guaranteed loans. The lender shall also be in good 
standing with its licensing authority and meet the loan making, loan 
servicing, and other requirements of the jurisdiction in which the 
lender makes loans guaranteed under this part.
    (2) The lender selected by the borrower shall provide evidence 
satisfactory to RUS of its qualification under this part, along with 
the name of the authority that supervises such lender.
    (3) The lender may establish charges and fees for the loan provided 
they are not greater than those normally charged other applicants for 
the same type of loan in the ordinary course of business. RUS will not 
guarantee any portion of the loan used to pay lender charges and fees.
    (4) Loans are guaranteed for no more than 80 percent of the amount 
of principal except for those purposes in Sec.  1738.30(c)(3) of this 
part for which RUS will not provide a guarantee. RUS' guarantee is 
limited to the loan repayment obligation of the borrower and does not 
extend to guaranteeing that a lender will remit to a holder loan 
payments made by the borrower.
    (5) The interest rate must be fixed and must be the same for the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount 
or the respective Guaranteed-Amount Equivalent, as the case may be, and 
Unguaranteed Loan Amount or the respective Unguaranteed Loan Portion 
Amount or the respective Unguaranteed-Amount Equivalent, as the case 
may be.
    (6) The entire loan will be secured by the same security with equal 
lien priority for the Guaranteed Loan Amount or the respective 
Guaranteed Loan Portion Amount or the respective Guaranteed-Amount 
Equivalent, as the case may be, and Unguaranteed Loan Amount or the 
respective Unguaranteed Loan Portion Amount or the respective 
Unguaranteed-Amount Equivalent, as the case may be. The Unguaranteed 
Loan Amount or the respective Unguaranteed Loan Portion Amount or the 
respective Unguaranteed-Amount Equivalent, as the case may be, will 
neither be paid first nor given any preference or priority over the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount 
or the respective Guaranteed-Amount Equivalent, as the case may be.
    (7) All loan documents, including, but not limited to, a loan 
guarantee agreement between RUS and the lender, the loan note 
guarantee, the guaranteed loan note, and the mortgage will be prepared 
by RUS. Contact RUS for copies of forms of the loan documents. The 
guaranteed loan agreement between the borrower and the lender shall be 
subject to RUS approval.
    (8) Once a private loan guarantee is approved, the lender will be 
required to fully service the loan including:
    (i) Determining that all prerequisites to each advance of loan 
funds by the lender under the terms of the contract of guarantee, all 
financing documents, and all related security documents have been 
fulfilled. The lender must obtain RUS approval to advance funds prior 
to each advance of funds.
    (ii) Billing and collecting loan payments from the borrower.
    (iii) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the loan and submit a report, as 
soon thereafter as possible, setting forth its views as to the reasons 
for the default, how long it expects the borrower will be in default, 
and what corrective actions the borrower states it is taking to achieve 
a current debt service position.
    (iv) Notifying the Administrator of any known violations or 
defaults by the borrower under the lending agreement, contract of 
guarantee, or related security instruments, or conditions of which the 
lender is aware which might lead to nonpayment, violation, or other 
default.
    (9) Upon notice to the lender, RUS may assume loan servicing 
responsibilities for the loan or the Guaranteed Loan Amount or the 
respective Guaranteed Loan Portion Amount or the respective Guaranteed-
Amount Equivalent, as the case may be, or require the lender to assign 
such responsibilities to a different entity, if the lender fails to 
perform its loan servicing responsibilities under the loan guarantee 
agreement, or if the lender becomes insolvent, makes an admission in 
writing of its inability to pay its debts generally as they become due, 
or becomes the subject of proceedings commenced under the Bankruptcy 
Reform Act of 1978 (11 U.S.C. 101 et seq.) or any similar applicable 
Federal or state law, or is no longer in good standing with its 
licensing authority, or ceases to meet the eligibility requirements of 
this section. Such negligent servicing is defined as the failure to 
perform those services which a reasonable prudent lender would perform 
in servicing its own portfolio of loans that are not guaranteed, and 
includes not only a failure to act but also not acting in a timely 
manner.
    (10)(i) The Guarantee shall cease to be effective with respect to 
any Guaranteed Loan Amount or any Guaranteed Loan Portion Amount or any 
Guaranteed-Amount Equivalent to the extent that:
    (A) The Guaranteed Loan Amount or the respective Guaranteed Loan 
Portion Amount or the respective Guaranteed-Amount Equivalent, as the 
case may be, is separated at any time from the Unguaranteed Loan Amount 
or the respective Unguaranteed Loan Portion Amount or the respective 
Unguaranteed-Amount Equivalent, as the case may be, in any way, 
directly or through the issuance of any Guaranteed-Amount Equity 
Derivative or any Guaranteed-Amount Debt Derivative; or
    (B) Any holder of the Guaranteed Loan Note or any Guaranteed Loan 
Portion Note or any Derivative, as the case may be, having a claim to 
payments on the Guaranteed Loan receives more than its pro-rata 
percentage of any

[[Page 4692]]

payment due to such holder from payments made under the Guarantee at 
any time during the term of the Guaranteed Loan.
    (ii) The assignment by the lender requires prior written approval 
from RUS.
    (iii) The assignment shall entitle the holder to all of the 
lender's rights. However, the lender shall remain responsible for 
servicing the entire loan.
    (iv) The borrower, its principal officers, members of the 
borrower's board of directors and members of the immediate families of 
said officials shall not be a holder of the borrower's loan.
    (11) RUS will not guarantee any loan under this subpart that 
provides for:
    (i) A balloon payment of principal or interest at the final 
maturity date of the loan; or
    (ii) The payment of interest on interest.
    (12) For purposes of this subsection:
    (i) Derivative means any right, interest, instrument or security 
issued or traded on the credit of the Guaranteed Loan or any Guaranteed 
Loan Portion, including but not limited to:
    (A) Any participation share of, or undivided ownership or other 
equity interest in, the Guaranteed Loan or any Guaranteed Loan Portion;
    (B) Any note, bond or other debt instrument or obligation which is 
collateralized or otherwise secured by a pledge of, or security 
interest in, the Guaranteed Loan or any Guaranteed Loan Portion; or
    (C) Any such interest in such an interest or any such instrument 
secured by such an instrument.
    (ii) Guaranteed-Amount Debt Derivative means any note, bond or 
other debt instrument or obligation which is collateralized or 
otherwise secured by a pledge of, or security interest in, the 
Guaranteed Loan Note or any Guaranteed Loan Portion Note or any 
Derivative, as the case may be, which has an exclusive or preferred 
claim to the Guaranteed Loan Amount or the respective Guaranteed Loan 
Portion Amount or the respective Guaranteed-Amount Equivalent, as the 
case may be.
    (iii) Guaranteed-Amount Equity Derivative means any participation 
share of, or undivided ownership or other equity interest in, the 
Guaranteed Loan or any Guaranteed Loan Portion or any Derivative, as 
the case may be, which has an exclusive or preferred claim to the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount 
or the respective Guaranteed-Amount Equivalent, as the case may be.
    (iv) Guaranteed-Amount Equivalent means:
    (A) With respect to any Derivative which is equal in principal 
amount to the Guaranteed Loan or any Guaranteed Loan Portion, that 
amount of payment on account of such Derivative which is equal to the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion 
Amount, as the case may be; or
    (B) With respect to any Derivatives which in the aggregate are 
equal in principal amount to the Guaranteed Loan or any Guaranteed Loan 
Portion, that amount of payment on account of such derivatives which is 
equal to the Guaranteed Loan Amount or the respective Guaranteed Loan 
Portion Amount, as the case may be.
    (v) Guaranteed Loan Amount means that amount of payment on account 
of the Guaranteed Loan which is guaranteed under the terms of the 
Guarantee.
    (vi) Guaranteed Loan Portion Amount means that amount of payment on 
account of any Guaranteed Loan Portion which is guaranteed under the 
terms of the Guarantee.
    (vii) Guaranteed Loan Note means, collectively, the note or notes 
executed and delivered by the Borrower to evidence the Guaranteed Loan.
    (viii) Guaranteed Loan Portion means any portion of the Guaranteed 
Loan.
    (ix) Guaranteed Loan Portion Note means any note executed and 
delivered by the Borrower to evidence a Guaranteed Loan Portion.
    (x) Unguaranteed-amount equivalent means all amounts of payment on 
account of any Derivative other than the respective Guaranteed-Amount 
Equivalent.
    (xi) Unguaranteed loan amount means all amounts of payment on 
account of the Guaranteed Loan other than the Guaranteed Amount.
    (xii) Unguaranteed loan portion Amount means all amounts of payment 
on account of any Guaranteed Loan Portion other than the respective 
Guaranteed Loan Portion Amount.


Sec.  1738.31  Full faith and credit.

    Loan guarantees made under this part are supported by the full 
faith and credit of the United States.


Sec. Sec.  1738.32--1738.39  [Reserved]

Subpart D--Terms of Loans


Sec.  1738.40  General.

    Terms and conditions of loans are set forth in a mortgage, note, 
and loan contract. Provisions of the mortgage and loan contract are 
implemented by provisions in RUS bulletins and regulations. Standard 
forms of the mortgage, note, and loan contract can be obtained from 
RUS. However, RUS reserves the right to establish terms and conditions, 
including security requirements, on a case-by-case basis.


Sec.  1738.41  Payments on loans.

    (a) Broadband loans must be repaid with interest within a period 
that, rounded to the nearest whole year, equals the expected composite 
economic life of the facilities to be financed, as calculated by RUS.
    (1) The expected composite economic life shall be based upon the 
depreciation rates for the facilities financed by the loan.
    (2) The depreciation rates used shall be the rates currently in 
place, as long as RUS finds them to be reasonable for the 
telecommunications industry.
    (b) Applicants may request a repayment period that is shorter than 
the expected composite economic life of the facilities financed. A 
shorter period may be approved as long as the Administrator determines 
that the loan remains feasible.
    (c) Interest is payable on funds advanced each month as it accrues 
beginning with the first billing after the advance, as defined in the 
note. Principal payments on each note are scheduled to begin one year 
after the date of the first advance. After this deferral period, 
interest and principal payments on all funds advanced during this one-
year period shall be made in equal monthly installments. Principal 
payments on funds advanced 1 year or more after the date of the first 
advance will begin with the first billing after the advance. The 
interest and principal payments on each of these advances shall be made 
in equal monthly installments.


Sec. Sec.  1738.42--1738.49  [Reserved]

    Dated: January 27, 2003.
Hilda Gay Legg,
Administrator, Rural Utilities Service.
[FR Doc. 03-2199 Filed 1-29-03; 8:45 am]
BILLING CODE 3410-15-P